A synopsis of Jay Powell, Chair of the U.S. Federal Reserve, and Thomas Jordan, Governor of the Swiss National Bank, hosted by the Swiss Institute of International Studies, in Zurich Switzerland on September 6, 2019.
They’re trying to say all is well.
Or at least that they’re watching and ready to step in and save it all.
But, well.
by Elaine Diane Taylor
TOPICS:
Jay Powell
The US Economy
Global Economy
Trade Policy & Brexit
Recession
Central Banks Big Problem
Next Crisis
Pension Funds
Digital Currencies
Libra
JAY POWELL
Jay says that Basel, Switzerland is a place where central bankers meet up regularly to candidly share their views as equals. The central bankers around the world have close personal relationships.
We live in a globalized world and it’s important to have multi-lateral relationships.
He was an attorney, an investment banker, and then a private equity investor. In there he periodically left the private world and worked for the government. Hmmm.
President Obama saw him work on the debt ceiling problem and appointed Jay to the Fed board, and then President Trump appointed him as the Chair of the Fed.
Jay said many times that the Federal Reserve (the U.S. central bank) is “committed to non-political decision making”. He then cheerleads and says the Fed has a “strong ethic and high morale”.
THE U.S. ECONOMY
The U.S. economy is in a good place. It’s been an 11 year expansion – the longest on record.
The “most likely” future outcome is favourable but the Fed is monitoring some significant risks Jay calls “cross-winds”:
1. Slowing global growth
2. Uncertainty around trade policy
3. Low inflation
The U.S. consumer is spending and that’s 70% of the economy. Manufacturing, Trade & Investment has been flat and a little weaker, but that’s fairly common around the world.
The labour market is awesome. For the past year and half, unemployment has been at a 50 year low. There’s higher labour force participation and wages are up.
Inflation in the U.S. is up to about 2% (the Fed’s target).
Jay patted the Fed on the back and took credit for the U.S.’s economic successes and happy forecast, saying it’s partly because the Fed, over this year so far, “has seen fit to lower the expected path of interest rates”, which has “supported the economy” despite the cross-winds.
(Basically, he takes the credit and says that because the Fed hinted to the world in their code words that they’re going to lower interest rates, everybody who is anybody knows that the punch bowl of borrowing and moar debt is happily here again. Moar.)
THE GLOBAL ECONOMY
The global economy has been slowing since 2018.
The Fed says it’s slowing and it’s going to keep slowing in China, Germany and the European Union.
Because reasons.
Yep. He then puts the blame squarely on “trade policy uncertainty”, then throws in that it’s not the only reason. But then repeats that it’s a reason.
Then Jay weirdly says that the Fed forecast for the U.S. and the world is “continued moderate growth”.
That was weird.
He just said China, Germany and the EU have been slowing and are going to keep slowing. He blames the slow down on the trade negotiations, then predicts worldwide moderate growth.
The other speaker is Thomas Jordan, the Swiss National Bank Governor, and he’s looking around like “What?”. The moderator is looking down. That’s some mighty slick speaking there, Mr. Powell.
Jordan says that the Swiss economy is growing, but not as fast as it was before. So they’re watching. Powell says this a few times too.
They’re watching. They’re observing.
Inflation isn’t as high as they want in order to keep the central bank model going. They don’t have any ideas or tools to fix it so they’re “observing”.
TRADE POLICY AND BREXIT
Powell says that the Fed doesn’t comment on trade policy.
And then he comments on trade policy.
See what he did there?
He says that the uncertainty on trade policy is causing some companies to hold back on investment. (But the Fed is observing, and thinks it’s no big deal.)
RECESSION
The Fed is not forecasting or expecting a recession for the U.S.
Jay expects moderate growth, a strong labour market, and inflation at about 2%. He believes they’ll have it because the Fed is amazing.
(No mention that capital is pouring into the U.S. because America is doing better than the rest of the globe, in a best-of-the-worst kind of way. No, there won’t be a recession because the Fed is observing and signalling lower interest rates.)
Jay says the U.S. consumer is in good shape, and says again that the Fed doesn’t expect a recession.
Then he repeats the risks, says that they’re watching and going to do their policy thing to take care of it and rescue everything if the economy goes… well…you know where in a hand basket.
The Fed will rescue it by using policy tools. His exact words are that the Fed is watching the risks and will “address them”.
The Fed doesn’t see a recession for the U.S. or for the world.
The Fed apparently doesn’t talk about trade policy. Ahem.
So, the Swiss central banker, Jordon, does instead. He says the uncertainty is causing uncertainty in global markets. Then he smiles, in that way that he knows it’s not in their mandate, but there you go.
