GM05: FEDs reaction to the Global Pandemic ft. Danielle DiMartino Booth

Our guest today is Danielle DiMartino Booth, CEO and chief strategist for Quill intelligence. One of the major themes of our podcast series so far has been the reactions of central banks to the global pandemic, and it’s likely effects on inflation and asset prices. As a former Fed insider, with nine years of experience as an advisor to the president of the Dallas Fed, Danielle is uniquely positioned to give us her take on the action taken by central banks so far, and what their next move is likely to be. However, our conversation was not just about the Fed, as it covered many other interesting topics including the curious timing of the US-China trade talks and when we first learned about COVID in the autumn of 2019 (one for conspiracy theorists!). Topics Discussed in this Episode COVID-19 QE and the transmission mechanism China “The number of people moving from Chinese Suburbs, urbanization if you will, a massive, massive secular trend, was coming to an end… You pile the trade war into this preexisting dynamic, in 2019, and you end up with the global economy headed for recession. At the same time, you had leverage, of course, in a very, very bad place.” US bond market Monetary policy rules and the choice of inflation measure Democracy: Revolution or direct democracy? “Janet Yellen and Ben Bernanke were fighting, and fighting, and fighting for this two percent target for years but it wasn’t until Alan Greenspan left the Fed that they were able to actually implement it.” China-US trade Inequality “The Fed is doing a lot for the top 1%. The Fed is helping private equity not get buried in some very bad investments that they have made. They’re helping the wealthy stay wealthier.” Negative interest rates “The one thing that I will give J. Powell credit for is holding the line on negative interest rates. It’s clear from listening to everybody on the committee and every district president that there is unity and a cohesive solid front against negative interest rates” Bitcoin and ‘Fedcoin’ Links Catch up with Danielle and learn more about her work: Quill Intelligence Follow Niels, Moritz, & Rob on Twitter: Niels Kaastrup-Larsen Moritz Seibert Rob Carver Subscribe on: Full Transcript The following is a full detailed transcript of this conversion. Subscribe to the podcast to get access to all of our transcripts as eBook downloads! Niels Do they really believe that they’re doing the right thing or is it just…? Danielle They really. No, no, they really do. There are occasional voices of reason. J. Powell was one of them. He read my markets briefings that got under the skin of Bill Dudley and Timothy Geithner. They hated the work that I did for Fischer all those years ago but Powell didn’t, he appreciated it. In October 2012 he’d only been on the Federal Reserve Board for two or three months, at that point. It was one of his first FOMC meetings and he said that the Federal Reserve’s policy of quantitative easing was inflating a duration bubble across the entire credit spectrum, and that quantitative easing could become habit-forming, and that if and when the time came to try and extricate themselves and normalize interest rates he was in the driver’s seat trying to do that and to shrink the size of the Fed’s balance sheet, that it could be problematic. Well, he discovered what problematic was when the U.S. high yield bond market shut down for a record forty-one days between November the 14th on, which caused all the world regulators, the VIS, everybody collateral backing, all of these ETFs were trading ‘by appointment only’ spreads gapped out, redemptions went through the roof and then we had the Powell Pivot. So, he understood what the Fed was creating – the monste...