Via Bloomberg’s Richard Breslow,
One of, perhaps too many, concepts that I abhor, is this increasingly trotted-out warning that we shouldn’t “Talk ourselves into a recession.”
I don’t believe it on its face. More offensively, it is incredibly condescending, along the lines of “You can’t handle the truth.”
Far more dangerously, it prevents policy makers from openly addressing the issues they have been so complicit in creating.
It’s used as a convenient scapegoat to excuse utter policy paralysis.
The mistaken belief that the blame for an economic slowdown can be put on falling animal spirits, that must be managed by our betters, rather than the real economy along with policy and regulatory mistakes has been around for a long time. It has just become more dangerous over time. And it contributes to the almost laughable contortions that central bankers go through in difficult moments when delivering their proliferating speeches. Cue the faux optimism while discussing headwinds and political dysfunction.
It became a political football when the press was blamed for contributing to the defeat of first President Bush in his attempt to win a second term. Back then it was political sour grapes. When James Carville used the expression that became, “It’s the economy, stupid” he wasn’t exhorting people to make things up. The economy had already faltered.
It can lead to monetary policy and regulatory lapses, as it did leading up to the start of the financial crisis. Everyone claims to have been among those that foresaw the excesses that eventually blew things up. But it was supposedly bad form to talk about it publicly. Well as they say, history is written by the winners.
The notion became orthodox doctrine after the Brexit referendum. Officials who talked about the potential threats to the U.K. economy from leaving the EU were accused of political scaremongering. Even the BOE Governor and an ex-Chancellor of The Exchequer couldn’t escape the charge. All well and good, things held together better than feared. But as we watch the government flail around as the original deadline looms, who thinks they’re really better off having insisted that it would all go seamlessly?
Which brings us to the here and now. There has been no shortage of speeches and interviews this week with two components. They highlight the ongoing threats to the global economy and acknowledge the deterioration of economic numbers. Then include a note on the overall optimism of the speaker and conclude with a “base case” scenario of further Fed rate hikes this year. Unless they’re among those blaming the past rate hikes for the present woes.
My favorite one was ECB Executive Board member Benoit Coeure saying today that the persistent European economic weakness took them by surprise, but it’s too early to conclude whether they will raise interest rates this year.
Wait and see might be a prudent approach for the Fed but if it’s used as a tacit admission that there isn’t much the ECB can do, or the EU is willing to, makes me wonder if just feeling lucky is in their policy toolkit.
Meanwhile, the IMF’s David Lipton reprised his warnings that the world is unprepared for the consequences of a serious global slowdown. He went on to say that if a recession were to come, we should all hope it is of the “garden variety” kind. And he spiced it up by adding that the rise in populism could prevent either monetary, let alone fiscal, policy makers to respond adequately.
Talking about something doesn’t make it so. Not talking about something doesn’t make it go away. But agreeing to ignore something to avoid doing anything about it, is just plain irresponsible.
via ZeroHedge News http://bit.ly/2G2i3lF Tyler Durden