Douglas Noland's Contributions

The repricing of global bonds continued, despite escalating tensions in Syria and soft payroll data. The latest G20 meeting was dominated by deep divisions over Syria in an increasingly divisive global backdrop.

Bond yields shoot to two-year highs and equities take notice. Last week’s CBB evolved from notes prepared for a presentation I was to give. Instead, a lively Q&A session developed and I never got to my notes. So, I’ll take this opportunity to share analysis that introduces “Government Finance Quasi-Capitalism.”

Chairman Bernanke last week buttressed global markets with his “If financial conditions were to tighten to the extent that they jeopardized the achievement of our inflation and employment objectives, then we would have to push back against that” comment.

The Bank of Japan has appeared to support a much weaker yen, while believing its aggressive bond purchases would place an ongoing ceiling on bond yields.

Tepper stokes the melt-up. “I am definitely bullish. The budget deficit is shrinking massively. Guys who are short, they better have a shovel to get out of the grave.” Hedge fund manager David Tepper, CNBC, May 14, 2013

Global central banks around the world continue to push monetary easing like never before. The Fed and Bank of Japan currently combine for almost $180bn of monthly quantitative easing, an historic experiment in monetary inflation.

Thoroughly relishing his “I told you so” moment, Paul Krugman titled his Friday New York Times piece “Not Enough Inflation”: “Ever since the financial crisis struck, and the Federal Reserve began ‘printing money’ in an attempt to contain the damage, there have been dire warnings about inflation — and not just from the Ron Paul/Glenn Beck types.

Last August, in a CBB titled “Do Whatever it Takes,” I drew parallels between the progression of experimental global central bank “money printing” to the escalation of aerial attacks against civilians during WWII.

It was a week of high-stakes drama for the euro zone. Last weekend saw Cyprus leaders and European officials agree to a “bail in” whereby bank depositors would be “taxed” to help pay for the cost of bailing out Cyprus’ troubled banking sector.

CNBC’s Andrew Ross-Sorkin, March 15, 2013: “The question of the morning: Do you want to break out the phrase again, ‘irrational exuberance’?”

There is dissention as well as confusion at our central bank. There are (“many”) members that believe open-ended QE was a mistake – and that this policy error should be corrected as soon as possible. Others believe aggressive QE could be continued indefinitely, or at least until unemployment has been reduced to a comfortable level.

I posited that Mario Draghi this past summer “singlehandedly” altered the global financial landscape. This miraculous feat was made possible with his bold guarantee of unlimited ECB bond purchases to backstop troubled euro-zone bond markets and system liquidity more generally.

As much as I respect Mr. Dalio’s analytical framework, I’ll continue to take exception with the general thesis that the U.S. has been moving through a successful “deleveraging” period.

Let’s start with a little “right tail” pontification. In simplest terms, how crazy could things get this year? I recall how crazy the SE Asian Bubbles turned in the fateful post-Mexican bailout year of 1996.

In response to deepening structural issues and in the face of ongoing global imbalances, central bankers further ratcheted up their runaway monetary experiment. Seemingly putting an exclamation point on an extraordinary year...

The monetary theorist John Law introduced paper money to France in the early eighteenth century. As an historic monetary expansion and speculative Bubble ensued, Mr. Law was revered. But when he lost control of his experiment – when his Mississippi Bubble scheme and the French economy later collapsed – Law was run out of the country.

At least for today (perhaps because I’m a little under the weather), when it comes to the Fed I’m about all ranted out. So this isn’t supposed to be a rant, but more an effort to tie together some loose analytical ends. Key facets of my Macro Credit Theory analysis seem to be converging: The myth of deleveraging, “liquidationist” historical revisionism, Rules vs. Discretion monetary management, and “Keynesian”/inflationist dogma.

It is inaccurate to blame the 2008/09 financial crisis for the lagging U.S. recovery. Poor post-Bubble economic performance instead relates directly to previous boom-time excesses.