With a Central Bank, Bank “Deregulation” Can Be a Bad Thing

Leading Federal Reserve policymaker Stanley Fischer has hit out at plans to unwind banking regulation, calling it a “terrible mistake.”
President Donald Trump and republican politicians have advocated the repeal of Dodd Frank, a major piece of post-crisis legislation, and the loosening of some capital and liquidity requirements in a bid to ease banks’ ability to lend.
In an interview with the Financial Times on August 16, 2017, Fischer said that loosening capital and liquidity requirements is dangerous and could lead to a new economic crisis. “I find that really, extremely dangerous and extremely short-sighted.”
While Fischer is not a friend of a free market, in this case I am in agreement with Fischer’s comment.
A True Free Financial Environment vs A Central-Bank Controlled Financial System The proponents for less control in financial markets hold that fewer restrictions imply a better use of scarce resources, which leads to the generation of more real wealth.
It is true that a free financial environment is an agent of wealth promotion through the efficient use of scarce real resources, while a controlled financial sector stifles the process of real wealth formation. The proponents of deregulated financial markets have overlooked the fact that the present financial system has nothing to do with a free market. What we have at present is a financial system within the framework of the central bank, which promotes monetary inflation and the destruction of the process of real wealth generation through fractional reserve banking. In the present system the more unrestricted the banks are the more money out of ‘thin air’ generated and hence greater damage inflicted upon the wealth generation process. (With genuine free banking (i.e., the absence of the central bank) the potential for the creation of money out of ‘thin air’ is minimal).

This post was published at Ludwig von Mises Institute on Sept 15, 2017.

The CPI Comes Home

There seems to be an intense if at times acrimonious debate raging inside the Federal Reserve right now. The differences go down to its very core philosophies. Just over a week ago, Vice Chairman Stanley Fischer abruptly resigned from the Board of Governors even though many believed he was a possible candidate to replace Chairman Yellen at the end of her term next year. His letter of resignation only cited ‘personal reasons.’
It may be that was the real reason, for Fischer was no spring chicken. But even in public there is a noticeable and growing rift on the topic of inflation. For some policymakers, there is every reason to suspect the Fed has it all wrong. Others figure that something may be off, but that it won’t be off forever.
The latter category includes influential members like current FRBNY President Bill Dudley. The former head of the Open Market Desk, the Fed’s monetary frontier, is holding fast to ‘transitory.’
We just don’t know at this point whether the inflation decline that we’ve seen is mostly being driven by transient, idiosyncratic factors, or whether it’s something more secular, longer-term at play. My view is the jury’s out, and I think the data over the next six months is going to be very, very important.

This post was published at Wall Street Examiner on September 14, 2017.

Fed Vice Chair, Stanley Fischer…Exit Stage Left: “This One’s Gonna Hurt”

This one is going to hurt. Stanley Fischer is one, if not, our favorite economist.
As Larry Summers points out in his recent piece in the Washington Post,
The Fed and the international monetary system will be weaker for his departure from official responsibility. It is the end of an era. – Larry Summers, September 7
Our friend, Terence Reilly, over at the Wall Street Blog sums it up best.
When the pressure is on we like to have what we term ‘adults’ in the room. The ‘adults’ are not only the smartest people in the room but they are people who know how and when to make a decision. Stanley Fischer is one of those ‘adults’. Dr Fischer, former professor at MIT, vice chairman of CitiGroup, and chief economist of the World Bank, and former Governor of the Bank of Israel, resigned his position as vice chair of the Federal Reserve. Fischer played the role of intelligent hawk who we felt comfortable leaving in charge of the store. As this critical time approaches of the Fed removing stimulus his absence alone makes us less confident in the ‘adults’ left in the room. In one of his last public speeches as part of the Federal Reserve Dr Fischer warned about historically high asset valuations.

This post was published at Zero Hedge on Sep 11, 2017.

