US industrial output weaker; Fischer warns on low rates; NZ-UK to start trade talks; big traders target Aussie long bond; UST 10yr yield at 1.78%; oil down, gold up; NZ$1 = 71.4 US¢, TWI-5 = 75.4

If I was to negotiate a free trade deal with the UK my starting position would be lets treat each others goods, services, and citizens as though they were domestic. Let's go bold.

No chance uk will want anyone who chooses to walk in to have an automatic welcome after getting out of that at great cost in Europe. Nor do we! Anyone we take in should contribute npv to current NZ citizens - after due allowance for dependants they may drag along with them. Pretty obvious really

The American economy may face longer and deeper recessions in the future if interest rates remain stuck at current low levels, Fed Vice Chair Stanley Fischer said overnight. In this latest speech he mapped out a world in which low rates hamstring central banks from effective recession-fighting. The RBNZ should be wary of firing all its bullets during a time we are not even close to being in a recession.

Hmmmmm...

It has been the biggest lie of the latter half of the 20th century and so far of the 21st: economists are believed to be experts on the economy. They are not; they are statisticians and Yellen’s speech leaves absolutely no doubt as to this fact. She starts out by making an astounding claim:

For example, hysteresis would seem to make it even more important for policymakers to act quickly and aggressively in response to a recession, because doing so would help to reduce the depth and persistence of the downturn, thereby limiting the supply-side damage that might otherwise ensue. In addition, if strong economic conditions can partially reverse supply-side damage after it has occurred, then policymakers may want to aim at being more accommodative during recoveries than would be called for under the traditional view that supply is largely independent of demand.

Technical jargon aside, the message is clear enough. Most people would respond to her by exclaiming, “what the hell have you been doing?” All we have heard since the “unexpected” panic was how “accommodative” monetary policy would be, exemplified by quantitative easing in increasing doses. Now she says that “policymakers may want to aim at being more accommodative during recoveries?” But what she really said is that economists are starting to realize what was wrong was not necessarily QE but “under the traditional view” with which it was designed.

And it is where these mistakes have been made that is most exasperating. Economists, people caught up in their math, are now suggesting that they really needed more common sense and maybe less religious devotion to correlations of past conditions that they believed were ironclad rules.

There is actually much more to her speech that deserves highlighting if for nothing else how it flies in the face of the image central bankers have carefully crafted for themselves all during these decades. These are supposed to be the “best and brightest” who have all the answers on markets and economy, and in the media and in politics they are still treated with full reverence in this manner. Reading Yellen’s speech, however, you are left with the distinct impression that she actually knows less than the average household.

I have been writing for years that they really don’t know what they are doing. For once, the Fed Chair opened that door. When it (eventually) swings out wide enough, the recovery can begin. Read more

A magnificent spike in nzd following inflation data