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Friday, 20 October 2017

Jackson Hole's raucous rhetoric

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Anthony Peters, Swiss Invest Strategist

Anthony Peters, Swiss Invest Strategist

Back in the saddle after the long weekend in the UK and, for once, I read no papers, watched no news and kept well clear of my Bloomberg Anywhere app. Why should I waste my time watching markets which are not fundamentally changing and which remain as erratic as Arsenal’s defence.

However, I must take time to salute the muppet pundits who forecast that if Fed President Ben Bernanke didn’t announce a further round of quantitative easing at the Jackson Hole central bankers’ summer off-site on Friday, that stocks would plummet into black hole. Well done chaps; I see the Dow put on 390 points since Big Bearded Ben asked them to naff off.

What Bernanke did do was to finally step out and, in as many words, pass the buck back to the politicians. I doubt than many of us would disagree with the sentiment that the monetary authorities have done all they can to stabilise the economic ship and to foster growth in the economy. All the while, the political leaders have treated the efforts of the central banks as a “Get out of Jail Free” card and despite much raucous rhetoric have by and large done very little to address the key problems we are all facing.

ECB President Jean-Claude Trichet, freshly back from Jackson Hole, appeared in front of the European Parliament Economic and Monetary Committee yesterday and gave his standard speech on fiscal imbalances within the EU member states but I was struck by Sharon Bowles, who chairs the committee, when she bluntly declared in a subsequent interview that past growth had been funded by debt and that taking more debt in order to finance further growth was not an option. There’s a step in the right direction.

Monsieur Juncker: Audacity to disregard the markets?

However, on the flip-side, the euro-dinosaurs are still alive and kicking and ably represented by Jean-Claude Juncker, head of the Eurogroup, who again warned his colleagues not to listen too closely to markets. Markets, Monsieur Juncker, are the voice of institutional investors and institutional investors are the people who fund your flights of fancy. Those investors are mandated by your very voters, through their insurance policies and pension savings, as guardians of their hard-earned savings and you believe that you have the right to suggest that these markets are to be disregarded? There is an English bon mot which affirms that he who pays the piper calls the tune. Until our politicians are prepared to accept for themselves and explain to Joe Sixpack that they and their predecessors have been piling up debt in order to satisfy the principle of “panem et circenses” and that it is not only “Game Over” but “Tilt”, we are economically and fiscally going nowhere in a hurry.

I grant that there is much talk of austerity and no doubt also some quite serious action but if the growth forecasts for 2012, 2013 and 2014 need to be revised down which looks highly likely as we currently stand, then the fiscal screws will have to be tightened further. I don’t like the sound of higher taxation but there is probably no alternative as there is a significant difference between cutting the deficit and running a surplus. So far all we have seen is a slowing in the rate of growth of public sector debt. Without the benefit of balanced budgets and some proper inflation, the burden of public debt will become greater rather than less. This is what markets are telling government and government is listening, but not hearing and watching but not seeing. I think we still have a long way to go in this European and American sovereign debt crisis.

Poacher to gamekeeper

I am also following the pronouncements of IMF managing director Christine Lagarde’s with some interest. She has very quickly and quite clearly changed sides from poacher to gamekeeper as she too spoke in Jackson Hole and said: “The downside risks to the global economy are increasing” and continued that the economic risks “have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed”.

Hers was the cheapest and easiest escape from a Ministry of Finance imaginable but the speed of her conversion makes me feel that the national finance chiefs probably know and understand much more than they are prepared to say in public. Jackson Hole looks to have freed the monetary authorities and their representatives to begin to take the political leaders to task. The politicians have made ample capital of swiping at investment and commercial bankers. I wonder how they will respond to the central bankers? Blame them too?                    

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