Words, actions & meaning….

Tuesday 27th September 2016

In this issue of Money Truths….

  • Janet Yellen has a bad habit….
  • Mark Carney is afflicted with it too….
  • Words divorced from meaning….
  • What exactly is being managed here?

Janet Yellen has a bad habit….

It’s a funny thing but in the world of money there is frequently a clear disconnect between words put out into the public domain and the attendant actions that follow them….

Take the words of Janet Yellen, for instance. The Chair of the Board of Governors of the Federal Reserve System in America – their equivalent of the Bank of England – has been saying all year that the market can expect an interest rate hike.

The words have seemed reasonable enough. After all, back in December last year she raised interest rates for the first time in 8 years. She appeared to have set the ball rolling.

But the Federal Reserve has not actually raised rates at all during the whole of 2016.

It’s as though Yellen is suffering from a case of the yips. She knows what part of the board she wants to aim at, but doesn’t seem able to let go of the dart….

In May a poor jobs report stayed Yellen’s hand….

In June she was concerned about the global economy and about economic volatility….

Last week Yellen again declined to raise rates. This time she held back because she wants to see better figures in the job market….

She told investors to expect a rate hike in December. But given the recent track record, I wouldn’t be too bullish on trusting the steer….

Saying one thing – doing another. It’s becoming a habit. But Janet Yellen at the Federal Reserve is not the only big-wig in the world of economics who suffers from it….

Mark Carney is afflicted with it too….

Our own Mark Carney, governor of the Bank of England, is similarly afflicted….

When the former Goldman Sachs man washed up at Threadneedle Street back in 2013, he introduced a policy called ‘forward guidance’.

What that meant in practice is that he would indicate whether or not he expected to be raising interest rates or dropping them – in advance of the actual decisions and announcements being made.

The objective behind the policy was to quell uncertainty in the markets. If the markets were aware of his thinking, it would head off the unhelpful volatility that occurs when markets haven’t got a clue what is going on….

All well and good. But the practice surely has to live up to the theory?

If you’re going to seek to reassure and stabilize the market by telling it what to expect, then what actually transpires in reality should be within touching distance of the expectation raised?

You’d think so, wouldn’t you? But maybe that’s because we’re simple laymen rather than dyed-in-the-wool economic experts. We’re clearly thinking about this thing back to front – because what actually happened in reality was this….

Carney said that interest rates would probably start to rise once the unemployment rate fell below 7%. That’s pretty clear forward guidance. You know where you are with that kind of statement….

But when the unemployment rate fell below 7%, Carney didn’t raise interest rates. Instead, he did nothing.

Then, as the unemployment rate dropped below 5%, Carney actually did the opposite of what he said he would do and dropped the rate. That’s some disconnect.

It was the same thing when he offered forward guidance on the real value of wages. Once they rose, he said, interest rates would rise with them. But when the real value of wages duly rose, interest rates didn’t rise. Instead, Carney clipped them.

What kind of forward guidance policy is this? In the old days ‘wreckers’ used to offer this kind of help and assistance to the captains of ships off the coasts of Cornwall and Devon. They would light fires to ‘guide’ ships – and then plunder them once they’d lured them onto the rocks….

The ‘guides’ were designed to confuse and to misguide. If I didn’t know better and I was cynical, I’d suggest Carney’s guides to the future are working along similar lines….

Words divorced from meaning….

It isn’t just in the space between words and actions that we find disconnect….

Words and their meanings have suffered some serious dislocation too. Let’s head back to Janet Yellen in the United States for some recent evidence….

When announcing her decision last week to leave the interest unchanged again, Yellen justified her decision by telling the market that she felt ‘the economy has a bit more running room….’

Running room?


In my dictionary, to run is to move with haste. But haste of movement is the last thing you’d associate with the US economy at the moment.

During 2016 the US economy has grown at just 1%. And the recovery in the US economy since the global crisis of 2009 is the slowest recovery ever experienced….

Far from running, the US economy is limping along like a severely impaired man on a pair of crutches….

Those two crutches are zero % interest rates and quantitative easing. What growth is being experienced in the US – and elsewhere for that matter – is a direct results of those two stimulus policies….

Which brings me to that word stimulus. We frequently hear this one bandied about by the pointy-heads responsible for running the US, the British, the European and the Japanese economies.

In my book stimulus is something that quickens action. But where is that quickened action in the British economy? Or the American economy? Or the European economies?

Most of them are slowing down. Those that are growing are doing so at a snail’s crawl.

There really isn’t much sign of stimulation despite the fact that policy makers have been busy stimulating – non-stop – for the last 8 years. How much more stimulation must be provided to get a noticeable response?

I don’t know. It would take a wiser man than I to answer that question. My suspicion is – given the evidence of the last 8 years – that stimulus simply isn’t working.

The economy isn’t growing despite all-time-low interest rates and the repeated creation of billions of pounds out of thin air. The top hat is there – but the magician doesn’t appear to be able to find the rabbit….

All I know is that words like ‘running’ and ‘stimulus’ have become completely divorced from their meaning and from reality – at least in the way they are employed by the likes of Janet Yellen and her contemporaries….

What exactly is being managed here?

The disconnection between the words used and the actions that follow….

The dislocation that exists between words used and their actual meanings….

These things beg a question. And the question is this: what exactly are these pointy heads at the central banks in Britain, Europe and America managing?

Are their speeches and their advanced briefings and their ‘forward guidance’ policies designed to manage the economy?

Or are the words and sentiments they deploy and embed in the public mind designed merely to manage perceptions – of the press and of the market and of the general public?

Is it a case of any language can be deployed and any message constructed and disseminated just as long as it maintains confidence in the whole economic edifice?

Is it a case of its okay to say anything (even the opposite of the truth) using the most convincing language possible (no matter if it’s entirely divorced from its meaning) just so long as the people listening to the message believe it and have confidence in it?

I don’t know. It could look that way given the way language and messages are used in the current economic context.

But what really concerns me is this: if the confidence these messages are designed to engineer and maintain gradually falls away, what then?

The US, the British and the European economies are barely limping along right now. What happens if or when they start to go backwards – despite 8 years and more of non-stop stimulation?

What happens to confidence then? And to market sentiment? And where would those struggling economies go from there in a climate of negativity and gloom?

Probably best not to think about it – because it won’t be anywhere good or positive.

Maybe in the meantime Yellen or Carney or some other magician will find a white rabbit to pull out of the top hat. But I wouldn’t rely on it.

That’s how it looks from here….

I’ll be back with more on Friday morning.

All the best,



Dave Gibson

Money Truths