Readers of this column occasionally ask me how I think of something to write about every week. After my recent series on economics I had planned to write about something else. So how come this is another column on economics?
The answer to both questions is that I can always depend on some event that provokes me, giving me something to write about.
The recent event was the ridiculous, totally irrational reaction of financial markets, augmented by the sheep in the mainstream media, following an innocuous remark by new Fed Chair Janet Yellen, regarding future interest rates.
Here's what happened. Yellen had just emerged from her first meeting as Fed Chair. In a press conference after the meeting, she suggested that interest rate increases might come about six months after the bond-buying program ends - a conclusion that could come this fall.
Wow. You'd think that she had jerked the rug out from the entire U.S. and world financial system. The Dow-Jones average fell 114 points the next day and bond interest rates spiked. The Wall Street Journal financial page screamed "Stocks shudder on rate talk." The broadcast media joined in the chorus, shocked that Yellen would declare that interest rates might rise sooner than some expected.
The most charitable comments chalked it up to "rookie error." Typical of the commentary was this by a money manager, "This could have been a rookie gaffe on Yellen's part. This was, after all, her first press conference."
Let's keep this in perspective. These Wall Street money managers overseeing billions of dollars have to know that these historically low interest rates cannot and should not last forever. As the economy improves, interests rates will rise and bond prices will fall.
Never mind that Yellen offered plenty of caveats with her statement. And never mind that Yellen was vice chair under Bernanke, and now as chair gives no indication of radical policy change. The Fed's actions have been measured and cautious with respect to employment and interest rates and there is every indication that will continue.
It is unlikely that the Fed will do anything rash. But Wall Street, the financial gurus, and the mainstream media went nuts for a day.
The next day, cooler heads prevailed and the markets rebounded. At least one observer got it right. "It just tells you how nervous bond investors are on rising rates," suggested a money manager who oversees 12 billion of investors' dollars.
While we can understand nervousness in the bond market over potentially rising interest rates, it should not take a remark by Yellen to provoke it.
Under both Bernanke and Yellen, the Fed is attempting to be more open and communicative than under previous Chair Alan Greenspan. The financial community characteristically hangs onto every of the Fed Chair, looking for, and exaggerating, every nuance.
The difference between previous Chair Greenspan and his successors is that Greenspan was purposely opaque - it was part of his shtick. Greenspan once remarked, "If you understood me, I must have mis-spoke," or words to that effect. Instructors of English composition would have given Greenspan straight F's. But it was deliberate. He was a showman, offering financial reporters plenty of grist to speculate on what he really meant by his double talk.
The "Maestro," as he was dubbed by fawning sycophants of the media, sopped up credit for the booming economy of the Clinton Administration, as if it were all due to his genius in manipulating short-term interest rates.
Greenspan counseled that the housing bubble was no problem, as markets would correct it. He saw derivatives and related financial instruments as evidence of the creativity of big banks.
He was a shill for the Republican Party and his Wall Street pals. He was the slickest con artist to come down the pike since P.T. Barnum.
He was fortunate that his term ended just prior to collapse of Wall Street's house of cards and the Great Recession beginning in 2008. It was left to his successor, Chair Ben Bernanke, and Vice Chair Janet Yellen, to clean up the wreckage in considerable measure due to Alan Greenspan's blind eye.
For his efforts, Bernanke has received his share of criticism. Some say the Fed kept interest rates too low. But under the circumstances, he had no choice. Economic recovery should not have been left exclusively to monetary policy. Fiscal policy should have played a major role in the recovery. But as the dysfunctional congress abandoned its proper role and failed to institute an appropriate counter cyclical fiscal policy, it was all left to the Fed. But that's another story.
In any case, the Fed is attempting to be more open and communicative regarding its monetary policy. Obviously, some money managers considered Yellen's comments "too open," never mind that there was nothing shocking in what she said.
Will it rain next week? It all depends on the weather. Will interest rates rise in six months? It all depends on the economy. Will the economy improve? Neither Fed economists nor Wall Street soothes can predict that.
But an improving economy is very plausible. And if Wall Street money managers are worried about bond prices that must fall with improving interest rates, prudence would suggest that they act now rather than wait for Yellen to remind them of the obvious.
