Federal Reserve Chairman Jay Powell rarely gives media interviews. Most of his interaction with journalists takes place in the carefully controlled – and credentialed – environment of post-meeting press conferences. One notable exception was last May when the Fed’s head guy visiting with 60 Minutes so that he could, pardon the expression, lie his ass off.
Today, March 25, 2021, Powell went back into the interview setting this time on the radio with NPR’s Steve Inskeep. Like Scott Pelley had for CBS News, Inskeep teed up the appearance with the most favorable, softball introduction; even reaching back and plucking up Jay’s most infamous lie from last year’s farce.
STEVE INSKEEP: Jerome Powell is on the line. He is the chair of the Federal Reserve Board charged with helping to manage the world’s largest economy. One year ago, the Fed was effectively printing enormous amounts of money, unprecedented amounts, creating trillions of dollars to help avoid economic collapse in the early stages of the pandemic.
Powell, of course, failed to correct the error since he’s the one who started it! Before May 2020, Fed Chairman had been very careful to let the media spin QE and LSAP’s into the “money printing” in the public’s imagination central bankers know full well that it isn’t. Gobs, two decades now, of their own scholarship and the most they can say about it is that it – arguably – “helps” lower interest rates that are already going lower anyway.
Now you see why the guy would lie about “money printing.” Desperate times and all that.
Acknowledging, at least, this framework, Powell had the audacity to liken those monstrous QE efforts to the emergency evacuation of the Dunkirk battlefield in the earliest stages of World War 2.
JEROME POWLL. And we knew that in hindsight we would, there would be learning that we would get that we could do things better. But I think that strategy — I liken it to Dunkirk, you know, when it was time to get in the boats and get the people, not to check the inspection records and things like that, just get in the boats and go. And that’s what we did. I think overall it was a very successful program and I think history will treat it well.
I’d liken his response to Dunkirk, too, though for awfully different reasons. While that specific exertion was a resounding success, mostly because of individual private British citizens, the reason for its haphazard, ad hoc nature was down to the hapless leadership, utter incompetence of British/French military planning and execution.
To follow the analogy more accurately, Jay wasn’t in the boats last March leading the evacuation from the dangerous French coastline rocked by Treasury market dysfunction, nor was he even in position to organize and gather the rescue vessels, no, Powell was the Allied generalship whose lack of attention and understanding had sown the seeds of what – apart from the rescue – was a truly horrendous military defeat that left France to be gobbled up by the rampaging, unchecked German advance.
As one reader and correspondent emailed to me today:
I totally agree, Jay. Just like Dunkirk, you DIDN’T see it coming, you got your @$$ handed to you, and you are lucky it didn’t turn out worse than it did.
I could not possibly have said it any better, no more fitting description of what really happened last year considering the accidental role of Treasury T-bill issuance in calming collateral.
Why does it matter, you ask? The very reason Powell is today plying his true self on NPR; he wants you to believe otherwise, except this thing ain’t over.
I don’t mean that March 2020 is about to repeat yet again, instead the danger here and going forward is the same one the world has been forced to confront for closing in on fourteen years. We get knocked down by these monetary events, global dollar squeezes, but then can only ever come partway back up from them.
And no one can come up with any answers for this, least of all central bankers who would prefer to totally rewrite their (limited) understanding of inflation (always coming up short) than to connect the easiest dots there is ever to connect – consistent deflation, labor decimation, mis-supply in the monetary system.
If Jay’s 2020 action had indeed flooded the world with digital dollars, as he claimed, where are they? Not only has the PBOC balance sheet stayed perfectly empty, the dollar’s exchange value against everything except the euro and yuan barely moved for that flood; and now it appears in danger of reverse, especially the euro and the yuan.
The intrigue doesn’t end just there. Rather, what we keep finding, the date that keeps showing up on all the charts, is February 24/25. It’s all over the place. That specific date, right now, the top in reflation (meaning beginning the day following things started to go south) where the euro is concerned, even crude oil (so far as contango on its futures curve) and New Zealand or Aussie dollars.
February 24, meaning right on February 25, copper reached its recent high, too.
As noted the past few days, all these things are related through global money conditions pegged upon perceived risks – liquidity most of all. A flood of central bank dollars, or any dollars, for that matter, liquidity and dollar shortage would never be paramount for any – let alone so many – bank balance sheet setting.
Yet, here it is again and again:
Now that a full month has passed, it’s fair even necessary to go back and review what had happened around February 24/25. What was it? So far as the mainstream had been concerned, the 25th was a Treasury market blowout, the BOND ROUT!!!, the real one this time, picking up steam.
The 5-year UST CMT had blown out by a stunning 19 bps; the 10s shot up by 16 bps. Real yields flew upward, too. Pretty much everything safety related was crushed in the rush toward out-of-control inflation reflecting, surely, Jay’s version of his activities.
But was reflation really becoming the long-predicted inflationary massacre? In light of how things are turning out, and turning around in a wide variety of markets, now, could it have been something else? At the time, I said even the bond market blowup might have been something else (at least its intensity).
You might also remember February 25 for what had shown up out of the blue on February 24: Fedwire.
Just in time for last week's big bond action, talking about Fedwire and what's the difference between "operational errors" from different eras.— Jeffrey P. Snider (@JeffSnider_AIP) March 2, 2021
IOW, what systemic resilience actually means. To central banks, it's merely a buzzword.
Making Sense, Ep 52.1https://t.co/WI2wqhkA4c
I wrote on February 26:
Problems show up all the time; that’s the messy nature of just plain existing on our chaotic plane. Which ones become something more than the others, in the case of interbank issues, has to do, as discussed in detail last week, with systemic behavior.
Even safe assets exhibit serious price volatility. By itself, that’s also just how things go. Interpreting that volatility requires at the very least some acknowledgement of the systemic condition underneath, especially during times when there might not seem any need to go looking.
Sometimes Fedwire on fire is just a fire. Since August 9, 2007, acknowledging regular volatility, the global economy just hasn’t been that “lucky.”
In other words, problems in the “plumbing” (and we still don’t specifically know what really happened that day last month) aren’t by themselves game-changers; they’ve only become more likely to blow up into major issues since August 2007 because no matter what any Fed Chairman says they never provide the world with anything monetary; the only flood is illusion and, in Jay’s case, self-selected self-delusion.
As of right now, without more information, Fedwire and the charts is coincidental. It is, however, more than enough to raise suspicion especially as, flood myth aside, more and more of 2018 (or 2014) creeps back into view.
Every time we go through these things, including last year, the word which keeps coming up is fragile. Flood of dollars? Not a chance. Flood of fragile. With that, a very different set of boats will be needed for a rescue.