Jun

15

It was only after business men and women sent their children off to be thoroughly schooled in administration in the late 19th century that there were economics textbooks. Poor Jack Morgan never fully regained his father's respect after he came home from Harvard and told Dad what he had learned about banking from Charles Franklin Dunbar.

The beauty of the late 19th century in the United States was that its massive failures were awful but never frightening. For people who had endured the Civil War, the financial collapse of a third of the railroads in the U.S. was something to be gotten over; but not the end of the world. Sensible people bought and owned the bonds that the Morgans put their names on and understood that the money market was a fascinating place to go gambling but hardly the appropriate investment for themselves and the other people who were not speculators.

Morgan made only one public prediction about "the market" in his entire life; when asked what it would do, he laughed and said, "It will fluctuate." He knew that his customers would accept fluctuations precisely because they were owners, not traders. That is why his bonds could be paying 4.5% when offers of 15% were failing to draw sufficient call money to carry a position through from Saturday afternoon to Monday's open.

The present portents of an inverted yield curve are supposedly warnings about recession and inflation. What they might be instead is a signal from the Chairwoman of the Federal Reserve that the central bank is no longer willing to be the Treasury's bitch - i.e. the customer of first resort - now that the ECB really needs a friend. Ms. Yellen can either help the ECB pretend that European sovereign debt is never ever going to be a problem or allow Secretary Mnuchin to roll over his inherited overdraft at bargain rates. For those who believe in the global future of globalism, that is hardly a choice; the Euro must be saved by being discounted freely just as Bagehot commanded. (Oh, wait, he was talking about domestic borrowers, wasn't he - since FX did not allow for any discounting until the Austrians decided that they wanted a Balkan War of their own.)

anonymous writes: 

I show that the curve is still in up trend-bullish. Am I missing something (as I usually am)? 


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