SWOT Analysis: The Gold Rally Is Looking Good

The best performing precious metal for the week was gold, followed by silver. Gold traders and analysts are bullish for a 12th straight week, reports Bloomberg, as the yellow metal is on its way to the highest price in a year. With tensions from North Korea, coupled with a weaker U. S. dollar, volume on the COMEX in New York hit a record in August. Some 6.55 million contracts, worth nearly $900 billion now, changed hands last month. Bob Savage, CEO of Track Research, cites North Korea as the biggest investor worry right now and believes that ‘the safe-haven to watch into this mess remains gold.’ In addition, last week investors poured $1 billion into the largest ETF backed by bullion, Bloomberg reports. U. S. jobless claims jumped by the most since 2012, reports Bloomberg, and in combination with dollar weakness, sent gold surging to a one-year high. Mid-week, the yellow metal remained little changed as President Trump agreed to a three-month debt limit extension, along with Federal Reserve Vice Chairman Stanley Fischer resigning. India is planning for a new spot gold exchange in November, reports Scrap Register and Sharps Pixley. The new exchange should boost transparency, help measure inspection and repair a fragmented jewelry industry. Currently in India, gold is traded on exchanges as futures only. According to the article, earlier in 2013, authorities halted trading on the National Spot Exchange, and since then spot gold hasn’t been trading in the spot market.

This post was published at GoldSeek on 11 September 2017.

Stanley Fischer’s Well-Timed Fed Exit

Fed vice-chair Stanley Fischer’s surprise announcement of early retirement triggers the obvious question as to whether this could be the fore-runner to a serious market and economic deterioration ahead. Monetary bureaucrats, even if signally bad at counter-cyclical fine tuning, sometimes have a reputation for intuition about how to time their own career moves ahead of crisis. In this case, such suspicion may be wide of the mark given the personal circumstances. Even so, the exit of a Fed Vice-Chair, who in many respects has been the pioneer and the dean of the prevailing doctrine in the global central bankers club, is pause for thought.
The Early Years When Professor Fischer published his famous paper ‘On Activist Monetary Policy with Rational Expectations’ (NBER working paper no. 341, April 1979), the fiat money world was well into the third stage of disorder following the collapse of the international gold standard in 1914. But things were at a temporary resting point where the skies seemed to be getting clearer. After the violent terminal storms of the gold exchange standard (early 20s to early 30s), and then of the Bretton Woods System, it seemed to many that the ‘monetarist revolutionaries’ had found a better practical monetary navigation route. The Bundesbank, the Federal Reserve, the Swiss National Bank, and even the Bank of Japan were pursuing an ersatz gold rule of low percentage increases in the monetary base or a related aggregate.

This post was published at Ludwig von Mises Institute on Sept 10, 2017.

Trump’s Historic Opportunity with the Federal Reserve

Today Stanley Fischer submitted his letter of resignation from the Federal Reserve’s Board of Governors, effective next month, the second such resignation of Donald Trump’s presidency. While Fischer’s term as Vice Chairman of the Fed was set to end next year, he had the ability to serve as a governor through 2020. Along with Trump’s decision next year on whether to replace Janet Yellen as the Fed’s chair, this means Trumps will have the opportunity to appoint five of seven governors to America’s central bank.
Given that the position holds a 14-year term, it is unusual for a president to have the opportunity to make so many appointments. As Diane Swonk of DS Economics noted, ‘It’s the largest potential regime change in the leadership of the Fed since 1936.’
Of course the question is now whether a change in personnel will lead to a change in policy.
Trump has already taken steps to fill one of the vacancies, nominating Randal Quarles earlier this year. Quarles, a former Bush-era Treasury official turned investment banker, will be taking the specific role of Fed vice chair of supervision. As a vocal critic of Dodd-Frank, and the Volker Rule in particular, Quarles may help relieve some of the regulatory burden on financial institutions, but his views on monetary policy are less clear. He has also voiced his support for rules-based monetary policy, though he has distanced himself to the specific proposal of the ‘Taylor Rule.’ Given the growing consensus building for NGDP-targeting, and Republicans in Congress advocating for rules-based Fed reform, Quarles could become a supporter from within the central bank. All in all though, Quarles is seen by many observes as a bland Fed-appointment.

This post was published at Ludwig von Mises Institute on Sept 6, 2017.

