Tim Iacono – Mon 18 May, 2015

No, Central Bankers Are Not Learning

The lasts post from our friend Tim Iacono is worth a read. Tim dives into the issues with central bankers and their lack of understanding that they keep leading us down a road full of bubbles and lacking any real economic growth.

Click here to visit Tim’s site. I recommend visiting his site regularly as he susses out a number of good stories everyday.

In his eight years at the helm of the Federal Reserve, Ben Bernanke really never had to raise interest rates – he finished off Greenspan’s “baby steps” normalization campaign in early-2006, but, in the understatement of the decade, it was all downhill from there.

Absent a premature departure from the central bank, expectations are that current Fed Chief Janet Yellen will have to raise rates at some point, but, given recent economic reports in the U.S. and stories like Debt Traders to Fed: We Dare You to Try Raising Rates This Year at Bloomberg, it is not at all clear when that might happen.

Of course, asset bubbles are gestating (see The Federal Reserve Asset Bubble Machine for more on this timely subject) as they are wont to do under overly accommodative monetary policy and, with fiscal policy aimed at boosting economic recovery permanently absent around the world, central banks are the only game in town.

Or so the thinking goes.

Now that the European Central Bank has entered the game in a big way and Japan’s monetary policy continues to be off the charts (as detailed in It’s Official: The BoJ Has Broken The Japanese Stock Market), it was interesting to stumble upon this item ($) at FT Alphaville that included the following comment by former Fed Vice Chair Donald Kohn from 2004 (i.e., about when we sold our California home and began a six-year, multi-state trek as renters):

A second concern is that policy accommodation – and the expectation that it will persist—is distorting asset prices. Most of this distortion is deliberate and a desirable effect of the stance of policy. We have attempted to lower interest rates below long-term equilibrium rates and to boost asset prices in order to stimulate demand…

I believe that at least for a while the macro imperatives are likely to outweigh any threat to financial or longer-term economic stability from accommodative policy. Any unusual distortions in asset prices that might intensify a subsequent correction are probably small…In our situation, a high burden of proof would seem to be on policies that would slow the expansion, leaving more slack and less inflation in the economy in the intermediate run to avoid hypothetical instabilities later.

The FT Alphaville story includes this comment by ECB Board Member Benoît Cœuré that “it would be wrong to treat bubbles as a welcome replacement therapy to a sustainable growth model”, but as in the case of Janet Yellen’s “warnings” about the housing bubble via Fed transcripts from a few years back, this is much too little and far too late.

No, central bankers haven’t really learned anything when it comes to asset bubbles.

Tim Iacono

  1. On May 18, 2015 at 12:20 pm,
    Mark Alan says:

    I think the title is an oxymoron. 🙂

  2. On May 18, 2015 at 1:04 pm,
    franky says:

    Eric Sprott ? I hope you no take over too much of Canada ! The canadian government will come for free ! ?

  3. On May 18, 2015 at 1:40 pm,
    Agatha says:

    I think the article is unreadable….

  4. On May 18, 2015 at 1:45 pm,
    Frank from moscow says:

    Heads up on PLATINUM………….. stock pile at 10 year low…..zerohedge today.

  5. On May 18, 2015 at 3:06 pm,
    Dick Tracy says:

    Frank\Jerry, zerohedge could be leading you down the garden path, their credibility is not great!

    • On May 18, 2015 at 3:24 pm,
      Frank from moscow says:

      I agree, and neither is anything else in print…………..

      • On May 18, 2015 at 3:30 pm,
        Frank from moscow says:

        I just figure platinum should be ready to spring higher , just because it has been ignored for over a year…… 🙂

      • On May 18, 2015 at 3:53 pm,
        JMiller says:


  6. On May 18, 2015 at 3:38 pm,
    Frank from moscow says:

    Gold sales up in GERMANY …20% Q1

  7. On May 18, 2015 at 4:01 pm,
    Frank from moscow says:

    HUGO SALINAS PRICE …..at usawatchdog……….for what it is worth………..

    • On May 18, 2015 at 4:07 pm,
      SD Marc says:

      Saw and heard that interview. What could HSP be ‘working on’ internationally that he cant discuss with regard to what……the monetization of silver or re-moneitization??

      • On May 18, 2015 at 4:12 pm,
        Frank from moscow says:

        Hello SD…have not heard from you for a while …..I thought California might have dropped off into the ocean. . But the answer might be……Maybe, he wants to be HUGO HUNT, and corner the silver market before the price gets to high……………. 🙂

        • On May 18, 2015 at 6:01 pm,
          SD Marc says:

          Hey Jerry,
          Hope all is well….I have been pulling an IRISH..not seen.not heard and drinking a lot..HA! Just kidding…..Just beenn laying low…..was on vacation off and on the last two weeks in the desert…….fun and relaxing…now its back to work,,,uughhhgh!..:)

  8. On May 18, 2015 at 11:39 pm,
    Bird says:

    According to Elliot Wave Theorist, gold is currently almost 3 times the growth of the CPI since 1913 suggesting it has a significant decline that still lies ahead before it comes back in line with historical numbers.

