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Steven and Louise vacation in Cabo. During a government shutdown over the border wall.

Published by digby on December 24, 2018

Steven and Louise vacation in Cabo. During a government shutdown over the border wall.

by digby

And then Steven did this:

A government transcript:
Hi! Beloved Treasury Secretary and Wonder Woman executive producer Steven Mnuchin here. You probably weren’t expecting to hear from me over the holidays, especially since I’m on vacation in Mexico, but I just wanted to pop in and let the American people know that there’s no danger that every last bank in the country will suddenly run out of money on Monday. In fact, I was so concerned that you might be afraid that the economic system would abruptly grind to a halt within 24 hours, I spent part of my vacation calling bank CEOs on their vacations so I could bring you with this confident, forward-looking statement that says, apropos of nothing, that I have no reason to believe that your life savings will be as worthless as paper in the face of what’s coming on Monday, which is nothing. Nothing is coming on Monday, except for a big meeting which I am convening on Christmas Eve so that we can all talk about how everything is totally fine and good and cool and we definitely won’t be stabbing each other in the streets over scraps of bread by Christmas morning. Why, what have you heard?

Bloomberg:

The tumult in Washington over the weekend did little to placate U.S. equities that careened to the worst week in nearly a decade after the Federal Reserve signaled two more rate hikes in 2019. The S&P 500 is down 19 percent from its record and on track for the steepest quarterly drop since the financial crisis. Combined with the ongoing trade war, higher borrowing costs and signs of a slowdown in global growth, the political turmoil has raised the specter of a recession.

“The reality is, in Washington you have this massive amount of unpredictability,” Chad Morganlander, portfolio manager at Washington Crossing Advisors, said on Bloomberg TV. That combines with concerns over global growth and removal of stimulus “gives investors this level of chill where they’re going to compress multiples regardless of what the backdrop in 2020 will be,” he said.

Annie Lowrey at The Atlantic examines the possible reason for Mnuchin’s bizarre move:

Imagine having a runny nose, itchy eyes, congestion, and a sore throat, and your doctor telling you that you shouldn’t worry about cancer—she consulted her colleagues and they’re certain it is not cancer, and if it were, they could fight it.

This is roughly what happened on Sunday evening, when Treasury Secretary Steven Mnuchin put out a press release on calls he held with executives from the country’s largest banks. Mnuchin’s statement assured the public that they had not been having liquidity problems or “clearance or margin” issues—the sorts of things you would worry about if the country were on the brink of a financial crisis.

The markets have been suffering from something like a nasty cold of late, with a major correction in stock prices due to rising interest rates, trade tensions, the government shutdown, and slowing global growth. But the surprise holiday readout, which came with a heads-up that Mnuchin would be holding a call with some of the country’s top financial regulators as well, unnerved and puzzled investors, bank executives, politicians, and economists. What was the Treasury secretary thinking? Who thought we were tipping into a financial panic? None of the possible explanations are very reassuring, though it seems that Mnuchin was trying to be.

Option one: The Treasury secretary was speaking to an audience of one. Mnuchin is under enormous pressure from President Trump, who is upset about the market sell-off and mad at the current Federal Reserve chairman, Jay Powell. The press release was perhaps an attempt to show Trump that Mnuchin was doing something, anything, to talk the markets back into stability.

It makes some kind of squint-and-see-it sense. Mnuchin used Twitter earlier in the weekend to reassure the markets that Trump was not going to fire Powell, who has continued to tap up interest rates as the economy continues to grow at a decent pace. Mnuchin wrote that Trump told him that he “totally” disagrees with Fed policy, calling it “an absolute terrible thing to do at this time.” But he said Trump had informed him, “I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.” The readout might be a further effort to keep Trump calm by showing him everything is fine and his Treasury is taking action.

The problem with this explanation is that it means Mnuchin risked roiling financial markets to placate his boss (which of course would only further anger his boss).

Option two: The Treasury secretary believes that the market correction is due in part to animal spirits—animal spirits he could quiet by reminding everyone that the financial system is in fine shape. Perhaps he anticipated further declines in stock prices due to the government shutdown, and wanted to calm the markets.

And it is true that the selloff remains nothing more than a selloff, at least in most economists’ and corporate executives’ eyes—a correction, not a crisis; a cold, not a cancer. Even if the bear market were a precursor to an economy-wide slow-down, that would not necessarily result in bank runs and liquidity panics and cratering financial firms.

But, again, nobody was worried about a banking panic before Mnuchin brought it up. “Can someone who understands markets please explain what Secretary Mnuchin did and why?” Brian Schatz, a Hawaii senator who sits on the banking committee, wrote on Twitter. “Because it seems like a bad look at minimum, and maybe more concerning than that but I honestly don’t know.”

Option three: Mnuchin has some troubling insider knowledge, and wanted to broadcast to the markets that he is aware and in charge. Maybe some financial firms are teetering? Maybe rising interest rates and falling asset prices are straining some important market participants, and it just has not yet become evident in public reports?

Whatever Mnuchin was trying to do, he did not succeed in it, instead stoking market fears and sowing confusion. Perhaps the clearest takeaway is that Mnuchin and Trump’s Treasury lack the expertise to communicate clearly and forcefully with the markets—no surprise, given how few experienced financial operatives Trump has hired and how many experienced nonpolitical civil servants have fled Treasury during this administration.

If they’re communicating this poorly in the absence of a crisis, just imagine how disastrously they might perform in the presence of one.

I suspect it was a bright idea by the president himself. He probably thought that it would distract from his earlier comments about firing the Fed Chairman and reassure the markets. Because he’s a dotard and Mnuchin is his good little soldier doing whatever course it’sim to do.

Of course it’s just as easy to believe this was Mnuchin’s idea of how to appease Trump by showing him that big important rich guys have plenty of money. Or something.

It didn’t help, as you can see by the market, which is now officially in bear territory. It also didn’t help Trump’s mood:

Oh, and by the way, recall this from 2016:

Trump: Low rates creating false market

GOP presidential nominee Donald Trump told CNBC on Monday the Federal Reserve is doing what President Barack Obama wants by keeping interest rates low.

Fed Chair Janet Yellen and central bank policymakers are very political, and Yellen should be “ashamed” of what she’s doing to the country, Trump said, adding the Fed is not even close to being independent.

By keeping interest rates low, the Fed has created a “false stock market,” Trump argued in a wide-ranging interview in which he also talked about Democratic nominee Hillary Clinton’s health problems.

Trump said rates are being kept lower to bolster Obama’s legacy.

Trump reportedly considered keeping that Fed Chair on but decided against it:

The president appeared hung up on Yellen’s height. He told aides on the National Economic Council on several occasions that the 5-foot-3-inch economist was not tall enough to lead the central bank, quizzing them on whether they agreed, current and former officials said.

Well of course. What could be more important?

Meanwhile the president is stuck in the White House with nothing to do on Christmas Eve:

There’s more but you don’t want to know. The market’s about to close. No Christmas bump. At this moment it’s down almot 500 points. Again.


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And I wish all of you Very Happy Hollandaise!

cheers — digby

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