The Hippocratic Oath is one of the most widely known Greek medical texts. It requires a new physician to swear upon a number of healing gods that he will uphold a set of professional ethical standards. The premise of the original Oath, which supposedly started out like this is clear: First, do no harm. Over the last several years, a new oath has appeared in the world of finance as global investment banks have been hauled in front of Senate committees, Congressional panels, various regulatory bodies, and (what always used to be the harshest of judges) the public: the Hypocritic Oath. It begins thus: First, admit no wrong.
The Hypocritic Oath has been adopted by a multitude of banks in recent years and, like the Fifth Amendment, once it was rolled out, it seems to have been accepted absolutely without question…
And so it is that, with its policy decisions, the Fed has impoverished a generation of savers through the confiscation of safe interest income (thus violating the Hippocratic Oath, if Fed Governors are economic doctors); and now, courtesy of Curdia and Ferrero, it looks for all the world as though the Fed has also broken the Hypocritic Oath and admitted doing wrong.
Yes, it’s not an explicit admission, but if buying $600 billion in long-term treasuries and reinvesting another $250 million of proceeds from earlier MBS purchases has resulted in just 0.13% of real growth, I’m afraid the question has to be asked, was it worth making a direct transfer from savers on the order of hundreds of billions of dollars in order to stop the banking system melting down?
We may well learn more about the ultimate effectiveness of the Fed’s programs when we hear at their September meeting whether they will begin their dreaded tapering; but in advance of that watershed moment, we were recently given some great insights into what might happen by developments across the pond in the land of my birth, the United Kingdom.
So, the (inflation-adjusted) 64-bazillion-dollar question.
Can any of the world’s central bankers bend markets to their will forever?
Unfortunately for Carney and his counterparts at other central banks, they believe that the decision will ultimately be theirs and that the markets will do what they say, because … well, because for the last few years they have done.
These decisions are NEVER made by central banks in the long term — just ask Arthur Burns, who, interestingly enough as we contemplate a Larry Summers-led Fed, had a reputation of being overly influenced by political pressure in his monetary decisions during his time as Fed Chairman.
Full Grant Williams’ Things That Make You Go Hmm letter below: