Alice in Central Banker Land
TThis article was written by Richard Horswill. All views and opinions are strictly his own.
Alice was not quite sure who she was going to meet at this years Central Banker Christmas tea party. Many of the characters she had met in the past had either been ousted due to political infighting, had switched positions on the table looking for a fresh start elsewhere, or had just moved on thinking they had done a good job and would leave to allow someone else to take the reins. The Hatter, known as Jerome to his friends, was at the last gathering as was Milton Cheshire Cat, so Alice felt a little more secure knowing at least two characters. Jerome the Hatter was a frustrating chap, who was prone seemingly to making hard and fast decisions only to change his mind and pivot based on the direction of the wind soon after. Milton Cheshire Cat was a great thinker with gifted insight based on clear headed logic. Alice liked him as he was always smiling, probably because he was one step ahead of everyone else.
Alice was due to meet the new White Rabbit, Kristalina, at the entrance of the Rabbit Hole as she had been asked by March Hare Klaus to escort Alice, as had been the tradition. White Rabbit Kristalina was new to the table and generally repeated what all the others said and did, as they were told that all had to be in agreement at all times to avoid mixed messaging. March Hare Klaus who was holding the tea party was secretly Mister Big and pulled the strings. Although Milton Cat knew he was a fake and just smiled with a knowing glint in his economic eye.
Alice was surprised to see that she was last to the party but put that down to being something of an outsider. All the rest of the revellers were topping up and tucking in to tea and cake. Alice was sitting between Andrew the Caterpillar and Queen Christine of Hearts. Christine of Hearts had been to the party before and knew Alice as she had previously met her at the entrance as the White Rabbit. She was now quite important and knew it, so was generally quite outspoken and abrasive. It was Caterpillar Andrew's first time at the party and he wanted to make a big thing of it, so was very loud, abrupt and a bit of a know it all. Alice found him quite tedious but was also a little scared as he had a reputation of getting people sacked. Lizzie T had had a disagreement with him and she didn't last long!
The last two on the table were Doormouse Joe and Rishi Mouse. Both were new boys and were very quiet as they were learning the Central banker secrets and had only really been invited to maintain the political messaging to the masses. Doormouse Joe in fact was asleep most of the time, so wasn't particularly taken seriously whereas Rishi Mouse, being a bit younger, was scampering around being everyone's best friend. He knew that should he put a foot wrong he would follow in the footsteps of Lizzie T.
Alice was enjoying the tea and cake but was not completely understanding the conversation as she only followed the mainstream media before, but what was said did make some sense. Milton Cheshire Cat was making the point that that the overall media coverage of the macro picture was extremely biased towards acceptance of the Central Bankers narrative of the "fight against inflation" which was not at all fair! "One knows that cost push inflation or supply shock" he said, "cannot be managed with interest rates adequately and as such the likely path that Central Banks in general have taken will certainly not provide for a soft landing." He added, "with tightening financial conditions at a pace never recorded before and a global debt base also never seen before, Central Bankers will surely be taking the global economy to the brink of a financial catastrophe if they persist with the rate hikes." Normalising financial condition was a pipe dream that would likely end badly and would yet again require a world of ZIRP (zero interest rate policy) & NIRP (negative interest rate policy) to stabilise the economic super tanker. "Long and variable lags need to be considered, as rate hikes take time to work," he insisted. "The markets are rational, which is why yield curve inversions are signalling policy error." He also suggested that Central Bankers were not the monetary Gods they possibly thought they were, and were clearly susceptible to error. They could not foretell the future, they didn’t have all the required data, and they were highly likely to be wrong again as they were in 2007. Milton Cheshire Cat had made his point, smiled and sipped his tea.
The others at the table were stunned by the normally quiet Cheshire Cat. Jerome the Hatter exclaimed that he had considered these possibilities but was so incensed by all the stock market participants never actually believing his commentaries. "I'll make the markets believe me" he said! "I'll squeeze until the pips squeak" he giggled. Mad Hatter forward guidance he called it! However, based upon his previous actions and all of the u-turns that had been made previously, the markets just couldn't take the Mad Hatter seriously, so he had decided that he would take the world to the brink of economic collapse by raising and raising and raising rates again and again to teach them all a lesson before he would change direction at the very last moment, and then pivot, to be proclaimed a hero. "That is of course unless you break something" piped up Andrew the Caterpillar, who had just quelled a pension fund panic. Queen Christine of Hearts nodded in agreement but would certainly not stick her head above the parapet for fear of losing it! She was just happy to go along with the Hatter’s plans. Maybe they'd believe him in future if he could pull this mad scheme off! He really wanted to follow in the footsteps of Paul the Giant, who apparently tamed the inflation beast and was his hero. He added that all they needed to do was continue to agree with each other and get the "Mouse like" political elites to convince the public. Where was the harm in that? Milton the Cat shook his head as if to say all hope was lost. Doormouse Joe continued snoozing as was his way, whilst Rishi Mouse scampered around the table making sure everyone had plenty of tea and cake.
Alice decided there and then that she should understand more about how economies work and certainly not take the comments from Central Bankers seriously until she had evaluated the situation herself. Alice committed herself to learning the facts by entering the economic Rabbit Hole of reality, rather than maintaining her position in the fantasy Central Bank world she was currently inhabiting with these rather strange tea party revellers. Rather than also relying on the talking heads, she would empower herself by recognising that all is not always as it seems and be in a position to comment with confidence and hopefully be able to remark on the possible irrationality of the current policies as explained by Milton Cheshire Cat. That is of course if they are able to hold the tea party next year. Tea and cake might not be available if the Hatter does his worst. It might not be economically viable! Particularly with the current tea party incumbents who really do seem to be full of it. Tea and cake that is.