Safehaven | Giving Credit Where Credit is Due

December 22, 2005

Giving Credit Where Credit is Due
by Rob Kirby

Now I've got to tell all of you - that I feel like a pretty lucky guy. Well, perhaps lucky isn't the right choice of words - maybe the words 'I feel somewhat empowered' are a little closer to the mark.

The Set Up

I spent 15 or so years of my life involved in international financial markets as a broker of everything from foreign exchange to interest rate derivatives to government bonds. Over that time period, I personally traded futures in commodities [from metals to corn], to Eurodollar and currency futures as well as bond futures.

I've got to tell you, during that time period - if anyone had told me that anything was amiss or 'anyone' had the resources to rig the outcomes in any of these international financial markets - I would [and did] laugh at them.

The notion quite simply seemed that preposterous - but no more.

Here's Why:

Over the past three years or so - largely because I've accepted challenges to long held beliefs - I've received a most valuable education. This education has come from some of the world's brightest, most enlightened thinkers - for the most part folks who have been there and done that. Many of these educators - who give so selflessly of their time - are ordinary heroes. Others are webmasters, writers and editors who maintain/contribute to the contrarians forums where unfiltered economic reporting clashes and is often at odds with canned/manufactured 'pabulum' from the much larger - better financed - mainstream financial press.

I would like to highlight one such personality - who engages in this noble pursuit anonymously [under a pseudonym] - my friend Jesse.

I've learned much from my visits to Jesse's site over the past couple of years and one of his latest offerings seemed to 'fill the bill' as a timely and relevant topic for this week's market wrap piece. In the piece [copied from Jesse's site and appended below] - Jesse summarizes a 'discussion paper' prepared by Prof. Charles A. E. Goodhart [formerly a Central Banker with The Bank of England] - which was prepared for and published by the good folks over at the BIS [Bank for International Settlements] - located in Basel, Switzerland.

Of course, if you bother to follow the link to the pdf article that is posted at the BIS website, you will see the requisite disclaimer [on pg. 2 of 31]:

"BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the bank. The views expressed in them are those of their authors and not necessarily the views of the BIS."

Of course, in case you happened to miss the disclaimer on page 2, you could always catch it again on page 3 of 31 where it states:

"On 18-19 June 2004, the BIS held a conference on "Understanding Low Inflation and Deflation." This event brought together central bankers, academics and market practitioners to exchange views on this issue [see the conference programme in this document]. This paper was presented at the workshop. The views expressed are those of the author[s] and not those of the BIS".

Before any of you get ahead of yourself, and presuppose that I'm about to present you all with a 'rant' from a wild man - I'm going to pre-empt that by sharing with you a few quotable words of commentary following this paper [in the same pdf document - pg. 24 of 31] by none other than Edwin M. Truman, of the Institute for International Economics, who had this to say about the piece you are about to read:

"Charles Goodhart has provided us with an insightful, wide ranging and provocative paper"......Goodhart's message on deflation [page 4] is that a sufficiently aggressive [and courageous] central bank in a fiat money regime with a floating exchange rate can always prevent persistent deflation."

So, with that in mind and the table 'set' - so to speak - I'd like you all to perhaps pour yourself a nice glass of wine [or maybe a double scotch] and sit back and read the following:

Courtesy of Jesse

Thank you for the enlightenment Jesse. I feel empowered with the wisdom you have shared with me.

Rob Kirby
Kirby Analytics