Makes sense. Until trade negotiations are finished and there’s a signed contract there’s uncertainty. That’s part of deal making in any business.
(Central bankers don’t like this because you can’t do interest rate policy as a “fix” on a thing that isn’t a thing yet.)
Jordan is making the point that the globe is a complex system, so delays in final trade deals for the U.S. impact the EU and impact Switzerland. (That is true.)
But central banks don’t comment on such things. They just do monetary policy. ;)
PUBLIC REVIEW
The Fed has been doing a public review to see if their whole framework needs to be updated.
Basically Jay is saying they need to evolve.
He says that the Fed was lousy at getting a hold of inflation after it went crazy in the 1960-70s, and so now they want to do a better job. Honestly, that what he was saying.
They brought in interest rate targeting.
So in the last decade he says we now have:
1. Slower growth
2. Lower inflation
3. Lower interest rates
CENTRAL BANK’S BIG PROBLEM
Jay gets to the real issue and says Interest rates are close to zero, so central banks can’t drop interest rates the 5% they need to in order save themselves if a recession hits.
So central banks have less of an ability to support the economy when it needs it.
It’s been a problem for Japan, and now to some extent in Europe.
Sooo…the Fed is doing public reviews to see if anyone out there has any ideas.
That’s right.
They know that their tool box is empty and they won’t be able to save the system the next time there’s a recession or crisis. Unless a new model, strategy, communication idea or tool presents itself from the public or somewhere other than internally.
Jay says the Fed has never done a public review before.
(That means they must really be worried.)
He says the meetings have been helpful and they’re going to have a whole bunch of meetings now about those meetings, and they’ll have something for us some time next year.
Yes, next year.
They won’t have anything new in the way of strategy, tools or communication methods until next year.
Switzerland’s central bank is happy with what they’ve had going on for the last 20 years.
They concentrated on price stability, and interest rates in the long term have been about 1%.
(That’s no good for the U.S. Fed, which Jay’s face reflects, because there’s so much debt they need 2% inflation in order to even make the minimum payments and roll the debt over. Never mind pay it off. It can’t be paid off. But 2% inflation will keep the game going.)
LOWER INTEREST RATES
Why have the rates around the world gone down over the last 20 years?
Jay says it’s:
1. The aging population who want to own safe things and have more savings.
2. Low productivity.
3. Low growth.
(So he is saying that it’s because reasons. There’s no responsibility placed on any central bank or the central bank system here by Powell.)
NEXT CRISIS
The neutral real rate is low and inflation is low. Combine those two and you get the interest rate. (Kind of like a double-whammy for debtors).
Jay says that “central banks will have less ability to counteract a downturn by cutting rates”.
The Fed usually cuts interest rates 5.5% in a typical downturn. Right now the Federal funds rate is 2.1%.
What does that mean?
He says it means they need other tools.
Also, that it’s imperative that inflation doesn’t move below target.
Hmm.
Jay says if you get on a road of low inflation (and his hands move from right to left) then it’s hard to get off the road.
(He’s talking about deflation. He won’t say the word but that’s the word.)
PENSION FUNDS
Jordan hits the nail on the head and says that the big problem with low interest rates is that pension funds were made to function at what was a normal interest rate. Now they’re near zero.
It’s a real difficulty.
(Martin Armstrong has mentioned that pension funds are now buying farm land and leasing it out to make some kind of profit).
IN A BUBBLE
Jay goes on about how diverse the opinions at the Fed are because there are so many governors and so many reserve banks in the U.S.
Wow.
He says they don’t have “group think” because they didn’t all have the same teachers at the same schools so therefore they have lots of different opinions.
Jay looks like he welcomes their opinions, but truly there’s no way they can get any ideas outside the box. Not a chance.
I’m sure they’re are all highly intelligent but if they believe that’s a diverse set of opinions and ideas to solve their problem then they have a problem.
You know, if the only tool you know about is a hammer…
Well, Jay just said he wants a consensus so sometimes he tries to convince a person, and sometimes he tries to sway a whole group. Haha.
DIGITAL CURRENCIES
The Fed is watching but not actively considering getting into digital currencies.
They’re concerned with hacking.
There’s no need for it as a payment method.
And then Jay gives the real reason – if a person holds their money as cyber currency then they’re not putting it in a bank.
Tada.
He is looking out for the banks.
He then says that people put their money in a bank and then the bank lends the money out.
That’s not right. (The other two try to remain still.)
