TXRogers wrote: Back in July of this year, Fed Chair Jerome Powell stated that potential conflicts that may arise from having investment giant BlackRock Inc (BLK.N) buy corporate bonds and commercial mortgages on behalf of the Federal Reserve are being managed “extremely carefully”.
BlackRock, which manages about $7 trillion in assets, was hired by the Fed in March to steer tens of billions of dollars in bond purchases as part of the U.S. central bank’s efforts to stabilize the bond market amid the economic turmoil caused by the coronavirus pandemic. BlackRock’s own ETFs accounted for a large share of corporate bond ETFs it bought on behalf of the Fed as part of the central bank’s relief program. BlackRock waived asset management fees on ETFs purchased on behalf of the Fed.
“BlackRock is just our agent,” Powell said at his virtual news conference following the close of the Fed’s two-day meeting, in response to a reporter’s question on the handling of potential conflicts of interests. “We make the policy decisions in conjunction with our colleagues and they just execute our plans.” “I think their conflicts are managed extremely carefully in the contractual arrangement that we have with them,” Powell said.
BlackRock, which in the past has said it is acting as a fiduciary to the Federal Reserve Bank of New York and will execute the mandate at the sole discretion of the bank, had nothing to add to Powell’s comments, a BlackRock spokesman said. Powell’s public calendar shows he has had four phone conversations with BlackRock’s chief executive, Larry Fink, since March. Fink “generally checks in to find out whether we are OK with the quality of the service that BlackRock is providing,” Powell said. “He’s typically trying to make sure that we are getting good service from the company.”
As
Blackrock states on their website: “Our purpose is to help more and more people experience financial well-being. We are dedicated to helping our clients, employees, shareholders and communities achieve financial security, financial mobility, and financial freedom.”
Putting aside the obvious implications of the US Central bank using a Wall Street money manager to manage the stimulus package, most people probably accept “Jappy” Jerome’s comments that the FED is still doing all the thinking, and that Blackrock is indeed the FED’s honorable agent executing instructions to save the global economy from ruin. It’s a nice narrative, but I highly doubt that any of it is true.
An important aspect to this Blackrock situation is the presence of
Dr. Stanley Fischer as a Senior Advisor, Official Institutions Group.
https://www.blackrock.com/blk-inst-assets/cache-1595337089000/images/media-bin/web/global/headshots/stanley-fischer.jpg Fischer has been a Senior Advisor to BlackRock since January 2019. He served as Vice Chairman of the Federal Reserve Board of Governors from 2014 to 2017. During his tenure at the Fed, Dr. Fischer headed the internal supervision of the key policy divisions of the Board staff as well as the Financial Stability Committee. He also chaired the important Communications Subcommittee of the Federal Open Market Committee (FOMC).
Fischer served as governor of the Bank of Israel from 2005 to 2013. He was generally credited with having played a key role in minimizing the impact of the global financial crisis on the Israeli economy. He also led a successful effort to pass a new Bank of Israel law to modernize the governance structure of the bank. Under the new law, monetary policy decisions are made by a committee of six, instead of one person under the previous structure. Dr. Fischer chaired the new Monetary Policy Committee.
Fischer was Vice Chairman of Citigroup from 2002 to 2005. Prior to that, he had served as the first deputy managing director of the International Monetary Fund (IMF) from 1994 to 2001. He played a key role in managing the IMF's assistance to member countries, including Brazil, Indonesia, Poland, Russia, South Korea and Thailand, during the financial crisis in the late 1990s. He was the chief economist of the World Bank from 1988 to 1990, at a time when the main issue facing the bank was the Latin American debt crisis.
Fischer was a professor of economics at the Massachusetts Institute of Technology (MIT) from 1977 to 1999. From 1973 to 1977, Dr. Fischer was an associate professor of economics at MIT. During this period, he supervised many future policymakers, including Ben Bernanke. Prior to joining the MIT faculty, Dr. Fischer was an assistant professor of economics and a postdoctoral fellow at the University of Chicago.
Fischer has published many articles on a wide variety of economic issues, and he is the author and editor of several books. He received his B.Sc. in economics from the London School of Economics in 1965, his M.Sc from the London School of Economics in 1966 and his Ph.D. in economics from MIT in 1969.
Why is Fischer so important to where we find ourselves these days? You can look him up on
Wikipedia (link). Through various podcast and interviews, some of you may already be familiar with his psuedo title as the “
Godfather of Central Banking”. But more to the point, he would never be considered to be an “agent”, tasked with implementing some committee instruction. The exact opposite would be assumed: He is truely the
Fischer King, the architect and wounded king of the plan itself.
