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Market Pessimism: Nothing left to shoot the bear?

So as we all dig ourselves out from the snow on the East Coast, the S&P is sliding again. There’s no sign of hibernation from the bears.  In fact, there seems to be an unusual amount of pessimism and angst out there among professional investors, and wider unease among the public which shows up in support for populist or socialist candidates in the Presidential race.

So how much should we worry? Is it time to plunge our head in a snowdrift and hope for the best? Let’s take the positive view first, and then go to the dark side.

So far the stock market slide is nothing out of the ordinary, of course, uncomfortable and morale-deflating as it is. We usually get a 10% correction in equity prices every two years or so, based on the historical record. So far it’s a bear cub, rather than a raging grizzly.

Let’s say it gets worse from here. 20% corrections are more lumpy in when they occur, but the long term average is they hit every 3 1/2 years or so. That’s a definite scrape from the bear, but not life-threatening. And we’re still very far away from that.

50% or more plunges, like 2008, are extremely rare, far out the tail of the probability distribution, occurring every generation. Or two. Or three.  But because we have painful memories of the most recent collapse, press stories about “worse than 2008” sell newspapers right now. Everything looks dangerous, but just like major earthquakes or hurricanes, it is likely to be decades before another hits us.

Putting this together, the most likely outcome, just in bare statistical terms, is a kind of regression to the mean and therefore recovery rather than another 2008-style catastrophe. That happens much more often in situations like this than a further slide to doom.

The trouble is frequency statistics can mislead. What if something more fundamental is broken? What if there’s cumulative damage?  There are always plenty of “This time it’s different” arguments for potential disaster when markets are weak.

So what is different right now?  What is so deep-seated and cumulative it could put us in 50% territory?

The main cause of recent market weakness appears to be the slide in oil prices, as well as concerns about a slowdown in China with knock-on effects on commodity producers. Add to those multiple pressures  on emerging markets the recent Fed rate rise, which may have disproportionate impact on the outer fringes of the dollar zone.

Yet oil and commodity price swings are anything but unusual. A decline in oil prices is bad for the energy sector but good for just about everyone else in the major western economies. The same applies to a first Fed rate rise in a cycle, even if it does tend to upset markets.

And it isn’t at all clear yet that China really has had a ‘hard landing’, as opposed to volatility on its equity markets. Many people have lost their shirts predicting collapse in the Chinese economy over the last ten or fifteen years.

There is clearly a massive debt hangover, and massive surplus capacity. Let’s affirm it: China has plenty of problems. But it could be a chronic gradual headache for years, rather than a spectacular meltdown which causes the whole world economy to crash. Or a painful temporary interlude, like the many spectacular crashes as the US nonetheless rose to the pinnacle of the world economy between 1865 and 1914.

The same applies to tension in the Middle East. There is obviously a heightened chance of serious conflict, as low oil prices cut budgets and the Saudis are increasingly fretful about Iranian resurgence. But that too could be a chronic, slow-moving problem rather than an immediate hot war. Sunni-Shia tensions date back to before 680AD, after all.  This is not unprecedented or unusual territory. “Trouble in the Middle East” is barely even news these days. And if a ship does get sunk or riots break out in a smaller Gulf state,  oil is likely to spike – offsetting other worries.

None of this is likely to derail the US economy. It’s compatible with a rotation in economic activity from emerging markets towards the US, rather than a collapse in the world economy. On this story, the US with its relatively minimal exposure to foreign weakness takes over its usual role as the  ‘locomotive’ pulling much of the rest of the world economy.  Safe-haven capital flows to the US, interest rates rise as the Fed normalizes, the dollar accordingly rises giving a boost to exporters in other countries, and the locomotive is on its way.

Sure enough, there are some reasons to doubt that it is happening just yet – American consumers may be saving some of the dollars they are not spending at the gas pump, or driving more miles than before.   But there is no reason to despair, or disbelieve altogether than the US is not going to gain significant impetus from lower energy prices before long.

There are other reasons many people worry about western economies,  most notably rising inequality  and technological threats to labor. There may be hidden bubbles after all the monetary liquidity we’ve had washing around.  I’ll look at those another time – but there’s no reason to think that markets have suddenly become much more concerned about these explanations  since New Year’s Day.

The deeper, different problem

Instead, the most interesting possibility is markets are concerned at a deeper level about what we can call the ammunition argument. Let’s say any of these potential threats materializes.  We don’t have to predict which one, or time it to the day. Then what?