    Sorry for the bad news…maybe Harry Dent and R. Prechter will be correct after all.

    A forecast for gold to go higher — Elliot Wave — May 14th 2015

  9. On May 19, 2015 at 12:33 am,
    Bird says:

    So the secret buyer of Treasuries that was using Belgium as its buyer turns out to be China after all…..*Yawn*…. Who could have guessed? But wait…we all heard how China was dumping in preparation to launch the Yuan and take over the world. And all those articles and wasted words about how both the dollar and America were about to be destroyed while gold raged higher were just the usual fluff in the endless parade of crazy theories about the economy.

    Revealing The Identity Of The Mystery “Belgian” Buyer Of US Treasurys

  10. On May 19, 2015 at 2:56 am,
    Bird says:

    Well here it is…..weeks after I first proposed the idea, Bank of America has now come on board and backed my hypothesis that the massive speculation in the A-Shares market in China has the potential to create significant havoc once it ends.

    Their view is that policy mistakes in China will pop the stock bubble eventually. I only look at the charts though and charts could care less what policy is undertaken as all speculative trends of this sort tend to end the same way no matter what causes you might try to attach to them.

    So here they refer to the “ripple effect” of disturbances in Chinese stock markets and I could not agree more; a crash there will not be felt in isolation. With that said it is once again time to measure out the waves.

    From a longer term perspective the Shanghai chart looks like we are currently in a 4th wave corrective move. Based on the shape of the chart and the level of speculation it is easy to conclude a parabolic rise lies ahead and I believe it will carry through to the late fall once this corrective wave completes.

    My timing is based on estimates of course. Nobody can know when that bubble (that is still forming) will eventually burst but between here and there a lot of money stands to be made by those with the good sense to know how far to push their luck.

    Here is a quote from that article linked at ZeroHedge
    A-shares (risk that is creating conditions for future volatility) — Bank of America

    “Investors are not positioned for full-blown policy failure in China. Chinese growth expectations may be weak, but the A-share market hardly portends a collapse in Chinese activity. Should Chinese PMI or FAI data indicate a lurch lower in activity at a time of policy easing, the ripple effect via Chinese stocks, rates & FX into global markets is likely to be significant. David Woo argues investors are underestimating the cross-market implications of US-China policy divergence”.

    And here is the article: Investors Are Trapped In A “Twilight Zone”, BofAML Warns Of Looming C.R.A.S.H. Risks

  11. On May 19, 2015 at 5:24 am,
    Frank from moscow says:

    INFO FROM BANK OF AMERICA?…….Trust?…….. 🙂

  12. On May 19, 2015 at 6:36 am,
    Birdman says:

    This article is well worth reading. Rickards gets it.

    Rickards: Why Most Gold Bugs and Bloggers are Dead Wrong About China’s Gold

    • On May 19, 2015 at 8:21 am,
      Frank from moscow says:

      MAIN idea………”.FORCE”.., the US FORCES OTHERs, just like the ROMANS, and history shows ……..nobody likes to be forced to do anything……………just saying…… 🙂

  13. On May 19, 2015 at 6:59 am,
    Matt says:

    Gold price performance. % Annual change.
    USD: 3.7%
    Euro: 10.6%
    INR: 4.6%
    JPY: 3.8%
    CAD: 8.6%
    AUD: 5.9%

  14. On May 19, 2015 at 7:18 am,
    Matt says:

    He (Jim Rickards) has said, over the last year, a number of times. That from his meetings with government officials, Central Bank officials, elected officials, officials of the International Monetary Fund that there is, some, more or less formal arrangement, understanding between the United States and China. Whereby, China agrees not to dump it’s Treasuries while the United States agrees facilitate the flow of gold into China at a discounted price.
    Rickards has been on record, on several occasions, stating that gold would be revalued to approximately $9,000 per ounce. According to Millars report, there is already in place, a plan to revalue gold by 7 to 10 times. Gold is currently, approximately, $1,200 per ounce, multiply that by 7 and you get $8,400 per ounce. A multiple of 10 and you have $12,000 per ounce.

    • On May 19, 2015 at 7:40 am,
      Birdman says:

      One thing I am pretty sure of Matt, and that is there is far more cooperation and horse trading behind the scenes than there is conflict. CB’s need to work together even if their agendas differ. Otherwise the whole game is in checkmate. So Rickards may well be correct that a deal has already been worked out.

    • On May 19, 2015 at 7:56 am,
      wocsom morf knarF says:

      I agree with Rickards completely that the U.S. is working with China behind the scenes.

  15. On May 19, 2015 at 7:54 am,
    Frank from moscow says:

    I like the LONG TERM ………..GOLD 1971 $35 …….GOLD TODAY $1200 🙂

    • On May 19, 2015 at 8:44 am,
      SD Marc says:

      Jerry – you sure are putting on a lot of happy faces..GOOD for you!

      • On May 19, 2015 at 8:46 am,
        Frank from moscow says:

        THANKS SD………….. 🙂

        • On May 19, 2015 at 8:47 am,
          Frank from moscow says:

          btw………Bill Holter has a great article at goldseek…….the….” TRUTH BOMB”