And this is why Blackrock is much more than just an agent of the FED. The fact is that Blackrock is actually the author of the US Central Bank’s plans. And here is the plan, written back in October 2019:
SUERF Policy Note Issue No 105Link:
Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination “Unprecedented policies will be needed to respond to the next economic downturn. Monetary policy is almost exhausted as global interest rates plunge towards zero or below. Fiscal policy on its own will struggle to provide major stimulus in a timely fashion given high debt levels and the typical lags with implementation. Without a clear framework in place, policymakers will inevitably find themselves blurring the boundaries between fiscal and monetary policies. This threatens the hard-won credibility of policy institutions and could open the door to uncontrolled fiscal spending. This paper outlines the contours of a framework to mitigate this risk so as to enable an unprecedented coordination through a monetary financed fiscal facility. Activated, funded and closed by the central bank to achieve an explicit inflation objective, the facility would be deployed by the fiscal authority.”
- There is not enough monetary policy space to deal with the next downturn: The current policy space for global central banks is limited and will not be enough to respond to a significant, let alone a dramatic, downturn. Conventional and unconventional monetary policy works primarily through the stimulative impact of lower short-term and long-term interest rates. This channel is almost tapped out: One-third of the developed market government bond and investment grade universe now has negative yields, and global bond yields are closing in on their potential floor. Further support cannot rely on interest rates falling.
- Fiscal policy should play a greater role but is unlikely to be effective on its own: Fiscal policy can stimulate activity without relying on interest rates going lower – and globally there is a strong case for spending on infrastructure, education and renewable energy with the objective of elevating potential growth. The current low-rate environment also creates greater fiscal space. But fiscal policy is typically not nimble enough, and there are limits to what it can achieve on its own. With global debt at record levels, major fiscal stimulus could raise interest rates or stoke expectations of future fiscal consolidation, undercutting and perhaps even eliminating its stimulative boost.
- A soft form of coordination would help ensure that monetary and fiscal policy are both providing stimulus rather than working in opposite directions, as has often been the case in the post-crisis period. This experience suggests that there is room for a better policy – and yet simply hoping for such an outcome will probably not be enough.
- An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough. That response will likely involve “going direct”: Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders. Going direct, which can be organised in a variety of different ways, works by: 1) bypassing the interest rate channel when this traditional central bank toolkit is exhausted, and; 2) enforcing policy coordination so that the fiscal expansion does not lead to an offsetting increase in interest rates.
- An extreme form of “going direct” would be an explicit and permanent monetary financing of a fiscal expansion, or so-called helicopter money. Explicit monetary financing in sufficient size will push up inflation. Without explicit boundaries, however, it would undermine institutional credibility and could lead to uncontrolled fiscal spending.
- A practical way of “going direct” would need to deliver the following: 1) defining the unusual circumstances that would call for such unusual coordination; 2) in those circumstances, an explicit inflation objective that fiscal and monetary authorities are jointly held accountable for achieving; 3) a mechanism that enables nimble deployment of productive fiscal policy, and; 4) a clear exit strategy. Such a mechanism could take the form of a standing emergency fiscal facility. It would be a permanent set-up but would be only activated when monetary policy is tapped out and inflation is expected to systematically undershoot its target over the policy horizon.
- The size of this facility would be determined by the central bank and calibrated to achieve the inflation objective, which could include making up for past inflation misses. Once medium-term trend inflation is back at target and monetary policy space is regained, the facility would be closed. Importantly, such a set-up helps preserve central bank independence and credibility.
If you read Blackrock’s plan in the link above, they adamantly state that “Our proposal stands in sharp contrast to the prescription from MMT proponents”. But in essence, Blackrock’s plan IS for MMT, and it is laid bare for the FED and US government to adopt. Actually, for the whole Western World to adopt. And it's very clear that is has been adopted.
This means that in the next downturn (which is now) the only solution is for a more formal – and historically unusual – coordination of monetary and fiscal policy to provide effective stimulus. Already many of the monetary policy tools adopted since the crisis – QE including private sector assets – have fiscal implications. Special facilities such as the eurozone’s Outright Monetary Transactions (OMT) during the sovereign crisis also show how the central bank can throw its balance sheet behind fiscal solutions.
Any additional measures to stimulate economic growth will have to go beyond the interest rate channel and “go direct” – when a central bank crediting private or public sector accounts directly with money. One way or another, this will mean subsidizing spending – and such a measure would be fiscal rather than monetary by design. This can be done directly through fiscal policy or by expanding the monetary policy toolkit with an instrument that will be fiscal in nature, such as credit easing by way of buying equities. This implies that an effective stimulus would require coordination between monetary and fiscal policy – be it implicitly or explicitly.
This is one way to implement a credible coordination framework. In the next downturn, the loss of central bank independence and uncontrolled fiscal spending are risks. Any framework will need to put boundaries around such policy coordination to mitigate these risks.
And there we have it. The Wizard behind the FED curtain. All laid out last year in the SUERF Policy Note Issue No 105 whitepaper, October 2019. They saw it coming and loaded up the bazookas accordingly.
And this is why PM’s will continue to rise indefinitely to higher levels. Because in all these great monetary plans, never is there any mention of what constitutes the economy, or real work, or wealth disparity, or civil and social discord.
It’s all about stimulation. And it all falls flat when you attempt to stimulate a corpse.
Tx