Big central bankers have big problems

BY MARK GONGLOFF

Central bankers were once magical beings with seemingly limitless powers. Paul Volcker slew stagflation. Alan Greenspan ruled for nearly 20 years. Ben Bernanke prevented a second Great Depression.

Today’s central bankers are pale shadows. Federal Reserve Chairman Jerome Powell is constantly bullied by his boss. Worse, he and his counterparts in Europe face a weakening global economy armed with the equivalent of one of those guns that unfurls a flag with the word “Bang!” on it. But they must pull the trigger again and again, even if there’s a strong chance it either won’t help or will do actual harm, writes Mohamed El-Erian. Markets demand they act and throw terrifying tantrums if they don’t. Similar pressure comes from politicians — the same politicians who do nothing to support growth, when they’re not actively hurting it.

The Fed and European Central Bank both meet this week. Markets expect the Fed to cut its target interest rate by a quarter of a percentage point. They expect the ECB to cut rates too, even deeper into negative territory. Economists think the ECB will also announce yet another round of quantitative easing. Marcus Ashworth points out QE is probably weak medicine for problems caused by a global trade war; and yet not doing it could be even worse.

Meanwhile, unintended consequences abound. Banks squeezed by negative rates and struggling to meet regulatory capital requirements are engaging in “capital-relief” trades, which Elisa Martinuzzi warns look an awful lot like the derivatives trades that caused trouble ahead of the financial crisis. Something else to worry powerless central bankers.

Trump’s bad government
While you hopefully relaxed over the weekend, President Donald Trump maintained his busy schedule of tweeting. He kept up his crusade to prove Hurricane Dorian was really going to hit Alabama, inspiring the National Oceanic and Atmospheric Administration to throw the National Weather Service under the bus. He shocked the world by announcing he had invited Taliban leaders to Camp David for peace talks just ahead of Sept. 11, before calling off negotiations. In his free time, he mocked CNN and Chrissy Teigen. Meanwhile, the Air Force and Vice President Mike Pence stand accused of helping out Trump businesses. All of these stories are NOT NORMAL, to say the least, and all are what you get when you let a loose cannon run a country, writes Tim O’Brien. Though James Stavridis suggests Trump was right to stop negotiations with the Taliban, the method is the problem: When everybody from weather forecasters to diplomats to the Air Force are subsumed to a chaotic president’s whims, the government stops functioning properly.

Another example is Trump’s appropriation of nearly $4 billion in Pentagon funds to pay for his border-wall boondoggle, writes Bloomberg’s editorial board. Funneling money away from national defense for this purpose defies the will of Congress and weakens national security. Republicans should grow a spine and stop it.

Oil’s stubborn supply problem
While a trade war is bad news for the U.S. economy, low oil prices cut the other way. Nymex crude futures have been below $60 a barrel for much of the past four years, despite OPEC’s efforts, joined by Russia and others, to cut supply. Julian Lee suggests the problem is a glut of oil that may be even bigger than OPEC+ realizes.

Stubbornly low oil prices complicate Saudi Arabia’s big plans to IPO part of its state-owned oil company, Saudi Aramco, with a $2 trillion valuation. Those plans were further complicated by a shakeup at the top of the company, which Liam Denning notes gives even more power to the kingdom and makes any potential IPO riskier for investors.

One big thing hurting oil prices has been supply from U.S. frackers. Bernie Sanders and other Democratic presidential candidates want to ban fracking, which has many bad environmental effects and keeps us hooked on fossil fuels. But Noah Smith suggests fracked oil and gas is akin to methadone for a heroin addict. It’s not ideal, but it’s better than the dirtier stuff and can help us transition to a clean future.

The rise of the ‘comfort’ college
For a while now, conservatives and some liberals have complained of rising political correctness on college campuses. Steven Gerrard of Williams College, which today was named the top U.S. liberal-arts college, says higher education is moving into a troubling new phase of existence. In the first of two columns (the second coming tomorrow), Gerrard says PC culture is creating what he calls the “comfort college,” where free speech is quashed so nobody is made uncomfortable.

Telltale charts
AT&T Inc. has finally attracted an activist investor, which is asking the kinds of questions Tara Lachapelle has been asking for a while. For example, do you think anybody understands the differences between all of these products?


Go max out the TV now
Sidelining Boeing Co.’s 737 Max has squeezed the supply of airline seats, just when demand started to sag, giving a well-timed boost to the industry, writes David Fickling.