Meanwhile, this recent nonsense should remind her not to sneeze or clear her throat at the wrong time lest it throw the markets into financial panic.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
The answer to both questions is that I can always depend on some event that provokes me, giving me something to write about.
The recent event was the ridiculous, totally irrational reaction of financial markets, augmented by the sheep in the mainstream media, following an innocuous remark by new Fed Chair Janet Yellen, regarding future interest rates.
Here's what happened. Yellen had just emerged from her first meeting as Fed Chair. In a press conference after the meeting, she suggested that interest rate increases might come about six months after the bond-buying program ends - a conclusion that could come this fall.
Wow. You'd think that she had jerked the rug out from the entire U.S. and world financial system. The Dow-Jones average fell 114 points the next day and bond interest rates spiked. The Wall Street Journal financial page screamed "Stocks shudder on rate talk." The broadcast media joined in the chorus, shocked that Yellen would declare that interest rates might rise sooner than some expected.
The most charitable comments chalked it up to "rookie error." Typical of the commentary was this by a money manager, "This could have been a rookie gaffe on Yellen's part. This was, after all, her first press conference."
Let's keep this in perspective. These Wall Street money managers overseeing billions of dollars have to know that these historically low interest rates cannot and should not last forever. As the economy improves, interests rates will rise and bond prices will fall.
Never mind that Yellen offered plenty of caveats with her statement. And never mind that Yellen was vice chair under Bernanke, and now as chair gives no indication of radical policy change. The Fed's actions have been measured and cautious with respect to employment and interest rates and there is every indication that will continue.
It is unlikely that the Fed will do anything rash. But Wall Street, the financial gurus, and the mainstream media went nuts for a day.
The next day, cooler heads prevailed and the markets rebounded. At least one observer got it right. "It just tells you how nervous bond investors are on rising rates," suggested a money manager who oversees 12 billion of investors' dollars.
While we can understand nervousness in the bond market over potentially rising interest rates, it should not take a remark by Yellen to provoke it.
Under both Bernanke and Yellen, the Fed is attempting to be more open and communicative than under previous Chair Alan Greenspan. The financial community characteristically hangs onto every of the Fed Chair, looking for, and exaggerating, every nuance.
The difference between previous Chair Greenspan and his successors is that Greenspan was purposely opaque - it was part of his shtick. Greenspan once remarked, "If you understood me, I must have mis-spoke," or words to that effect. Instructors of English composition would have given Greenspan straight F's. But it was deliberate. He was a showman, offering financial reporters plenty of grist to speculate on what he really meant by his double talk.
The "Maestro," as he was dubbed by fawning sycophants of the media, sopped up credit for the booming economy of the Clinton Administration, as if it were all due to his genius in manipulating short-term interest rates.
Greenspan counseled that the housing bubble was no problem, as markets would correct it. He saw derivatives and related financial instruments as evidence of the creativity of big banks.
He was a shill for the Republican Party and his Wall Street pals. He was the slickest con artist to come down the pike since P.T. Barnum.
He was fortunate that his term ended just prior to collapse of Wall Street's house of cards and the Great Recession beginning in 2008. It was left to his successor, Chair Ben Bernanke, and Vice Chair Janet Yellen, to clean up the wreckage in considerable measure due to Alan Greenspan's blind eye.
For his efforts, Bernanke has received his share of criticism. Some say the Fed kept interest rates too low. But under the circumstances, he had no choice. Economic recovery should not have been left exclusively to monetary policy. Fiscal policy should have played a major role in the recovery. But as the dysfunctional congress abandoned its proper role and failed to institute an appropriate counter cyclical fiscal policy, it was all left to the Fed. But that's another story.
In any case, the Fed is attempting to be more open and communicative regarding its monetary policy. Obviously, some money managers considered Yellen's comments "too open," never mind that there was nothing shocking in what she said.
Will it rain next week? It all depends on the weather. Will interest rates rise in six months? It all depends on the economy. Will the economy improve? Neither Fed economists nor Wall Street soothes can predict that.
But an improving economy is very plausible. And if Wall Street money managers are worried about bond prices that must fall with improving interest rates, prudence would suggest that they act now rather than wait for Yellen to remind them of the obvious.
Meanwhile, this recent nonsense should remind her not to sneeze or clear her throat at the wrong time lest it throw the markets into financial panic.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
