Yellen is ready to repeat rate mistakes

In her recent set-piece testimony before Congress, US Federal Reserve chair Janet Yellen made clear that she is determined to repeat the sort of “gradualism” in raising rates that proved so disastrous after the tech bust. In other words, that she will not so much boil the frog slowly as encourage him to go out and make a further raft of foredoomed, highlyleveraged investment decisions before he realises he’s been cooked.

Lest you doubt his willingness to do so, be aware that our increasingly hot-under-the-collar amphibian is already taking out a record proportion of cov-lite loans; is flirting once more with the dubious delights of the collateralised debt obligation, which has pumped private equity “dry powder” up beyond 2008 levels; and has poured $1bn a day into equity ETFS alongside $300m into the bond equivalents over this past year.

Mark Carney’s Bank of England, meanwhile, is beginning to fret that the UK’S notoriously spendthrift consumers are borrowing too much and that the corporate bond market has become subject to the same kind of systemic weaknesses which proved so disastrous to the banks a decade ago. Nowhere is there any recognition that the Old Lady’s own policies have contributed to – if not actually occasioned – these two potential problems. The European Central Bank is in its usual, biblical “house divided against itself ” mode, with ECB chief economist Peter Praet pleading for “patience and persistence” and with the Italians riding roughshod over the banking bail-out rules. Across the Rhine, by contrast, Dutch central bank chief Klaas Knot warns of “getting very close” to the point where the conditions which were so conducive to the outbreak of the last crisis have been fully restored and Jens Weidmann calls forlornly for the “resolve” to ease “off the gas pedal”.

Industrial production may be at post-crash highs after rising at its fastest clip in six years. Real estate might be bubbling up nicely – not least in the epicentre of that last madness, Ireland, where residential property prices have risen 50pc in the past four years, culminating in a jump of close to 20pc YOY in the most recent showing from the fancied areas of the South East. But none of that is sufficient to wean the Council off its trillion-euro fixation.

Over in Japan, with employers running out of workers – job vacancy ratios are back at 1980 bubble highs – and with “soft data” Tankan survey readings and manufacturing turnover “hard” ones both up to three-year highs, and with the BOJ officially categorising a 12-year record six out of nine regional economies as “expanding” you might think the central bank could ease back on its vast programme of stimulus measures there too. But, no. Not a bit of it.

As for China, for all the arm-twisting exerted upon the insurers and for all the “macro-prudential” suppression of the housing bubble, credit growth can hardly be said to be flagging. So far in 2017, new renminbi loans amounting to $1.2 trillion have been issued.

Perhaps inevitably, there is no shortage of prophets of doom to croak their displeasure as every new uptick results; each of these long-stopped clocks painfully eager to qualify for a “They DID See It Coming” Award to add to their Linkedin entry after the next crisis erupts (sorry, Janet, but there will inevitably be another crisis). The main thrust of the argument of these birds of ill-omen is, they contend, that with such endemically elevated levels of outstanding debt, it will only take a modest increase in interest rates to render it utterly unserviceable to a large subset of borrowers and then – well, Lehman, you know.

Thus, the counsel of despair, shared both by those demanding endless stimulus and those who never wanted it administered in the first place, is that the dependence on easy money now poses far too great a risk to break. But, given the proclivity of our monetary guardians to err on the side of laxity

– to possess not the slightest trace of metaphorical “resolve” to lift the pedal from the metal – we would tend to the opposite opinion: that our ruin will be all the more assured and all the more complete.

‘Inevitably, there is no shortage of prophets of doom to croak their displeasure’