Fed Vice Chair Stan Fischer Unexpectedly Resigns “For Personal Reasons”

In a shocking announcement, the latest rat to abandon the sinking ship – because it is far less fun to navigate the world’s biggest economy when you are raising rates than when injecting trillions – Federal Reserve Vice Chairman Stanley Fischer has announces his decision to step down effective October 13 (Friday), citing “personal reasons” in letter of resignation to President Donald Trump. His term as vice chair was set to expire on June 12, 2018.
Fischer’s resignation increases vacancies on the Fed Board from three to four, with Yellen and Brainard and Powell remaining the only members on the Board. This could accelerate Senate confirmation of Randal Quarles to be Vice Chair for Supervision, which will be considered tomorrow in the Senate Banking Committee and looks likely to approved by the full Senate prior to Fischer’s planned departure, according to Goldman.
In his letter, Fischer praises America’s economic growth during his tenure, and says that “informed by the lessons of the recent financial crisis, we have built upon earlier steps to make the financial system stronger and more resilient and better able to provide the credit so vital to the prosperity” of the US.

This post was published at Zero Hedge on Sep 6, 2017.

“Stocks Are About To Make Dudley, Fischer, And Yellen Extremely Nervous”

Stocks Dare The Fed
It was only a month ago Fed President Dudley was lecturing us about the dangers of overly easy financial conditions and how inflation’s sanguine performance was ‘transitory.’ And it wasn’t like he was alone. The Fed’s generally accepted second in command, Stanley Fischer, echoed similar comments.
Well, on Friday morning about the most awkward economic news possible was released. CPI undershot, coming in at 1.6% instead of the expected 1.7%. Retail sales were abysmal, registering -0.2% instead of the forecasted 0.1% gain. And the University of Michigan sentiment numbers reflected a public who is becoming increasingly skeptical of the Fed’s rosy outlook. The actual index was 93.1 instead of the surveyed 95.0, but more importantly, expectations plumetted to 80.2 instead of 84.4.

This post was published at Zero Hedge on Jul 15, 2017.

Stocks Slammed After Fed Williams Warns “Market Rally Running On Fumes”

While the old saying is “they don’t ring a bell at the top,” we suspect Fed vice-chair Stanley Fischer just came as close as one can without screaming “sell.”
It’s getting clearer that Fed officials are getting concerned about where asset markets are going.

This post was published at Zero Hedge on Jun 27, 2017.

Are Fed Officials Throwing Main Street Under The Bus?

Via Birch Gold Group,
Earlier this month, Richmond Fed President Jeffrey Lacker was forced to resign after admitting that he leaked confidential information to the financial press. And Fed Vice Chairman Stanley Fischer just gave a closed-door meeting to high level industry insiders.
Accidentally On Purpose
Richmond Fed President Jeffrey Lacker is now at the center of a major legal probe after he disclosed confidential information about the regional bank’s asset acquisition plans to Medley Global Advisors in 2012 – supposedly, he wants us to believe, by ‘accident’.
In a report published by Medley, several confidential pieces of the regional bank’s plans were accurately predicted, with Lacker cited as a source. Upon these revelations, Lacker claimed he must have confirmed the confidential information by accident during an interview with the firm.

This post was published at Zero Hedge on Apr 28, 2017.

Fed’s Fischer Responds To Paul Tudor Jones

“We’re not terrified,” proclaimed a cognitively dissonant Stanley Fischer, responding to concerns raised by legendary trader Paul Tudor Jones over the stock market’s extreme valuation – the value of the S&P relative to the size of the economy – should be ‘terrifying’ to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.

This post was published at Zero Hedge on Apr 21, 2017.

Stocks and Precious Metals Charts – All Is Well

Fed Vice Chair Stanley Fischer sought to reassure markets just after the close.
“On Wednesday, he [Stanley Fischer] said that spillovers from [rate] tightening ‘will be manageable.’
It’s possible that U. S. and foreign economic growth can align, Fischer said. He added that downside risks from overseas are noticeably smaller and that foreign growth appears more entrenched.
Fischer said that China’s economy also seems to be on more solid footing.”
Stanley, you are not all that reassuring.
This seems to be just another self-serving exercise from the Fed which wishes to get off the zero bound so that they can cut rates later on when their latest financial paper asset bubble starts deflating.
Stocks were wobbly into the close after giving up most of their gains after yesterday’s loss.
I am not recommending going short, by the way. These guys have more paper than you have patience.
Geopolitical jitters affecting the markets include the freedom wars in the Mideast and the Kid in North Korea.
And of course the rising populism in Europe, particularly with an eye to this weekend’s French election which seems to be following the divergence from the status quo to both the left and right.

