It's Jackson Hole time again - yeehaw!

Macroeconomic Policy in an Uneven Economy

Howdy folks! Well, it’s on again. Jackson Hole’s version of Diggers and Dealers for Central Bankers starts next week.

This year, the topic for the Kansas City Fed’s Jackson Hole Economic Symposium is “Macroeconomic Policy in an Uneven Economy”.

Uneven? That’s epic mastery of the understatement.

We all know that the Fed is on a QE train to nowhere that it can’t stop, so it’s unlikely U.S. Fed Chair Powell will get too specific on the taper and interest rates, just in case he has to take it all back.

And on the topic of taking it all back, I was reflecting on something that Alan Greenspan (ex-Fed Chair before Chair Bernanke) said about asset bubbles.

You may or may not recall that leading up to the tech wreck in 2000, Greenspan had been cutting interest rates since 1995. Loose and easy money had been fuelling a bubble. Just like the roaring 20s, just like now.

Just before the tech wreck, Greenspan is quoted as saying:

“Bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong. Betting against markets is usually precarious at best.”

Not much of a revelation.

Today, Powell is in the same camp. He shares the Greenspan view. Powell’s words are that it is not a bubble until you hear it pop. Ben Bernanke was the same.

However, Greenspan’s use of slack monetary policy was a major contributor to the tech wreck in 2000 and only two years later at the Jackson Hole Symposium in 2002, we see him admit that perhaps his one failure was not realising that the inevitable popping of the tech bubble was not able to be addressed by monetary policy.

He said:

“… Nothing short of a sharp increase in short-term rates that engenders a significant economic retrenchment is sufficient to check a nascent bubble,”

And:

“The notion that a well-timed incremental tightening could have been calibrated to prevent the late 1990s bubble is almost surely an illusion.”

He was saying that a slow tightening would not have stopped it. Deflecting.

Given current Chair Powell (and past Chair Bernanke) is in the Greenspan camp, and given Powell has missed any slow tightening that might have helped years ago, regardless of the Greenspan deflection, it’s reasonable to assume he too will continue to defend his actions and argue that asset inflation is not his job, nor of any material concern.

So, that’s it?

Not quite. There was another view offered just before the tech bubble popped. A very different view. And it came from Greenspan’s predecessor, Fed Chair Paul Volcker. As an aside, the Volcker Rule that Trump ripped up was named after him.

In May 1999, shortly before Greenspan’s tech bubble popped, Ex-Fed Chair Volcker said this:

“The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings.”

Sound a little familiar?

Bring on the talkfest!

Mike.

NEXLEV_LOGO_CLEAR_HiRez.png

Next Level Corporate Advisory is a leading M&A and capital markets advisor with a 20 year track record of delivering the highest quality of independent financial advice as well as strategic transactions to help our clients level-up.

All text in this article is copyright NextLevelCorporate.

Michael Ganon#markets, #equities, #stonks, #finance, #economics, #ethereum, #inflation, #deflation, #transient, #nft, #bonds, #gold, #globalmarkets, #globaleconomy, #qe, #qeinfinity, #economy, #interestrates, #business, #trade, #transformation, #strategy, #ceos, #directors, #founders, #cfos, #c-suite, #currencies, #construction, #mining, #renewables, #technology, #leadership, #india, #china, #australia, #perthbusiness, #education, #research, #uk, #gdpgrowth, #retail, #businessowners, #future, #brexit, #nextlevelcorporate, #mikeganon, #community, #tradewar, #America, #covid-19, #bitcoin, # perthbusiness, #populism