The US recovery is still fragile. The EU is beset by problems of its own making. The central banks are already at or extremely near the zero lower bound for conventional policy. Fiscal policy is more constrained by the massive buildup of debt from the last major collapse. There is much more suspicion (especially in the US Congress) about bank rescues or lender-of-last resort functions, including more legal chains on Fed actions in a crisis.

So if something does go wrong – the Fed misjudges the strength of the recovery and raises rates too much, say, a Chinese credit crisis leads to emerging market commodity disasters which cause strains in European banks who have lent too much money to middle-income countries – there is no ammunition in the locker.

If we take out the rifle to defend ourselves agains the charging bear, we’ll just hear a muted empty “click” and the bear’s jaws will close on our throat. Unlike any other potential crisis in the last hundred years, we’re defenseless.

On this argument, no-one can really predict the stock market (or the Middle East). It’s not a matter of predicting specific outcomes. But if anything goes wrong, we’re bear food.  Talk to Murphy about his law.

And then? This is the deeper fear. Policymakers can’t do anything.  They may stage a few theatrics, write “bang” on a piece of paper and wave it at the bear, perhaps. And whatever they do, they’ll likely mess it up. (They’ll probably misspell “bang”).  It’s also linked to wider suspicions that elites don’t know what they’re doing.

This ammunition argument is the really important question, and deserves more consideration in the next post. It’s probably not true, but it’s a serious argument.


2017-05-11T17:32:40+00:00 January 25, 2016|Central Banks, Cyclical trends, Economics, Equities, Financial Crisis, Market Behavior|

How Politics can go Loopy

The midterm elections today will likely just produce the usual cyclical swing against the party in power.  The national debate has been particularly arid this year, largely focused on targeted messages to mobilize the base instead of changing people’s minds.

But much of the difference between people, and points of view, is not about the direct or immediate effects of particular policies, anyway. It’s not about immediate facts, or even always about immediate interests. According to Robert Jervis, in System Effects: Complexity in Political and Social Life,

At the heart of many arguments lie differing beliefs – or intuitions- about the feedbacks that are operating. (my bold)

It’s because, as saw before, most people find it very hard to think in systems terms. Politicians are aware of indirect effects, to be sure, and often present that awareness as subtlety or nuance. But they usually seize on one particular story about one particular indirect feedback loop, instead of recognizing that in any complex system there are multiple positive and negative loops. Some of those loops improve a situation. Some make it worse, or offset other effects. Feedback effects operate on different timescales and different channels. Any particular decision is likely to have both positive and negative effects.

The question is not whether one particular story is plausible, but how you net it all together.

Take the example of Ebola again. The core of the administration case was that instituting stricter visa controls or quarantine in the US might have the indirect effect of making it harder to send personnel and supplies to Africa, and containing the disease in Africa was essential.

That is likely true. It is  story which seems coherent and plausible. But there is generally no attempt to identify, let alone quantify or measure other loops which might operate as well, including ones with a longer lag time. Airlines may stop flying to West Africa in any case if their crew fear infection, for example. Reducing the chance of transmission outside West Africa might enable greater focus of resources or experienced personnel on the region. More mistakes in handling US cases (as apparently happened in Dallas) might significantly undermine public trust in medical and political authorities. You can imagine many other potential indirect effects.

The underlying point is this: simply identifying one narrative, one loop is usually incomplete.

Here’s another example, at the expense of conservatives this time. Much US foreign policy debate effectively revolves around “domino theory”, and infamously so in the case of the Vietnam war.  The argument from hawks in the 1960s was that if South Vietnam fell, other developing countries would also fall like dominoes. So even though Vietnam was in itself of little or no strategic interest or value to the United States, it was nonetheless essential to fight communism in jungles near the Laos border –  or before long one would be fighting communism in San Francisco. Jervis again:

More central to international politics is the dispute between balance of power and the domino theory: whether (or under what conditions) states balance against a threat rather than climbing on the bandwagon of the stronger and growing side.

You can tell a story either way: a narrative about positive feedback (one victory propels your enemy to even more aggression) or balancing feedback (enemies become overconfident and overstretch, provoke coalitions against them, alienate allies and supporters, or if we act forcefully it will produce rage and desperation and become a “recruiting agent for terrorism”.)

