Tag Archives: Janet Yellen

She Said That? 9/22/16

Yesterday, Janet Yellen denied any political influence whatsover on Federal Reserve policy. Donald Trump has suggested otherwise. From Yellen, at a press conference after the Federal Open Market Committee announced its decision not to raise interest rates:

“Well, I think Congress very wisely established the Federal Reserve is an independent agency. In order to insulate monetary policy from short-term political pressures and I can say, emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions.

That should settle it, although a few of SLL’s more stubborn readers may still believe that Trump is right.

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Janet Yellen’s Shame, by Bill Bonner

The contrast between honest capitalism and inherently dishonest central banking. From Bill Bonner at acting-man.com:

Playing Politics

In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers.

In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers ultimately determine not only the prices of consumers’ goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, ultimately pay the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent, consumers determine the direction of all production processes and the minutest details of the organization of all business activities.”

That is true of honest banking, too. Back when such a thing existed, the job of an honest banker was to aggregate people’s savings and lend them to worthy borrowers. You make too many mistakes, your customers leave and you go broke.

Politics is a different game altogether. It produces no wealth of any sort. So the only way you can prosper in politics is to connive, cheat, and steal – manipulating your friends… sidelining your enemies… and exploiting the public.

It is a game of taking wealth, not making it. And you have no customers, so there’s not much of a check on how out-of-order you can get. Still, a politician is not always lying, not always stealing – and not always wrong. Occasionally, he blunders into honesty and slips into truth.

On Monday, for example, Republican presidential nominee Donald Trump said Fed chief Janet Yellen should be ashamed of herself for what she was doing to Americans and for creating a “false stock market.

US monetary base vs. the S&P 500 Index. Although base money growth has leveled out since 2014, the money supply has continued to grow since then due to commercial bank credit expansion. Since 2008 the broad true US money supply has increased by 128%, and this chart is a reminder that the money didn’t just “print itself”.  A great deal of it was created directly by the Fed, which the rapid growth in base money demonstrates. Newly created money doesn’t affect all prices simultaneously or to the same extent and for a variety of reasons, asset prices are always likely

US monetary base vs. the S&P 500 Index. Although base money growth has leveled out since 2014, the money supply has continued to grow since then due to commercial bank credit expansion. Since 2008 the broad true US money supply has increased by 128%, and this chart is a reminder that the money didn’t just “print itself”. A great deal of it was created directly by the Fed, which the rapid growth in base money demonstrates. Newly created money doesn’t affect all prices simultaneously or to the same extent and for a variety of reasons, asset prices are always likely to be at the top of the list (in other words, the above correlation is not a coincidence)

The financial press was quick to condemn Mr. Trump for “undermining confidence” in the Fed and the stock market. It was “irresponsible” to question the Fed’s integrity and its non-partisan mission, said the pundits.

Widely dismissed was the idea that Ms. Yellen was “playing politics” with the Fed by supporting the stock market to embellish President Obama’s last months in office and help Democratic nominee Hillary Clinton slide into the White House after him. But Mr. Trump is right: Politics is the Fed’s game.

 

To continue reading: Janet Yellen’s Shame

 

Trump Slams Yellen: The Fed Has Created A “Stock Bubble” And “A False Economy” To Boost Obama, by Tyler Durden

Donald Trump may shoot from the hip when he talks economics, but shot-from-the-hip truth is preferable to most economists’ carefully stated inanities, idiocies, and absurdities. From Tyler Durden at zerohedge.com:

One month ago, Donald Trump urged his followers to sell stocks, warning of “very scary scenarios” for investors, and accused the Fed of setting the stage for the next market crash when he said that “interest rates are artificially low” during a phone interview with Fox Business. “The only reason the stock market is where it is is because you get free money.”

Earlier today, speaking to a reporter traveling on his plane who asked Trump about a potential rate hike by the Fed in September, Trump took his vendetta to the next level, saying that the Fed is “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy. The only reason the rates are low is so that he can leave office and he can say, ‘See I told you.'”

He then lashed out at Yellen, whom he accused of having a political mandate when conducting monetary policy: “So far, I think she’s done a political job. You understand that.”

On whether we can have a rate hike in September: “Well, the only thing that’s strong is the artificial stock market. That’s only strong because it’s free money because the rates are so low. It’s an artificial market. It’s a bubble. So the only thing that’s strong is the artificial market that they’re created until January. It’s so artificial because they have free money… It’s all free money. When rates are low like this it’s hard not to have a good stock market.”

His conclusion: “At some point the rates are going to have to change.”

Indeed they will, and that’s precisely what almost every bank, from Goldman yesterday to Citi today, and many others inbetween, have been warning about in recent months.

Until recently, Trump’s latest anti-Fed outburst would have been swept under the rug as just another example of the deranged ramblings of an anti-Fed conspiracy theorist (trust us, we’ve been there). However, considering the spike in anti-Fed commentary in recent weeks coming from prominent, and established institutional sellside analysts all the way to the WSJ, it may be that Trump was once again simply saying what everyone else thought but dared not mention.

http://www.zerohedge.com/news/2016-09-05/trump-slams-yellen-fed-has-created-stock-bubble-and-false-economy-boost-obama

Sidestepping the Central Banker Booby Prize, by Bill Bonner

Who Knows What Trump Might Do to the Fed?

