Tags: Chris Watling | Greece | Grexit | IMF | Federal Reserve

Grexit Doesn't Threaten Markets

By    |   Thursday, 18 June 2015 07:39 AM

A consensus has developed, as reported here, that regardless of the outcome of the latest Greek drama, the risk to markets has already been contained because it has been transferred from banks to official entities like the IMF. For this writer, the implication means that a bank bailout has already occurred.

In the first CNBC clip, Chris Watling, CEO of Longview, confirms that the ring-fencing of Greece began three years ago and made equities safe for investors.

He also acknowledged the continued importance of Fed policy.

As the FOMC completed its meeting as expected, with no action to raise rates, former Fed Governor Robert Heller challenged the widely accepted view associated mainly with Fed Chairs Ben Bernanke and Janet Yellen, that the Fed should aim to increase inflation until it reaches 2 percent before raising rates.

He declared, “The congressional mandate for the Fed is very simple. There shall be price stability.”

He insisted this does not mean 2 percent inflation. Heller’s prescription is, “Keep it somewhere between zero and 2 percent, and everything will be well. To push it artificially up will not serve the Fed well or the country, either.”

This writer would add, as the late Robert Weintraub, a student of Milton Friedman, said, the Fed goes off course when it departs from its price stability mandate to pursue other goals.

In response to an interviewer’s question, Heller insisted that to depart from its price stability mandate in response to problems in the international economy is “misguided, a road to confusion.”

Asked whether the Fed is risking acting too soon, Heller asked, “How long does it take this baby to be born? We’ve spent seven years at a zero interest rate. Seven years! It’s laughable. It can’t be premature.” Weintraub used to ridicule the Fed for lowering rates in response to events like the anchovies leaving the coast of Peru.

Next, John Carey, EVP of Pioneer Investors, warned that the Fed is risking starting inflation down the road, as many observers have been saying for years, only to be ignored. Carey is looking for an improved economy buoyed by consumer spending and doesn’t think it is “fragile, the way the Fed seems to believe it is.”

This writer would add that it will be interesting to see how consumer spending develops given the contrary warning of another expert this spring that consumer spending was unsustainable due to consumer debt and would falter in the fall.

Finally, with video of pro-government demonstrators in the background, CNBC’s Michelle Caruso-Cabrera reports that the demonstrators illustrate the political forces on the government to resist pressure from the IMF to accept pension cuts at the risk that the authorities will cut off funding for the government and the banks.

This writer would add that it looks like the creditors of those Greek banks have long since been bailed out, following a pattern that is decades old.

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Robert-Feinberg
A consensus has developed, as reported here, that regardless of the outcome of the latest Greek drama, the risk to markets has already been contained because it has been transferred from banks to official entities like the IMF.
Chris Watling, Greece, Grexit, IMF, Federal Reserve
485
2015-39-18
Thursday, 18 June 2015 07:39 AM
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