The same applies to the current state of the Middle East, where I have a lively debate going with some conservative friends who believe that the US should commit massive ground forces to contain ISIS in the Middle East, or “small wars will turn into  big wars.”  It’s in essence a belief that positive feedback will dominate negative/balancing feedback, domino-style.

But you can’t just assume such a narrative will play out in reality. South Vietnam did fall, after all But what happened was that the Soviet Union ended up overreaching in adventures like the invasion of Afghanistan. The other side collapsed.

The lure of a particular narrative, of focusing on one loop in a system, is almost overwhelming for many people, however. It’s related to the tendency to seize on one obvious alternative in decisions, with limited or no search for better or more complete or relevant alternatives.

The answer is not to just cherry pick particular narratives about feedback loops and indirect effects which happen to correspond with your prior preferences. That usually turns into wishful thinking and confirmation bias. Instead, you need to get a feel for the system as a whole, and have a way to observe and measure and test all (or most of ) the loops in operation.

Yellen: More humming-bird than dove

The markets are a little worried about this well-written recent piece about Fed Chair Janet Yellen In the New Yorker. This extract (below) in particular is leading some to wonder whether she will be dangerously dovish and overcommitted to fighting unemployment, and will eventually cause a huge inflationary meltdown.

The more constrained Yellen’s world becomes, the more her instinct will be to return to the distilled essence of herself, the unrepentant Keynesian; the pressure to demonstrate hawkish capabilities comes from without, and the Keynesian inclinations from within. “You can’t think about what is happening in the economy constructively, from a policy standpoint, unless you have some theoretical paradigm in mind,” she told me. Alan Blinder told me that, in the mid-nineteen-nineties, when he and Yellen were both Fed governors and felt they might have momentarily pushed Greenspan into a more dovish position, one of them said to the other, “I think we might have just saved five hundred thousand jobs.” He went on, “We felt pretty good about that. . . . Now she can raise her sights—one million jobs. Two million.”

More and more people are getting uneasy about comparisons to the 1970s. Back then, the Fed misjudged slack in the economy, and dealt poorly with the oil shocks. Inflation got embedded and it took the vicious 1980-1982 recession to restore stability. Being lax about inflation eventually caused the worst unemployment in decades. Is the Fed doing the same thing again, adding a few more shots of tequila to the punch at the party just when everyone needs to sober up and get ready to drive home?

I’d draw a different conclusion from some of the color in the article, however, which matches my own impressions of her. She’s “cautious”, “over prepared”, the “reality” person compared to her much more fiercely partisan husband. She doesn’t like to go out on a limb with extreme positions, such as the incident where she didn’t say much during the big Born/Summers confrontation mentioned in the article. She makes a point of trying to summarize other people’s views at meetings.

In other words, she has a definite point of view, but she ISN’T a flaming ideological partisan firebrand. She is temperamentally pragmatic. Her main Keynesian vice is believing a little too much in aggregate demand as the be-all and end-all. But that is self-correcting given signs of inflation. She is emphasizing unemployment right now because she thinks there is essentially no inflation threat.

Journalists can overemphasize the relevance of academic debates to practical policymaking, because conflict makes for a good story. (Instead, it ‘s usually the unexamined assumptions that everyone agrees about about that cause the most trouble.)

In fact, as I noted here, policy is more incremental in practice. It is made by “muddling through” with tiny adjustments every six weeks, not arguing about questions of ultimate theoretical principle in seminar-room style. Consider: The difference in the Committee’s projected “dots” for timing of raising interest rates is not nearly as large as theoretical differences about economic models.

In fact, it’s likely that Yellen will eventually surprise the markets by flipping towards a focus on inflation more dramatically than expected.

The bigger danger – and this is where the hawks on the FOMC have a legitimate point – is that she will be too activist and overconfident, and will unintentionally cause problems by being too ambitious about what policy can achieve.

First do no harm

The New Yorker article discusses how new classical economists came to believe that monetary policy could achieve little if anything at all. Only Plosser has some sympathy for that extreme view in the committee. All the others think that the Fed can contribute significantly to the economy.

But many acknowledge that the Fed can also make serious mistakesas happened in the 1970s. It quite easy to make the swings and oscillations in the economy even worse. It’s like pushing a kid on a swing. If you give an extra shove when they are at the top of the cycle, you can make the swings even more hair-raising. That produces squeals of delight in children. . but disaster in economic cycles.

