Greenspan
Interview: Econ. Cycle Res. Inst.---Banerji, Anirvan---Economist
>> federal reserve chairman alan greenspan says wall street regulators should punish wrongdog while avoiding overregulating financial markets markets .
>> some practices and rules have outlived their usefulness and require updating but in so doing we need to be careful not to undermine the paradigm that has so effectively governed voluntary trade. rewriting rules that have served us well is fraught with the possibility for collateral damage.
>> greenspan also says that reputation and integrity have been important to wall street firms.
>> recent allegations on wall street of breaches of trust or even legality, if true, begin to undermine the very basis on which the world’s greatest financial markets thrive. guilty parties should be expeditiously punished.
>> regulators have extracted more than a billion and a half dollars from mutual fund companies since beginning investigations into frequent and late trading. greenspan gave no signal on rates, no surprise there. our next guest follows leading economic indicators and he’s always looking for surprises. he expects inflation to rise this year. anirvan banerji, director of research at the economic cycle research institute joins us now here in the studio. we’re talking about, i believe this is a proprietary index, is it not?
>> it is.
>> the future inflation gauge, the fig, the fig is telling us something that inflation is going higher.
>> the fig is an index of leading inflation indicators. what it is doing is it has a mix of a variety of leading inflation indicators ranging from labor market to commodity prices. it’s telling us that inflation will be headed higher in the months ahead and it’s giving the signal essentially rising since december, if you look at the chart, you’ll find that right there, the optic at the end shows you that this is a clear upturn.
>> this upturn from here to here.
>> exactly. that’s telling you actual inflation will head high-from here on. the concern about inflation in the markets is well placed.
>> let’s pop that graph up again and back-test this system. if we go back here, you’ll see the last time it did uptick, that would be january of 2002, your f.i.g. index increased and it wasn’t long thereafter, it was within two or three months, when inflation reversed the decline of 2001. so this is only two years’ worth of data. have you back tested this?
>> you have more than 50 years’ worth, actually. and it absolutely does lead the turning point in inflation. that’s the purpose.
>> we’ll take you at your word and 50 years of data. so inflation is going higher and the market seems to show that with retail sales going up and other indicators. but the question is how much higher?
>> you don’t know now how much higher it will end up going. it depends, for example, on what the fed does, whether it caps off the rise in inflation. all it’s telling you as far as the eye can see which is essentially several months ahead, inflation will keep trending higher. and if the fed sits back and does nothing much, it will go higher than it would otherwise.
>> i’ve put together another graph, this is just inflation, not core, the whole enchilada, not with food and energy backed out, but 20 years’ worth and you can see we’re at 1.7%. we haven’t been above 3% meaningfully for any period of time for more than a decade. is there any possibility we’ll return that high? the average estimates we’re hearing are 1.8% to 2%.
>> it depends on the policymakers. let’s take note of something very important. we’re talking about over this entire period, the fed was in a mindset where it wanted to be ahead of the curve. for the last couple of years, it deliberately tried to be behind the curb to encourage inflation. when that happens, watch out.
>> for what?
>> for inflation, because one of the concerns that obviously is misplaced was that of deflation. there is no concern about deflation that is realistic. there is also talk of overcapacity like output gap being large enough. this is a global economy and if you look at a global economy with a more synchronized global upturn than ever, including china, you have global prices and import prices rising and that’s driving inflation today.
>> always good research and we appreciate you coming here. we’ll have you back when we see the turn, which could be as soon as two months away. that is anirvan banerji from the economic cycle research institute. baseball season is kicking off five weeks early on fox. it’s the first time that alex rodriguez plays for the yeenks and it’s the against the arch rival boston red sox. we’ll tell you what the early start may mean for tv ratings.
