Is it just a drop in confidence in the Fed, or is the situation wider?
El-Erian, in his article on the problem of confidence in the Fed, as usual, quite subtly notes the points:
- “I can’t remember a time when so many former Fed officials were so critical of the institution’s economic forecasts”;
- “I can’t remember a time when the markets were so dismissive of Fed forecasts.”
El-Erian quotes a Brazilian banker as commenting that any Latin American banker would know how to manage the interest rate risk on the SVB’s balance sheet, and indeed it does. But the same Brazilian also said the following about the Fed: “It means the plane is flying but the pilot is not necessarily driving it”, which characterizes Powell’s attitude towards the Fed even better. The level of confidence in the Fed and its policies is severely undermined, but the situation is broader, although El-Erian does not go further in his conclusions. Let’s add:
The British public debt market that almost collapsed, in the style of Asian and Latin American crises, due to the actions of the populist prime minister, is quite in the Latin American style. Great Britain is the largest financial hub, weighing in at £12 trillion.
The Bank of Japan, rushing from their side to the side, but squeezed in a vice, which is already almost doomed (lucky/unlucky) is vehemently buying up public debt – this week I had to speed up again and go out with purchases twice, because. JGB10Y yield returned to 0.5, and since the beginning of the year ¥48 trillion (~$370 billion). Japan is the world’s largest investor with $10 trillion in external assets.
The not very “hyped” Swiss story of the end of last year, when the SNB was forced to get into the FR’s swaps in order to stop the flight of deposits from Credit Suisse (in the end, it didn’t help anyway and the banking shock in the USA drowned CS);
The ECB is arguing that maybe the funds should be bought out … so that nothing will fall for sure … otherwise, it could be an infection.
All this reflects a much broader history of degradation and corrosion of the financial systems and monetary and fiscal discipline of developed economies, than simply the decline in confidence in the Fed … which is increasingly bringing them closer to the emerging economies of the Asian and Latin American crises. Fiscal and monetary incontinence and populism, the throwing of regulators… this is far from a new story – these are just manifestations of this degradation.