The Fed is still giving the largest shove in recorded history to the economy, as QE slowly tapers and nominal interest rates remain at effectively zero, And it is very difficult to get the timing of shoves right. It is typical for economists to be unsure whether the economy has emerged from recession for six months or longer. Data has a habit of getting revised in ways that massively changes the picture of the current economy. Lags are notoriously “long and variable.” For years central bankers has an instinctive distrust of trying to “fine tune” the economy with too much precision as a result.

It’s not the goal of monetary policy, hawk or dove, which is the risk with Yellen. She’s not chained to a dove’s perch. Instead, she’s more likely to be like a humming bird, in frenetic motion. The blur of flapping wings is the risk.

For central bankers, it’s usually better to me like an eagle, hardly twitching a muscle, patiently watching and floating high above the fray below, and then striking at just the right moment.

Technology isn’t the problem, Short-term management thinking is.

Is technology going to displace workers and hollow out the middle class? Or is technology stagnating instead and bringing the great era of productivity gains to an end? Here's a good point in the Harvard Business Review:

It’s a lively debate, but here’s the perspective that isn’t being voiced: There’s more to progress than technological innovation. Breakthroughs can also result from innovations in management.

Past work by another economist, Paul Romer, helps make the point. He explains that the history of progress is a history of two types of innovation: Inventions of new technologies, and introductions of new laws and social norms. We can make new tools, and we can make new rules. The two don’t always march in lockstep. In a period of time where one type of innovation flags, the other type can sometimes forge ahead.

Go back to some of Peter Drucker's ideas, the authors say.

We would also argue for a different managerial mindset toward productivity and the best use of technology – specifically to adopt what Peter Drucker called a human centered view of them. Cowen is right when he describes today’s technologies as displacers of human work, but that is not the only possibility. Managers could instead ask: How can we use these tools to add power to the arm (and the brain) of the worker? How could they enable people to take on challenges they couldn’t before?

Management has become too short-termism in thinking, they argue, which often crowds out the innovation in how to use technology to alter social practices.

Perhaps a better way to put it is that social and institutional innovation always takes longer than technological innovation. Most of the current institutional framework we take for granted – joint-stock corporations with corporate personality, accounting (more than book-keeping), regulation, consumer credit, white-collar jobs – developed after the industrial revolution. They were invented to cope with economic change and social upheaval.

The answer to current economic challenges is not necessarily, as the liberal left thinks, massive new redistribution schemes between the “1%” and an increasingly impoverished lower middle class and poor. It's new social feedback loops and institutional innovation. And better management figuring out new ways to add value.

How to tell when “sticking to your guns” is stupid

Hedgehogs, who look at everything in terms of “one big thing”, tend to make poorer decisions than foxes.

Yet markets are full of hedgehogs with big opinions, because big opinions help you raise money or get notice for research, or get invited on CNBC.

The trouble is hedgehogs tend to be closely related to lemmings when there is risk of danger involved. They often don’t last long. They get too attached to positions and too rigid in their views. They don’t see anomalies or contrary evidence. They resolutely go over the cliff together.

Nate Silver (continuing on from the last post) has a beautifully written way of putting it.

Every hedgehog fantasizes that they will make a daring, audacious, outside-the-box prediction—one that differs radically from the consensus view on a subject. Their colleagues ostracize them; even their golden retrievers start to look at them a bit funny. But then the prediction turns out to be exactly, profoundly, indubitably right. Two days later, they are on the front page of the Wall Street Journal and sitting on Jay Leno’s couch, singled out as a bold and brave pioneer.

Of course, sometimes being right means you have to be lonely for a while, and take a contrary view even when it’s unpopular. But it can also be a sign of being out of touch, or prejudiced, or unable to read the evidence objectively, or overconfident, or a crank, or naive about the limits of your domain knowledge. It can mean you’ve fallen for the dream of sitting on Jay Leno’s couch to the exclusion of reality.

Sometimes when your golden retriever looks at you a bit funny, even your dog realizes you’re wrong.

So it is essential to tell the difference between brave contrarianism and rigid imperviousness to contrary evidence, because the latter will kill you.

Once more, the key to success is a matter of the right degree of adaptiveness, which is usually a matter of maintaining a sense of balance. You adjust your view the right amount, at the right time. You need to be open, even eager, for things which might disconfirm your point of view, because you will always automatically seize on things that demonstrate your current view is correct.

