Turkey Pluckings Rise
Given the results of negative interest rate policies have ranged from no benefit to outright disastrous, one might think that such policies would be abandoned.
However, demand for alleged expertise in failed strategies is at a new all-time high.
In a turkey-plucking, grasping at straws maneuver, the Bank of Canada Taps Fed for Deputy Versed in Oil, Negative Rates.
The Bank of Canada plucked a researcher from the Federal Reserve Bank of San Francisco to help it navigate record-low interest rates and the lingering effects of a commodity shock.
Sylvain Leduc, currently a vice president at the San Francisco Fed, becomes the Canadian central bank’s newest policy maker starting May 2. The Montreal-born economist, 46, has published a string of papers in the last decade on subjects including the benefits of infrastructure spending, the links between exchange-rate swings and inflation, and extraordinary monetary policy.
Governor Stephen Poloz is seeking to deepen the central bank’s research as it tries to get a better handle on why Canada’s economy has struggled to grow despite interest rates at historical lows, and had been looking at francophone candidates strong in economic modeling. Among Leduc’s first tasks will be to shed light on why an export recovery has failed to materialize, even with a depreciating currency and gathering U.S. growth.
It’s China Stupid
I have no idea how much the Bank of Canada paid (overpaid) for a plucked turkey, but the experts on negative interest rates and competitive currency devaluations have all been wrong.
In a nutshell, the idea that one can devalue themselves to prosperity is flawed from the start. The more obvious answer is “It’s China Stupid”.
Canada is a big exporter of commodities. But China is rebalancing away from commodity-intensive growth to consumer-led growth. Even if China half-heartedly rebalances, commodity exporters will struggle.
Add to that the obvious fact that the US is slowing dramatically and the Eurozone Recovery has Peaked, and you have your answer (See Eurozone Recovery is Over: Deflationary Pressures Intensify as Growth Slows).
I offer the preceding assessment as a public service announcement to Canada, at zero charge. Whatever Sylvain Leduc has to say is not worth the price.
Mike “Mish” Shedlock
The US has clearly become a major exporter of monetary quackery.
Is this accurately reflected in our GDP statistics?
lol.
And will the world’s lemmings follow us off the Cliffs of Insanity?
Yes. Yes they will.
At least we’re still exporting something!
The other day I saw the “Empire state manufacturing index” and was shocked. My reaction was “They actually manufacture something in New York state?????”
I was shocked.
Negative interest rates make no sense but they have become the fad, no, the rage, of central bankers everywhere. How did this happen and why do otherwise smart people think they are a good idea?
When did it become reasonable to expect me to pay you to borrow my money?
Why would it become accepted economic theory to expect me to destroy my retirement savings just to go out and buy something or invest in something that is rising in price directly due to the greater fool’s theory?
Japan appears to be proving consumer preference and utility theory in that they are buying safes to store loose cash, since the bank will soon start charging them for making deposits there. Microeconomics 101 works.
I can understand why the ECB is going there … they are desperate and the Eurozone will fail economically as soon as the ECB stops subsidizing euro-debt and the less financially well off countries are forced to pay market rates. (All Draghi-speak is simply a distraction to make people ignore the obvious.) Japan is also desperate but marches to its own drum beat. Who’s next?
It’s not a fad. It’s another level of skim. Does not matter if it works or not. If you tell me I can skim a whole new layer of cream you think I’m going to argue???
Neg rates make a lot of sense, they are a very good policy … for the cronies who can use them to LBO real assets at no cost. Negative rates reinforce the plutocracy, and those who have a weight on public policy choices love them for a good reason.
The fact that they spell medium term disaster for honest citizens (for example by dooming any hope of serving decent pensions, wether public or private) is not really an issue when looking at the rationale behind public choices.
……Krugman unavailable?……………………
This is all because most Western countries are in a government gridlock like the USA. To stimulate you need to either lower taxes (which the liberals block) or increase deficit spending (which the conservatives block). So instead they ask the banks to “do something” and the banks only tool is interest rates.
Sorry Rob, but I have to disagree with you. The reason the economy is stagnant is there’s way too much debt piled up, both public and private that cannot be legitimately serviced. It needs to be written off. Right now all we’re doing is playing a stupid game of extend and pretend. As Mish and others have pointed out many times the solution to a debt crisis cannot possibly be more debt, and that’s all that deficit spending is. It’s utter foolishness that’s leading us all to ruin.