This post was published at Jesses Crossroads Cafe on 19 APRIL 2017.

Stanley Fischer on the Balance Sheet: There will be no Tantrum on Wall Street

Regarding the Fed’s balance sheet shrinkage narrative, one of the concerns is an unfavorable market response. The bond market (to the extent an actual market even exists) in 2013 panicked when the Fed began to taper it’s asset purchases. While many are concerned the markets could panic, Fed Vice Chair Stanley Fischer on Monday denied this as a true concern. After all, they’ve been talking about this for some time – even in the FOMC minutes – and the bond market has hardly shrugged.
Said Fischer:
My tentative conclusion from market responses to the limited amount of discussion of the process of reducing the size of our balance sheet that has taken place so far is that we appear less likely to face major market disturbances now than we did in the case of the taper tantrum.

This post was published at Ludwig von Mises Institute on April 18, 2017.

Key Events In The Coming Week: French Election, Earnings, Manufacturing, Housing

This week will be dominated by the first round of the French presidential election on Sunday. With the number of undecided voters remaining high, four candidates look set to fight for the two places in the second round on 7 May. On the data side, following China’s strong economic report, attention will focus on US industrial production growth on Tuesday. In the euro area, flash PMIs for April due on Friday could point to moderation. In the UK, retail sales (Friday) should have dropped in March as rising inflation eats into real income growth. On Friday, the World Bank and IMF Spring meetings also start.
In addition, there are a few scheduled speaking engagements by Fed officials this week, including a speech by Vice Chair Stanley Fischer on Monday.
Focusing on the US, after lacklustre readings in January and February, industrial production data in March may finally have exhibited the kind of strength seen in the ISM factory index. Output readings early this year were held down by sharp declines in utilities output, which reflected unseasonably warm weather, but utilities output looks set to have jumped noticeably, which should help to drive the headline figure higher. Meanwhile, existing home sales may have climbed in March, although the expected gain was likely due in part to the unusually warm temperatures in February, which boosted demand in that month and may have propelling contract closings higher last month.
The key this week will be in France on Sunday where the first round of the French Presidential election takes place. Official exit polls are due at 8PM CET. The 11 candidates are then whittled down to two, with the second round runoff held two weeks later on 7 May. On the data front, it looks to be a quiet week. We expect softer numbers in Friday’s flash PMI release while consumer confidence should also moderate.

This post was published at Zero Hedge on Apr 17, 2017.

Stanley Fischer on Monetary “Rules” and the FOMC

In recent years, the Fed has felt the need to step up efforts to defend its governing structure and its agenda. Thanks to the the success of the anti-Fed rhetoric of the Ron Paul campaigns of 2008 and 2012, combined with the financial crisis of 2008, the Fed has directly engaged the public more and more:
What followed [the Paul campaigns and the financial crisis] was several years of declining legitimacy for the Fed as a growing number of people began to understand what a central bank is, and what it does – and as the US went through the worst recession in decades. The public began to understand also that the Fed functions primarily out of the public eye – and without any meaningful accountability – while making decisions that can have an enormous effect on public policy and the economy.
By March 2011, the Fed capitulated and began to hold regular press conferences for the first time in its history. According to the Fed’s press release at the time: “The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding.”
The Fed says that sort of thing because it has to, but it would obviously engage the public as little as possible, if it had the choice. After all, if it did want to engage the public, it could have introduced press conferences decades ago. It’s not as if the White house just started doing press conferences a few years ago, and now the Fed has decided to give this new-fangled thing a try.
Included among these efforts at self-rehabilitation has been efforts by the Fed to highlight its governance structure as somehow being representative of the public at large. We are told this is made possible through the Fed’s allegedly decentralized structure in which representatives from the Federal Reserve System’s member banks are able to have a say in policy formulation.
In practice, the Fed is dominated by interests out of Washington and New York

This post was published at Ludwig von Mises Institute on March 4, 2017.