Good traders set a stop-loss where they get out of a trade, and live to fight another day. Bad investors and amateurs ride losses all the way down, often becoming even more entrenched in the process. Even if the markets ultimate turn their way for a while, they’re already bankrupt.

Sticking to your guns.. till shot dead

I’ve found in practice one prime danger sign is when people start talking about “sticking to their guns,” especially when they disdain or even refuse to consider contrary evidence. It is the prime hedgehog virtue, or even fetish of rigidity for its own sake. The key distinguishing feature is their view is no longer falsifiable. It becomes a matter of ideology. In the worst cases, people will even try banning mentioning or thinking about any contrary evidence.

There are some terrible examples of this over the years, especially over Europe. It tends to bring out the true believers of one sort or another.

Let me give an example. The right wary to play Europe (and many other issues) is to recognize there is a cycle of overoptimism and pessimism, and lean against it – not go to one fixed rigid extreme or another. For example, in early 2012, the right way to trade was to think the prevalent “Europe has solved its problems” market view was going too far one direction, and prepare for bad news instead. When that indeed came, as Europe went to the brink of meltdown that summer, the right way was to recognize that is often the only thing that motivates action in the EU is the threat of disaster. So sentiment had become too pessimistic about the potential for policy shifts like Trichet’s “whatever it takes.”

The situation was still dangerous – as with the US government shutdown, there was still a small risk of catastrophe through accident or miscalculation. But chances were the danger would motivate an agreement. So the “risk-reward” calculation was to lean against pessimism, the other way.

In other words, to be contrarian at the right times you have to be agile and flexible, not fixed and rigid and devoted to one position.

Culture and foxes

Importantly, the right level of adaptability or flexibility is often embedded in a particular company culture. I worked at one market advisory firm when it was at a spectacular peak of success. In retrospect our “special sauce” was to get the right amount of flexibility and “foxiness” in the culture, which then reinforced itself as it produced strings of accurate calls. Remember, research shows that foxiness is the only thing that reliably separates out better performance at predictions.

We were multidisciplinary, with people from many different backgrounds. We went out of our way to find and understand different perspectives on events and people in their own terms, and then pinpoint the differences with conventional wisdom. We would talk and argue and debate for hours what events meant, what might happen, what people’s motives were, and what the right risk-reward ratio was on different angles of view. We agonized over balancing different points of view and “what-ifs.” It added up, organically, to the right level of adaptation.

One of the keys to our success at reading the Fed was a similar flexibility and ability to recognize cycles. The market tends to swing between “Fed not doing enough” and “Fed is behind the curve” like a sine wave. You just have to lean against extremes.

The right level of adaptiveness and flexibility and detachment usually beats deep domain knowledge (from hedgehogs) or raw information almost every time.

The most calamitous failures of prediction

I’ve been talking recently about how the biggest problem with decisions isn’t information, but seeing what you want to see. It is a matter of how you frame issues, and how you resist or learn from events.

Nate Silver has become famous for his quantitative models of the US election, which outperformed most pundits. But, he says in his excellent book The Signal and the Noise: Why So Many Predictions Fail — but Some Don’t, what matters most is not the data or regressions. You have to get the frame right..

The most calamitous failures of prediction usually have a lot in common. We focus on those signals that tell a story about the world as we would like it to be, not how it really is. We ignore the risks that are hardest to measure, even when they pose the greatest threats to our well-being. We make approximations and assumptions about the world that are much cruder than we realize. We abhor uncertainty, even when it is an irreducible part of the problem we are trying to solve.

Markets focus so much on what the latest economic data mean for growth, the economic cycle and inflation. It’s the bread and butter of market commentary, even if it has become commoditized and everyone knows forecasts are generally inaccurate and overconfident.

But instead, what really matters is what incoming evidence says about the assumptions and frames and expectations people hold – and whether the evidence leads them to change their view. There is very little evidence you can make money out of predicting the economic cycle. But misperception is pervasive, and is the most critical factor in your most critical decisions. And you can’t easily see it yourself.