The central bank model is a fractional reserve system. They create money out of thin air backed by nothing. The deposit is a liability, a debt owed to the depositor, and the bank creates multiples of that deposit backed by nothing but a promise to repay with interest.
Jay says, “What would happen if everyone invested in this cyber currency?”
(Well, it would not be good for their banking system.)
So, the Fed is following and watching but don’t see it as part of the central bank system in the near term.
Of course.
LIBRA
The Fed isn’t closed to innovation says Jay.
But they’re not open to Libra as it is right now.
Facebook has more than a couple of billion people on their network, so if they have a coin it could become systemically important very quickly.
So Libra would have to rise to the highest regulatory and supervisory standards.
It’s not going to be a sprint to get it out.
The Fed is going slow to make sure to protect the public.
I mean the system.
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Here’s How Gold Moved This Week:
It looks like the floor of $1,500 U.S. per ounce is pretty solid. We’ll see.
Today it’s at $1,506.50/oz
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My thoughts…
This week I did a synopsis, and put in my thoughts as it was going on instead of afterwards. Let me know if you have a preference.
I had the feeling in the Q & A after the event that Jay Powell and the Fed aren’t in lock step with the IMF. The IMF has their SDR “world money”, that they’re ready to flood the world with at the next crisis. Jay’s not so keen on that. He said a few months ago that he’s fine with there being two or three reserve currencies all working together. I thought the IMF would be in that, but of course the IMF would want to rule it all as an unelected global overlord. No nation would want that, unless they’re in dire straights and would trade their sovereignty for the “free” money. That’s the real tension here. It’s not right and left, it’s up and down.
With the central bank model you can’t just make the economic pie bigger. You don’t really make more pie; you just make more promises on who gets to eat what’s already baked.
With a sound currency/money that’s built on production and something sound and solid, you can have innovation that makes more pie or cake or spaceships. There’s incentive to create. The pie gets bigger. Everyone’s experience gets better as it grows.
This debt model doesn’t do that. It’s a promise of a bigger slice of pie another day. A new pie! A bigger pie! Tomorrow.
Anyways, all is well and wonderful. I’m on the island playing with beautiful paper for packaging, researching gold and its history here, and growing a garden on my patio. This place is filled with farmers markets and fall fairs.
Just met two brilliant musicians and will play with them again next week.
Wishing you a lovely week wherever you are.
They may be trying to create a crisis out there, but we all can take responsibility for our own lives and our own steps. They don’t really know what they’re doing. Have a shield. Gold is good for that. Silver too.
Maybe together we’ll just bake a bigger pie. ;)
Elaine~
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We all do no end of feeling and we mistake it for thinking. And out of it we get an aggregation which we consider a boon. Its name is public opinion. It’s held in reverence. Some think it the voice of God. – Mark Twain
Everything changes. But gold changes the slowest. ;) Elaine~
World Without an Anchor
words and music | Elaine Diane Taylor
©2019 Elaine Art & Media
ASCAP/SOCAN
Single available on iTunes.
In a world without an anchor
you’re subject to the sea
Right before a tempest
Left screaming at the breeze
Walls of rage and water will test what you have learned,
That in a world without an anchor coins will toss and boats will burn.
Will there be ships that lie deep (in) state beyond (the) reach?
Who will wear a yellow vest?
Who will wash up on the beach?
In a world of flags and spices
we were playing pipes and drums
Sailing on the seas
and selling souls and sums
The gold sailing one way
and silver in return
But in a world without an anchor
we’ll all drown in debt in turn
Will there be ships that lie deep in state beyond the reach?
Who will wear a yellow vest?
Who will wash up on the beach?
In a world of borrowed soldiers
the captain’s damage owed
The treasure chests are missing
and the golden anchor sold
We are fed with cake and follies
We are tethered to the shell
Bailing out the breaches
We’re now bailing in the hell
Will there be ships that lie deep in state beyond the reach?
Who will wear a yellow vest?
Who will wash up on the beach?
from “World Without an Anchor”
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Not Much of a Holiday
words and music Elaine Diane Taylor
© 2015 Intelligentsia Media, Inc. All rights reserved.
SOCAN/ASCAP
Single available on iTunes
Bank holidays and long lines at ATMs to get enough for the day. Debt deals behind closed doors. The media telling us what to believe. China building islands in the South China Sea and claiming all the international waves. Markets close and rockets crash. Silken road, treasure, files hacked. Oil, fusion cold. News and nations all sold. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.
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Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.
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Coins and Crowns
words and music Elaine Diane Taylor
© Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes
Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.
The costs go up and the jobs go down. Hunger goes up and hope goes down. Then anger goes up and it all goes down.
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Elaine Diane Taylor 