Friday, September 09, 2011

Lagarde Proposes, Bernanke Disposes

We briefly recap, for your convenience:

Item: Dominique Strauss-Kahn is temporarily and falsely accused of sexually assaulting a hotel "maid" in New York City. "DSK" is eventually released, but not before being summarily removed as head of the International Monetary Fund.

Item: Christine Lagarde, top Chicago labor/antitrust lawyer, finds herself in charge of the global monetary authority.

Item: DSK is on record against using the IMF "as a fist" to bully nations (such as Iceland or perhaps Germany) into making loan guarantees. Lagarde gives no indications of suffering any such scruples.

Item: At the annual Jackson Hole Fed Economic Summit, Lagarde announces that the scheduled IMF speaker has "graciously" given her his slot at the podium (in addition to having been removed from his job). From that podium comes what we have named the Lagarde Dictum: after stating, with her global authority, that said globe was about to enter a "downward spiral", Lagarde instructs "the US and Europe to abandon fiscal austerity and switch to stimulus measures" .

Item: As if on cue, the US and ECB central banks echo her. First, Chicago Fed president Evans:
"the central bank should move 'aggressively' to reduce unemployment, even at the cost of temporarily pushing inflation higher."
Next, ECB head Jean Claude Trichet:
...threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further action should the debt crisis worsen...
And finally yesterday, Fed Chairman Ben Bernanke, in his own passive-aggressive voice, at a speech in Minneapolis:
...A substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring...[in Lagarde's terms, "abandon austerity"]...prepared to employ these tools as appropriate...[in Lagarde's terms, "switch to stimulus measures"]...[oh, yeah]...we see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy...[we see inflation but it's not "ingrained."]
It is doubtful that anyone believes that the Fed or the ECB can do anything now to "stimulate economic growth." Certainly this is Mohamed El Arian's opinion, which we find ourselves in agreement with:
Pacific Investment Management Co.’s Mohamed El-Erian said the U.S. faces “serious” economic challenges, including lagging housing and labor markets, that will prove resistant to Federal Reserve stimulus efforts.
According to Bloomberg, he continued:
The world is undergoing a “historical” realignment akin to “tectonic plates shifting,” which is focused on balance sheets, growth dynamics among different countries, and policies or politics, he said.

“The key issue any risk manager faces today is that too many parameters have become variables,” El-Erian said. “A cyclical mindset is not sufficient given the world we live in,” he said. “ You need to think structurally.”
Mohamed must read this blog, for just yesterday we postulated:
you can bet on more "stimulus measures." "Aggressive" ones, to be sure, but we look for novel ones, desperate ones, unheard of ones (we've speculated on some here).
We're certain Christine Lagarde and the rest of the Chicago Gang that seems to be everywhere at once these days is "thinking structurally."


Post a Comment

<< Home