Zero, the new Fed hero

Zero. One of the definitive contributions of India to the world of mathematics. The number Aryabhatta is known by. But even Aryabhatta would have been unable to explain the strange fascination that the Fed has for the zero.

They firstly pumped up the banking system with nearly zero real backing. This zeroic, errr, heroic leveraging was done with zero financial regulation so that the zeros on the other side of one would keep rising. This not only got them the necessary excitement in growth but also created numbers out of pure zero for other markets. The excitement proved unsustainable and in 2007, the Fed fell down and broke its crown and the world came tumbling after.

They managed a spectacular zero growth rate in 2008 and 2009, only wavering in their eternal tryst with the Arya number by sometimes recording a negative. Even in the negative however, they experienced maximal satisfaction by finding their favourite number moving markets elsewhere. Ah! Here’s the EU showing zero growth. OMG! Greece has just crossed the double zero limit and is showing more than 100% debt numbers. Greece was not alone though in its century point. The OPEC also showed oil prices moving beyond $100 a barrel starting 2008. Finally. The world started on a recession.

The Fed was upset about two thorns in the East. Thorns that wouldn’t let the zero dominate. China and India, willing to post zeros neither on their inflation account, nor on their growth account. But what is this? The Chinese Central Bank works with zero transparency. Hurrah! Looks like there’s hope after all. And India? That’s simple. Zero governance. The US tried not to look too gleeful and slashed the interest rates, all the way down to zero in December 2008.

6 long years later, things were beginning to look up. Jobs data started looking upbeat; growth was picking up. Finally, it looked like inflation was around the corner and the Fed would officially be required to move away from its fav zero interest rates. How terrible! Dismay of the nth order crept in as the Fed realized that data itself now calls for a rate hike. Solution? Simple. When you can’t change the data, change the analyst! Get a dove in the Chair. Same data, different interpretation. There was a tough fight between Larry Summers and Janet Yellen, but the Fed “zeroed” in on the dove with certainty. Yellen made the perfect move by not moving; Fed funds rates continued to delight Aryabhatta.

There were also others hired to tell the globe about deepset Amercian woes. Thomas Piketty went so far as to say that it’s too premature to say that problems were over; they in fact have not begun at all.

Finally in 2015, US data became so bright that it was impossible for even doves to ignore the tell-tale signs of growth. Consumer spending had never looked so good before and the Labor Bureau simply couldn’t hide the better employment numbers anymore. Drat it! Aryabhatt frowned heavily on Yellen. However, this is one strong dove. She calmly placed a call to China. Wreak havoc, she ordered Xiaochuan, else I swear I’ll send the Arya number to your BoP.

She smiled as China devalued and all hell broke loose. Any increase in the funds rate would now cause even more turbulence. Now no one can ask me to raise interest rates anymore. But there was now a new problem on her horizon. Sigh! DeBeers had sent her a notice of IPR violation. They apparently had an issue with the new Fed tagline “Zero is forever.”

 

 

Advertisements

5 thoughts on “Zero, the new Fed hero

  1. hello mam! your article is a great read as usual…can you pleas explain the last part about chinese devaluation and fed rate….not the turbulence, but the reason US could want the chinese to devalue, generally they want them not to….kunal

    Like

    • Hi Kanal, Well, firstly I have created a backdrop that the Fed wants to go on with the zero interest policy. Now, the Chinese devaluation means that the dollar strengthens. If the Fed hikes rates further, the dollar will strengthen some more and there’ll be even more turbulence..

      Like

  2. “the Fed fell down and broke its crown and the world came tumbling after” This line was epic – not just it reminds me of that nursery rhyme but it describes the situation perfectly!

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s