Saturday, August 12, 2017

Even Top Citigroup Economist Warns of 'Financial Froth, Speculative Behavior'

“I think financial conditions at the moment for the United States are probably too easy. They encourage financial froth and speculative behavior. So taking some of this excess liquidity out of the system is beneficial for financial stability,” Willem Buiter, the chief economist of Citigroup, told the Epoch Times.

“Long-term rates are low, the stock market is booming, the currency is relatively weak, and policy rates are edging up in nominal terms very, very slowly. We’ll see one more rate hike, probably at the end of the year. So that is technically tightening relative to a situation we didn’t have, but there is very little absolute monetary tightness. Financial conditions and monetary policy continue to be very supportive of economic activity in the United States,” he said.

“Most of the commentators have never seen a rate increase before. The last time the Fed started hiking was nine years ago, so any rate hike looks dramatic, when in fact it is very little on top of almost nothing,” he explained.

Buiter is a Keynesian, but he sounds almost Austrian here--and a solid Austrian, not an Austrian-lite, since he understands the current rate hikes are not very significant.

Right now in the EPJ Daily Alert, I am warning that the stock market could seem major downside action just ahead, but I don't see a full blown recession in the near term.


1 comment:

  1. Buiter is saying that the Fed hasn't really or materially raised rates. This is and was essentially an Austrian-lite argument, in addition to that, if they did, inflated risk assets (not necessarily the real economy) would crash. Trump has said similar things. Since the first 25 bps Fed hike a few years and until very recently, you had been crowing that the Fed "raised rates" and there was no crash, thus proving your superior understanding of ABCT theory, or sumpin'. Now you seem to be finessing your position.