The Pain of Being a Bear

CNBC decided to name a “Dirty dozen” of the very worst actively managed mutual funds in the US, which offered horrible performance for high fees. One name stood out for me: the Federated Prudent Bear Fund (BEARX). It has returned -10.48% annualized in the last five years, and charged investors 2.5% for the privilege. It’s associated with the Prudent Bear website, which is actually well-argued and has considerable influence in financial markets. It’s like a pure distillation of a bearish approach to markets. This isn’t intended to knock the bear fund, though. The website and blog was required reading for several years during the crisis. It has a consistent and serious set of ideas. Instead, it shows how dangerous it can be to get locked into one persepective in markets. It is painful being a bear, even in the worst five years the economy has seen in four or five generations. How could you not make stacks of money as a bear when we’ve seen such economic catastrophe in recent years? There was a brief bear heaven in 2008-9, and it has been downhill ever since. This is BEARX against the S&P over the last five years.

Of course, stocks have rallied massively from the troughs and are setting new record highs. The trick is to know when to stop being a bear, as well. Bears are close relatives of hedgehogs, who know “one big thing” and who find it hard to switch perspectives. For sure, if we get a massive market meltdown soon, there will be a brief moment of ursine elation and vindication again and these performance figures will look very different. But there’s two things to conclude. First, the odds are stacked against you long-term as a bear. The base rate is the economy and equities grow over time. It’s usually two steps forward, one step back. Bears have to be nimble and dance, not sit in a corner and growl that Armageddon is always just around the corner. Second, it shows why markets just don’t price future crises effectively. Let’s say the bears really are right that we’re about to drop off a cliff again. Indeed, the smart money is getting increasingly fretful about asset bubbles building up from excess liquidity. Most of the market is convinced the end of QE could lead to massive turbulence in equities, and the potential for a huge sell-off in bonds. But most asset managers just can’t afford to miss rallies, either. Timing is everything in markets. With a performance chart like the one above, there’s not that many pure bears left. They’ve died or evolved into something else. We are almost certain to get major market reversals again in due course. Predicting that isn’t hard. But bears need to survive until that happens, and not get too excited when it does. The next rally will be right behind.

2017-05-11T17:32:56+00:00 May 21, 2013|Adaptation, Cyclical trends, Equities, Industry Trends, Investment, Market Behavior|

Frankenstein #economic #policy only buys time for natural resilience

Sometimes a cluster of major events happens all at once in just a few days. We had the significant Bank of Japan announcement, a bad payrolls number in the US,  nuclear theatrics in North Korea, nerves about Portugal,  and Obama is about to release his budget. I didn’t have time to fully update things on the blog, but it’s been a very interesting weekend.

But this has to be said: we really are near the point where normal monetary and fiscal policy is exhausted.  This is the end game.

It is good news that the Japanese are taking such decisive action. It is bad news that it is necessary. They have tried fiscal expansion on a scale that few others have ever dared, and it has not worked. Now they are trying to do a Dr Frankenstein on their economy with an unprecedented monetary jolt. It is a brave act, but also smells of desperation. Normal medicine has not worked so the surgeon is jumping up and down with electrodes and clamps and a mad-scientist air.  If the economy gets off the operating table, it may be hard to like the ugly outcome.


The direct quantitative impact of monetary (and fiscal) measures is almost beside the point,  for all the person-years that have been spent on constructing models to quantify the impact of QE, or debating multipliers in fiscal policy, or pondering blockages in the transmission mechanism.

Sure, we can talk about whether the BoJ can keep control of inflation, whether 10-year JGBs continue to gap and trade in a disorderly way, or whether we are on the way to disguised currency war. This is going to be a major subterranean crack in bond markets.

However, the real objective of policy here is to reset expectations so the economy can generate its own momentum. As I’ve said before, economics does have a very good empirical understanding of expectations formation. The fundamental question now is whether  the average person on the street comes to believe things are going to get better. That will be the real thing to watch in Japan, not inflation or JGBs (unless you hold the bonds).

That’s why the labor number in the US is also important. One bad number could be a blip. The next one will matter, however, because consumer confidence is fragile.

I still think US recovery is on track, because modern economies have a natural tendency to adjust and recover despite policy mistakes. It’s the base rate.

Central bankers (and government spending) can at best buy time for natural healing to take place. The Fed and BoJ and others are doing their best (despite criticism from the likes of David Stockman) but at some point the patient has to get up off the operating table and walk for himself, without the drip feed of QE. The central banks can’t themselves cure the sickness.

What happens if the latest policy jolts do not work? The economy will still cure itself, but through something more like a burning fever of brutal adjustment than a slow recovery.

2017-05-11T17:32:57+00:00 April 8, 2013|Current Events, Cyclical trends, Economics, Japan, Monetary Policy|