What Will Janet Do? Trader Stunned At Fed’s Failed Communications Strategy

“There is quite significant uncertainty about what’s actually going to happen, I don’t think anyone quite knows,” Fed Vice Chair Stanley Fischer said on Saturday, but with Chair Yellen set to testify today before the Senate Banking Committee, Bloomberg’s Richard Breslow is amazed how a debate can continue to rage about how hawkish she may or may not be. That’s neither a testament to the effectiveness of the Fed’s communication strategy nor how effectively their messaging is being processed.
If you take the weight of everything they’ve said, it would indeed be a shock if she actually does make an attempt to put March back on the table. And frankly, whatever is said about June and beyond, is only just another forecast, to be priced by the market another day.
I thought it was a mistake that the FOMC’s January minutes left March out of the conversation. But they did. And little has changed since then to make the chances of an about-face obvious.
Core PCE hasn’t seen the 2% level since 2012. And let’s face it, the wage numbers in the latest non-farm payrolls were decidedly underwhelming. They were willing to raise last December, even short of their mandates, but seem likely to only take that so far, so fast.
Minneapolis Fed President Kashkari laid out the case for waiting to see inflation actually at target before pulling the trigger again. I got the sense he probably won’t be one of the one’s declaring ‘mission accomplished’ the first time it happens. But you never know.

This post was published at Zero Hedge on Feb 14, 2017.

Fischer Admits Fed Is Clueless About What Happens Next

In a moment of rare honesty, during a conference in England, Fed Vice Chair Stanley Fischer admitted that the Fed is clueless about what happens next, blaming the Fed’s lack of clarity on Trump and saying there is significant uncertainty about U. S. fiscal policy under the Trump administration.
“There is quite significant uncertainty about what’s actually going to happen, I don’t think anyone quite knows what’s going to come out of the process which involves both the administration and Congress in the deciding of fiscal policy and a variety of other things.” Fischer said in response to audience questions about the Fed’s next steps. ‘At the moment we are going strictly according to what we see as our responsibility according to law.’

This post was published at Zero Hedge on Feb 11, 2017.

Donald Trump’s Awesome Opportunity To Fix The Federal Reserve

Come January, President-elect Donald Trump – the self-described ‘king of builders’ – will be faced with a unique re-modeling opportunity that’s nearly exclusive to him – completely reshaping the Federal Reserve.
There are currently two vacant positions on the Federal Reserve Board of Governors, the main governing body of the central bank. Chairwoman Janet Yellen and Vice-Chair Stanley Fischer’s terms will expire by 2018. This means that should Yellen and Fischer follow custom and concede their board seats, Trump will have the opportunity to replace four of the Fed’s seven leading officials with conservative figures during his presidency.
And that’s a big deal.
Board members serve 14-year terms, and there have been very few times in history where more than two board vacancies have come in a single presidential term. In truth, Trump has a nearly unprecedented opportunity to shift the direction of monetary policy towards a more conservative direction.
Although Trump has occasionally appeared to embrace the status quo with respect to monetary policy, he has also been rather candid in his views of the current Fed.

This post was published at Lew Rockwell on November 22, 2016.

Dollar Illiquidity Getting Critical: A $10 Trillion Short Which The Fed Does Not Understand

In the latest report from ADM ISI’s strategy team, ‘Dollar Liquidity Threat is Getting Critical and Fed is M. I. A.’, Paul Mylchreest argues that mainstream economic luminaries (like Carmen Reinhart) are finally acknowledging the evolving crisis due to the dollar shortage outside the US, a topic which even the head researcher at the BIS shone a spotlight on yesterday suggesting that the strength of the dollar, not the VIX is the new “fear indicator”.
The bitter irony is that the institution which appears to have very little understanding of what’s actually happening is the Federal Reserve. We noted Stanley Fischer’s speech yesterday when he argued that liquidity is ‘adequate’…. at least he didn’t say ‘contained.’
Yet Dollar illiquidity has been one thing that central banks can’t control…think SNB and Swiss Franc, BoJ and Yen (full report on this below) and now the PBoC as the RMB looks at 6.90. Mylchreest points out that Fischer could take a look at dollar cross currency basis swaps (chart below) and the dollar liquidity problem would be immediately obvious.

This post was published at Zero Hedge on Nov 16, 2016.