Jamie Dimon Is Janet Yellen, Proving Will Rogers Right

This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/us-markets/jamie-dimon-is-janet-yellen-proving-will-rogers-right?post=106802&uid=4798

Jamie Dimon wants it all. Before I quote him and try to read between the lines, people should realize that Dimon wants higher interest rates to benefit JP Morgan, but not too high. Rising rates help real estate lending.

He doesn't want the shock of quickly rising rates so he knows lower rates help his counterparties. But I believe he thinks that the counterparties to his bank could supply more bonds if necessary as collateral in JP Morgan's big derivatives holdings if rates rise a bit, slowly over time. He doesn't want them to have to supply extra collateral all at once. Lehman, after all, went bust. It was a major counterparty to JP Morgan and significantly weakened the bank, whether Dimon would admit it or not.

Jamie Dimon's statements seem confusing. He wants to have his cake and eat it too. He wants larger spreads on loans, which is only possible if rates go up, but he has made confusing statements proving Will Rogers right in his assessment of bankers. In the Great Depression, Rogers uttered these famous quotes showing bankers are a bit confused, wanting low rates and high rates concurrently:

"Bankers are likeable rascals. Now that we are all wise to 'em, it's been shown that they don't know any more about finances than the rest of us know about our businesses, which has proved to be nothing." DT #1924, Oct. 4, 1932

"The whole financial structure of Wall Street seems to have fallen on the mere fact that the Federal Reserve Bank raised the amount of interest from 5 to 6 per cent. Any business that can't survive a 1 per cent raise must be skating on mighty thin ice... But let Wall Street have a nightmare and the whole country has to help get them back in bed again." DT #950, Aug. 12, 1929

Of course, now, it is worse than in the Great Depression. We cannot tolerate a quarter of a percent rise in rates! But why is it worse? And can we find any wisdom coming out of the mouth of Jamie Dimon?

This image, which was originally posted to Flickr.com, was uploaded to Commons by Dudek1337

Here is what Dimon has said in his letter to shareholders in 2015:

I am a little more concerned about the opposite: seeing interest rates rise faster than people expect. We hope rates will rise for a good reason; i.e., strong growth in the United States. Deflationary forces are receding – the deflationary effects of a stronger U.S. dollar plus low commodity and oil prices will disappear. Wages appear to be going up, and China seems to be stabilizing. Finally, on a technical basis, the largest buyers of U.S. Treasuries since the Great Recession have been the U.S. Federal Reserve, countries adding to their foreign exchange reserve (such as China) and U.S. commercial banks (in order to meet liquidity requirements). These three buyers of U.S. Treasuries will not be there in the future. If we ever get a little more consumer and business confidence, that would increase the demand for credit, as well as reduce the incentive and desire of certain investors to buy U.S. Treasuries because Treasuries are the “safe haven.” If this scenario were to happen with interest rates on 10-year Treasuries on the rise, the result is unlikely to be as smooth as we all might hope for. [Emphasis mine]
How confusing can you get? He hopes rates will rise. But then he says if the real economy does recover, and fewer treasuries are to be bought, then the result will not be smooth sailing! Will Rogers was right! Bankers don't know their business, meaning there is no certainty in their business. It is difficult for Dimon to have his cake and eat it too.

But risk has mostly been transferred to counterparties and to clearinghouses through Greenpan's structured finance.  Dimon could be getting giddy with how safe it is for him. Let the counterparties fail, he can handle it. They put up more bonds or too bad for them!

His counterparties will surely thrash around if 10 year yields explode. Dimon knows this. That is, of course, why I think the Fed knows 10 year yields can't be permitted to explode. And the economy can't be permitted to recover properly. And Dimon's dream for bigger spreads in his lending to main street is just that, a dream, with a little improvement on the edges, but not the profits he longs for from the housing bubble past.

Counterparties are even more weakened than commercial banks were in the Great Depression, and proof of that is the inability to raise rates .25 percent without Wall Street having a nightmare.

Dimon mentions in his letter to shareholders that asset values cannot be permitted to plunge. That decline would severely hurt banks, and rising asset values, like oil and easy money housing, are difficult to control. If they cannot be controlled, oil acts as a tax potentially leading to recession, and housing becomes the depository of too much equity, too much cash, meaning when it is liquidated by the Fed, it creates a credit crisis and declining GDP.

So, Dimon is a bit between a rock and a hard place, wanting to avoid asset decline without overheating an economy that cannot be allowed to recover. Wow, he is starting to sound like Janet Yellen. Jamie Dimon is Janet Yellen. Who could have believed it?

It seems to me that real helicopter money would be easier to control than easy money mortgages if we are to believe Eric Lonergan. And it is a more equitable distribution of Fed base money. Why can't we go that direction?


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