Ed in the clouds about ‘grown up’ markets
Ed Balls (Independent interview), 26th September 2011:
He dismisses claims that any change to the cuts strategy would be counterproductive because it would spook the financial markets, saying they are “grown up” and want a credible plan.
Or maybe they don’t. Maybe they want a big recession instead.
City of London trader Alessio Rastani, 26th September 2011:
For most traders, we don’t really care that much how they [governments] are going to fix the economy, how they’re going to fix the whole situation. Our job is to make money from them. Personally, I’ve been dreaming of this moment for three years. I have a confession. I go to bed every night and I dream of another recession…..
Governments don’t rule the world. Goldman Sachs rules the world. does not care about this [Eurozone ] rescue package, neither do the big funds….
Ed really, really does need to move on from the idea that ‘the markets’ are made up of a broadly benevolent bunch who really just want stability.
It is in the interests of a significant section of the financial elite to have instability, because our honest friend Alessio says, that’d when hedging and other techniques come into play so that those with the power and resources to play the game make big money at the expense of the powerless.
Why did the markets react so negatively to Operation Twist in the US? The already conventional wisdom is that they weren’t reassured by it, and that their ‘animal spirits’ were lowered by the continued threat of recession.
But I posit that the real reason for their negative reaction is that, led on by Alessio’s ‘Goldman Sachs and other big funds’, they realised that Operation Twist, by focusing its measures more directly on the real economy than ‘traditional’ QE does, was not to their advantage, and that they could send a ‘signal’ to governments that what they really want is more traditional QE. As Chris Dillow has noted of the UK’s QE experience:
[M]ost of the money printed by the Bank stayed in the financial system, rather than affect[ing] nominal GDP.