Royal Bank of Scotland to investors: 'Sell everything'

I actually saw that yesterday.

I agree that the Federal Reserve should unwind that balance sheet. They should have never NOT normalized. I way disagree with this notion that they should keep the balance sheet bloated, for the rationale that they should use it as a tool for FUTURE monetary policy, obviously. I think he may as well be Mario Draghi suggesting something like that. In fact, he'd fit right into the Eccles Building.

They can't unwind that balance sheet (and this goes beyond them, because the ECB and BOJ have bought more than they have). They are insolvent on a mark to market basis if they ever try. When you buy up debt -- buying up everything in sight -- without any care about price or value. ... you end up with $4.4 trillion worth of bonds that made others very wealthy front running you (the unfairness of it, because they benefited the elite they work for at the expense of everyone else). In any case, it's a fantasy to think that you can get out of that without a mess. Put it this way. Let's say you think quantitative easing was beneficial -- that it was "stimulative." This is quantitative tightening (although they can't be honest enough to call it that). It should have the exact opposite effect that the qe did.

I know that QE was stimulative. Not to the broad economy. But to people gambling on risk assets. With the ECB and BOJ still buying willy nilly, and the Fed reinvesting their proceeds, it continues to be stimulative. You can see it in the stock market.

*IF* they try to unwind what they should have never done in the first place. ... they are going to pop the bubble they created. They are hoping. ... but even with their increases of short-term rates, they put themselves so far behind (deliberately) real rates, they they made sure to follow the markets (and keep pumping in liquidity) rather than risk a credit crisis. ... which comes with the blame they don't want (but deserve).

This is the problem. Radical monetary policy begets more radical monetary policy. What Friedman was suggesting in your link would have been unthinkable a decade or two ago. But this is the quagmire they have created. To use the balance sheet as a monetary policy tool?

They can't unwind that balance sheet. They might want to. They might be praying every night. But this is why they talk a lot. ... confuse the hell out of markets (but not anymore. ... markets have just decided that it's all BS and they will believe it when they see it). ... and then back off rather than easing.

It's almost amusing to watch them hem and haw about it, only to back off the minute rates start to spike.

But I hope they do prove us otherwise. I have been saying that all along/

Here was Jim Grant earlier on CNBC with Rick Santelli, talking about their lack of candor (he did an op ed for the financial times the other day about this) and how they are going to just digging in deeper and deeper. Radical monetary policy begets more radical monetary policy. I don't think they are going to back off willingly. ... it's why I think a credit crisis will be the end game. But hell, I HOPE they "normalize."

Santelli Exchange: James Grant on central banks' candor

 

I am glad you understand their endless bullshit. I wish I lived in your world.

People Are Getting Emotional About Fed’s ‘Schizophrenic’ Debate

Aside from dozens of headlines like that that I will gladly pull up from the last 5 or 6 years. ... you can't rewrite history. All the hikes to the overnight rate that they have been threatening for 3 years .... we didn't get them. The 75 basis points over close to two years was so far behind what real rates were doing that the 10 year is now trading LOWER. God help anyone who actually believes their "dot plot." The boy who cried wolf had a better track record.

Anytime you want to respond to what Jim Grant actually has to say (what a novel idea), I'll have that conversation. I will say this. There is nobody more lucid and knowledgeable when it comes to markets that deal with rates.

Here was his FT thing: Subscribe to read