When things get so bad that lying is no longer sufficent. Bloomberg via Zerohedge.
"Five of 12 sub-indexes usually released with the Purchasing Managers’ Index were absent from today’s releases from the National Bureau of Statistics and the China Federation of Logistics and Purchasing. The others were for backlogs of work and quantities of purchases. The statistics bureau didn’t immediately respond to e-mailed questions asking for comment." Barclay's sees China "hard landing" increasingly likely. I think we may already be there. Brent said: "Specific to the U.S., the private sector has delevered some, some fiscal consolidation has occurred (at the state and federal level - e.g. the federal sequester), and the so-called TBTF financial institutions have improved balanced sheets (e.g. all those excess reserves held at the Fed)."
All these things are true. But..... The Fed was an active participant in creating the financial crisis (Greenspan vs Brooksley Born on preventing OTC derivatives regulation, Greenspan leverage restricitions on FIs, keeping interest rates too low too long.) Saving a situation that you largely created from becoming a global meltdown to just a 100 year finanacial crisis is not worth of much praise,imo. The US policy choice of preserving, rather than nationalizing the TBTF banks, continues to encourage excessive risk taking by these FIs. Credit lending standards are back to 2007 levels in certain areas of commercial lending.TBTF Banks are even bigger now than pre-crisis. The OTC derivative market remains a dark unregulated market. The US savings rate remains low, most of the delevearging in the consumer sector has come as a result of bankruptcies. The business sector is actually levering up in an effort to boost ROE. Much of the state cuts have come out of their education budgets- hardly a formula for future success. The Fed encouraged too much risk taking and borrowing in the economy, which led to a crisis. Their policy response has been to encourage even more risk taking and borrowinng (by their own admission in several recent meeting notes). The main policy issues of structural unemployment, corporate tax reform, inequality, have not been addressed in the US. The likelihood that the last five years will be seen at some point as a pyrrhic victory, and a squandered opportunity with Fed overreach seems pretty high to me. The seeds of the next crisis have been sown by the policy response to the recent one and I think global financial fragility is not much different now than it was in 2007. BIS summarizes what I have repeatedly been saying about CBs creating systemic risk. Quoted in Hussman's latest weekly commentary.
“Originally forged as a description of central bank actions to prevent financial collapse, the phrase ‘whatever it takes’ has become a rallying cry for central banks to continue their extraordinary actions. But we are past the height of the crisis, and the goal of policy has changed – to return still-sluggish economies to strong and sustainable growth. Can central banks now really do ‘whatever it takes’ to achieve that goal? As each day goes by, it seems less and less likely. Central banks cannot repair the balance sheets of households and financial institutions. Central banks cannot ensure the sustainability of fiscal finances. And, most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect. “What central bank accommodation has done during the recovery is to borrow time – time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth. But the time has not been well used, as continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system. After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change. “Alas, central banks cannot do more without compounding the risks they have already created. Instead, they must re-emphasise their traditional focus – albeit expanded to include financial stability – and thereby encourage needed adjustments rather than retard them with near-zero interest rates and purchases of ever larger quantities of government securities. And they must urge authorities to speed up reforms in labour and product markets, reforms that will enhance productivity and encourage employment growth rather than provide the false comfort that it will be easier later.” I have been saying this for years. One of my challenges is that I see things many years in advance. As a friend of mine once told me, there is no corporate market for that skill. Isn't it rich? Isn't it queer? Losing my timing this late in my career. And where are the clowns? There ought to be clowns... Well, maybe next year. |
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