Central Bank Whisperer

31 Oct

Was the Op-Ed piece by Paul Krugman chastising Central Bankers for not doing more, and last nights announcements by the BOJ to be more “all in” just a coincidence. Maybe the professor is moonlighting by advising Central Bankers on the art of the unconventional, or more specifically maybe he is advising them on how to more aggressively “abandon conventional respectability” (his words).  Combine that with this weeks FOMC meeting and the ensuing reverse taper tantrum that followed, and the belief in Central Bankers ability to affect markets has never been more pronounced. Perhaps they were the musings of someone intent on cementing his own legacy, but the comments by former chairman Greenspan on the potential for chaos to ensue in the wake of a normalization of rates seemed to go completely unnoticed. Maybe however, Greenspan is just too old school to understand the complexities and nuances facing todays Central Bankers. Remember the Maestro only had the Fed Funds rate and some well placed words to affect policy back in the day. Todays command and control mandarins have a virtual cornucopia of policy tools including a scheme, which is gaining some credence by the way,  involving the printing and distribution of  cash to the general populace ( Think cash for clunkers without the clunkers). Whatever the mechanism, markets like what they see, which to our way of thinking is the polar opposite of rational thought. As  we all know however, markets act on their own perception of truth and that perception can change in an instant (e.g.. housing prices never go down). In free capital markets one truth stands the test of time: Market price manipulation, whether it be interest rates, stock prices, or currencies always fails.

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