“Investors parse Federal Reserve meeting notes the way believers in Kabbalah parse ancient texts,” wrote Time magazine’s Rana Foroohar recently. “If Ben Bernanke says might rather than may regarding a particular policy action, markets react. The import of his words, perceived and real, has grown in tandem with political dysfunction in Washington, since Bernanke – along with his Continental counterpart Mario Draghi, head of the European Central Bank – are the last men standing between the West and economic stagnation. Politicians can’t or won’t act to stimulate the economy. Only central bankers can save us.”
Really? With more of the same? With more Fed-speak?
In an interview in Bloomberg Businessweek, former Fed Chairman Alan Greenspan confessed to talking to his successor: “We are both fluent in Fed-Speak.” He refused, however to comment on future monetary policy: “I’ve stayed away from discussing that issue since I left the Fed. It’s a very tough environment. The Fed’s a terrific institution, and I spent 18 ½ years of my life sitting around that place, and that and the Supreme Court are as close as you get to what the ideal ought to be.”
Really? More Court-speak?
Elsewhere in the interview, Greenspan explained Fed-speak as used in congressional testimony: “On questions that were too market-sensitive to answer, ‘no comment’ was indeed an answer. And so you construct what we used to call Fed-speak. I would hypothetically think of a little plate in front of my eyes, which was the Washington Post, the following morning’s headline, and I would catch myself in the middle of a sentence. Then, instead of just stopping, I would continue on resolving the sentence in some obscure way which made it incomprehensible. But nobody was quite sure I wasn’t saying something profound when I wasn’t. And that became the so-called Fed-speak which I became an expert on over the years.”
Dr. Doom, aka Nouriel Roubini, remains pessimistic about whether Fed-speak or ECB-speak can stave off disaster. Roubini in Bloomberg Businessweek says there is only a 10 probability of his “Goldilocks scenario” whereby “in which maybe things improve in the U.S.—slowly, slowly. In which the euro zone muddles through and maybe goes toward a greater economic fiscal and political union. China is able to have a soft landing. Emerging markets do the structural reform that they need for growth. And we avoid conflict in the Middle East. Now, if all of those things are happening, well, I don’t expect that by next year the world goes into high economic growth, but maybe emerging markets can grow. And maybe after another two or three years of that bumpy road ahead, advanced economies go back to potential growth. Potential growth maybe is the best we can hope for, for the time being.”
You don’t have to agree with Dr. Doom to know that Fed-speak can’t...and won’t save us. We need to change the language...to gold-speak.