The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder

[marmar]

from Naked Capitalism:


The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder


If anyone doubted that Ben Benanke’s “we’re convinced the economy is getting better, so take your lumps” press conference after the FOMC statement last week was awfully reminiscent of 1937, the newly-released Bank of International Settlements annual report is tantamount to a kick to the groin. And to change metaphors, if the Fed’s sudden hawkish posture is playing Russian roulette with the real economy, the BIS just voted loudly for putting a couple more bullets in the cylinder.

Investors took the news badly, with 10 year Treasury yields rising from 2.18% before the FOMC statement to 2.53% at the end of Friday. And the selloff continues, with the 10-year yield as up to 2.62% as of this writing.

Some commentators thought the Fed talk was misread, pointing to the various thresholds and triggers the central bank set for for commencing its QE exit and they actually weren’t so terrible. Others refused to believe Bernanke was serious, with Marc Faber saying that bonds, stocks, and equities were “very oversold” and arguing, “We are going to go with the Fed to QE99.”

Unfortunately, the worry warts are looking to have the more accurate reading. Tim Duy zeroed in on a key bit of information, namely, St. Louis Fed James Bullard’s speech on Friday, on his dissent from the FOMC’s vote (Bullard thinks low and falling inflation means the economy is weaker than his colleagues believe). This was Duy’s takeaway:

Why would the Fed lay out a plan to withdraw accommodation – which in and of itself is a withdrawal of accommodation – at a meeting when forecasts were downgraded? Because, as a group, policymakers are no longer comfortable with asset purchases and want to draw the program to a close as soon as possible. And that means downplaying soft data and hanging policy on whatever good data comes in the door. In this case, that means the improvement in the unemployment rate forecast. Just for good measure, let’s add on a new policy trigger, a 7% unemployment rate. In my opinion, it is not a coincidence that they picked a trigger variable where their forecasts have been most accurate or even too pessimistic. They loaded the dice in their favor….

I think market participants clearly heard Bernanke. After weeks of being soothed by analysts saying that the data was key, that low inflation would stay the Fed’s hand, Bernanke laid out clear as day a plan for ending quantitative easing by the middle of next year. Market participants then concluded exactly what Bullard concluded: It’s the date, not the data.

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The complete piece is at: http://www.nakedcapitalism.com/2013/06/the-bis-has-lost-its-mind-advocates-kicking-citizens-and-the-bond-markets-even-harder.html

[Democracyinkind]

1. Ah the BIS. They really never got over their fascist origins.

I used to have a job that forced me to deal with these nitwits in Basel on a regular basis. Run by the same kind of sick fucks as when they greased the Nazi war machine, with the same sick economic philosophy, just some better PR. They (especially the Brits) wanted to shut BIS down at Bretton Woods (or was it Dumbarton Oaks - can't remember) but the Americans we're already fighting the Cold War and thought that an alternative (or rather parallel), fascistic underpinning of the world economy might just be an asset in bringing down the evil empire.

All this is to say... Expect only the worst from the BIS if you're not part of the 1%.

Very interesting read though. Thanks for posting. I'm off to read the rest of the article.