Tags: imf | lagarde | bubbles | cnbc

IMF's Lagarde: 'Bubbles Part of Capitalism, Bubbles Eventually Burst'

IMF's Lagarde: 'Bubbles Part of Capitalism, Bubbles Eventually Burst'
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By    |   Tuesday, 08 September 2015 08:48 AM

In a speech to the G-20 meeting in Ankara, IMF Managing Director Christine Lagarde repeated earlier admonitions that the Federal Reserve should not raise interest rates in the face of slower global growth and downplayed the threat posed by asset bubbles.

Critics would say these are bubbles the Fed itself has created through its endless policies of QE and ZIRP (Zero Interest Rate Policy).

Lagarde called for Fed action to be delayed until it is “absolutely confirmed” by the data, whereas Fed Vice Chair Stanley Fischer has said that if the Fed waits that long, it has waited too long, and critics contend that time passed at least a year ago.

When asked about the risk of asset bubbles, Lagarde responded that bubbles are “part of the capitalist system, and bubbles eventually burst, and we will continue to see that.”

She went on to say that the real questions are how to achieve higher productivity and investment, and she favors more infrastructure projects.

Ignizio Visco, Governor of the Bank of Greece, interviewed at the G-20 meeting, contends that Greece is making a lot of important structural changes to its economy that he would not call mere “fiscal austerity.”

Therefore, it is unclear what form debt relief should take, what haircuts and rate cuts might be involved. When CNBC’s Stephen Sedgwick expressed skepticism that the Germans would agree, Visco asserted the need for debt relief is “well understood.”

With the Dow off 348 points at Friday’s low, recent market volatility has been reflected in the VIX, and Michael Gayed, of ATAC Beta and Inflation Rotation, told CNBC’s Simon Hobbs that this should affect the Fed’s decision as to when to raise interest rates. Hobbs countered that the Fed has a history of refraining from raising rates unless markets were prepared for it, as indicated by the VIX.

Michael Gayed
suggested that the issue is whether the Fed is going to fulfill an “implicit third mandate to protect asset prices,” which he argues was never meant to be part of the Fed’s job.

He called the notion that “the Fed has to come in and bail out the market every time it goes down” a “wildly dangerous” idea. He argues instead that it is not the Fed’s job “to stop volatility, because volatility means doubt and is healthy in a long-term bull market.”

Scott Brown, Chief Economist at Raymond James, looked at the nonfarm payroll numbers reported Friday and concluded that they show a tightening job market that justifies higher rates.

Former Fed Chair Alan Greenspan, now a private consultant, repeated his longstanding message on the need to reform entitlements, and he observed that the decision on what to do about raising rates by “a few basis points,” is a small one compared to “the budget mess we’re in.”

Randy Frederick, Managing Director of Trading & Derivatives at Charles Schwab, argues that there isn’t enough “improvement” in inflation to justify a rate hike yet. This writer would point out that ultimately the Fed’s inflation agenda is going to leave it on the wrong side of this issue.

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Robert-Feinberg
In a speech to the G-20 meeting in Ankara, IMF Managing Director Christine Lagarde repeated earlier admonitions that the Federal Reserve should not raise interest rates in the face of slower global growth and downplayed the threat posed by asset bubbles.
imf, lagarde, bubbles, cnbc
516
2015-48-08
Tuesday, 08 September 2015 08:48 AM
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