The reason the economy is stagnant is there’s way too much debt piled up, both public and private that cannot be legitimately serviced.
Precisely
Mish
“But China is rebalancing away from from commodity-intensive growth to consumer-led growth. Even if China half-hardheartedly reblances, commodity exporters will struggle.”
Well, I’ve been hearing that for years … still waiting for evidence.
World Bank
China Household Final Consumption Expenditure as % of GDP
2000 …. 47%
2014 …. 37%
http://wdi.worldbank.org/table/4.8
The Chinese consumer is satisfied with a cell phone, pair of sandals, chop sticks and a bowl of rice. He saves a third to half of his income. He invests in two chickens and a water buffalo. If he gets rich he buys Canadian citizenship.
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The Chinese consumer economy is tapped out, same as Chinese manufacturing.
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Canada should build factories that need commodity inputs.
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You only get 2 choices: negative interest rates or more federal fiscal spending. Pick one.
I’m not so sure China re-balancing is the right way to think about this. Certainly the reduction in Chinese demand for resource imports is a significant factor, but to ascribe that decline to the conscious efforts of the Politburo is a stretch. The Chinese market, as you have frequently illustrated, is rife with malinvestment, fraud, and corruption. Thus, this drop in demand is more likely a leading indicator that we are reaching the end of the Chinese building binge (and debt) bubble.
Chinese politicians and economic policy makers apparently never considered, or willfully avoided considering, that that their ability to influence the market and the pace of development would be inversely affected by their success. Now they have a problem: the regime has maintained its authority largely due to its success in promoting explosive economic development. That is a lie in itself, high growth is easy when you go from subsistence farming to manufacturing economy using foreign capital in under a decade. What they did not do then, they certainly can not do now. Which doesn’t change the fact that the Chinese people have expectations and the international community has deferred to the fiction to avoid missing out on the spoils.
So, what are they doing now? Lying, obviously. The growth numbers are fake, the government is actively participating in almost every aspect of the market, and as such the underlying true values have been buried by a tidal flow of falsehood. Any symptoms of this ongoing fraud are alternately suppressed, as Mr. Jinping attempted this past week in his rebuke of Chinese media for reporting insufficiently positive news, or excused as the intentional outcomes of government policy changes, as we have here with the “re-balancing’ propaganda line.
As for Canada, hell, Mish, I would absolutely love for you to take a serious look at the national and provincial debt situation. If you think Illinois is bad check out Ontario, just make sure you have a stiff drink on hand. That story has it all: unsustainable debt, public sector union manipulations, political corruption, media suppression, pernicious and growing taxes, and the public is afflicted with a case of terminal apathy.
I THINK IT IS PRETTY OBVIOUS THAT EVERY GENERATATION THAT HAS COME OF AGE SINCE WW2 HAS HAD THEIR OWN INPUT ON THE NWO. IT SEEMS THE ONE THAT IS IN POWER NOW IS, OUT FOR POWER FOR POWER’S SAKE. THINK OF THE PEDOPHILE PRIEST AND THEIR CONSTANT PUNISHMENT OF THEIR VICTIMS OR THE WOMAN STALKER FORCING HIS TARGET TO LIVE IN DAILY TERROR. THOSE PEOPLE AREN’T INTERESTED IN OUT COMES, PRODUCTIVITY OR PROFIT. THEY ARE SIMPLY OUT TO SCARE THE HELL OUT OF THEIR TARGETS IN ORDER TO FEED THEIR CONSTANT NEED TO FEEL SUPERIOR. AND IT SEEMS TO ME THAT IS THE MESSAGE BEING DELIVERED BY WALL STREET AND CAPITOL HILL. VIOLENCE, FEAR, AND DEATH FOR THE SHEER PLEASURE OF WATCHING YOUR VICTIMS SUFFER. IF YOU LOOK AT THE DECISIONS OF THE CENTRAL BANKS AND THE POLITICIANS IN THIS LIGHT THEN WHAT THEY ARE DOING MAKES SENSE.
Sara. Your comments are not only wrong but silly. Wall street is interested in profit. Nothing else. They can be criticized for that or course.