At the end of last week, the men and women who decide the world’s monetary policy and supervise its banking system gathered at Jackson Hole, Wyoming. And there, the financial press sat on the edge of their chairs to hear what Fed chair Janet Louise Yellen would say. She hadn’t spoken publicly in the last two months.

Unidentifiable avis on the way to Jackson Hole Cartoon by Bob Rich

Ms. Yellen once had such a bright future. She was a spectacular student – at Fort Hamilton High School in Brooklyn, then at Brown, and then at Yale. She always got the highest marks and the greatest accolades. She had such a promising future. Everyone said so. It was such a great opportunity, too.

With over $13 trillion in bonds now yielding less than nothing (thought to be impossible for the last 5,000 years), with the economy struggling to make any headway – despite worldwide stimulus on an epic scale (Friday brought news that U.S. GDP grew at an annualized rate of just 1.1% in the second quarter)…

…with the median household wage down about 20% (when adjusted properly for inflation) since Yellen joined President Clinton’s Council of Economic Advisors and began helping to shape economic policies…

…and with Republican presidential nominee Donald Trump speaking directly to the plain people of the United States of America and telling them that the system is rigged against them!

Ms. Yellen has not said publicly who she will vote for in November, but we’ll bet dollars to donuts it is a certain HRC. The last thing she wants is a loose cannon in the White House. Who knows what Donald Trump might do to the Fed if he were elected?

At a minimum, he may ask what they think they are doing in the Eccles Building… and how they are spending our money.

Who To Blame

Ron Paul famously led an effort in Congress to “Audit the Fed.” But he never even got close. Most members of Congress were sufficiently awed by – or afraid of – the brains at the Fed that they wouldn’t support him. But Trump? Good lord!

Ms. Yellen must have felt the pressure. She must have sensed the opportunity. She had the world’s financial press hanging on her every word. Shouldn’t she say something? Shouldn’t she at least try to explain how things got where they are?

Shouldn’t she blame economist Milton Friedman? After all, it was Friedman – the high priest of monetarism – who advised President Nixon to take the U.S. off the gold standard.

Or Alan Greenspan; he was the one that began backstopping the stock market? Or Ben Bernanke, with his idiotic “Great Moderation” theory just months before the biggest financial crisis in 75 years? And shouldn’t she propose a solution?

Central Banker Booby Prize

She didn’t have a solution. And she didn’t know why things were so out-of-whack.

What could she do? One thing she certainly couldn’t do was announce a return to “normalcy.” That would almost surely trigger a stock market crash and a depression – and earn her the Central Banker Booby Prize. Nope.

All she could do was what she did: more blah-blah. Yellen said the case for raising rates had “strengthened in recent months.” She cited the “continued solid performance of the labor market” as a reason for optimism.

She didn’t mention that the “labor market picture” she’s looking at – based on the government’s own figures – are heavily photo-shopped, screening out the long-term unemployed and adding in fictitious jobs based on various theories and models.

To continue reading: Sidestepping the Central Banker Booby Prize

The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart, by Wolf Richter

Someday the US will get abolish the Fed and use private, market-based money. Until that happy day, SLL will post critiques of the Fed and its minions. Here’s a good one from Wolf Richter at wolfstreet.com:

Who says the Fed can’t have fun at our expense?

At the Symposium in Jackson Hole, so feverishly anticipated by the entire world, Fed Chair Janet Yellen gave an even more feverishly anticipated speech on Friday, in which she said the same stuff she’d been saying all along, such as these nuggets:

“And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course.”

“Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.”

To document this, she supplied the fan chart below, adding this explanation:

“The line in the center is the median path for the federal funds rate based on the FOMC’s Summary of Economic Projections in June.”

“The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70% probability that the federal funds rate will be between 0 and 3.25% at the end of next year and between 0 and 4.5% at the end of 2018.”

At the Fed, nothing ever appears out of nowhere, except money. So Bloomberg supplied some background on how the chart came about:

The Fed has been struggling to find a way to point out that its dot plot – or its quarterly forecast of its policy rate for the next few years – is just a guess and it’s subject to change due to economic shocks or surprising twists in the data.

A subcommittee on communications submitted similar fan charts to the Federal Open Market Committee in January for their consideration. As usual, committee participants expressed “a range of views,” with some saying the charts might be helpful “in explaining that future monetary policy is necessarily uncertain.”

Fed officials sent the subcommittee back to their cubicles to study the issue some more. They had some criticisms of the charts – one big one was that past forecast errors may not equal future ones.

Here are the 11 bone-chilling things I gleaned from the chart:

1. They have no clue about what might happen next. Their forecasts and “forward guidance” are either figments of their imagination or just efforts to manipulate the markets.

2. They have no clue how to get out of what initially was an emergency treatment of a Fed-sponsored financial system in full and self-https://straightlinelogic.wordpress.com/wp-admin/edit-tags.php?taxonomy=post_taginflicted collapse, but is now the “new normal” treatment for an economy buckling under its Fed-encouraged debt.

3. Even the confidence level in their cluelessness is only 70%. What about the other 30%? We’re better off not knowing.

4. NIRP be screwed. Negative interest rates are off the table. In footnote 2 and on the chart itself, Yellen points out the “effective lower bound of 12.5 basis points.” So the bottom in rates, at a 70% confidence level, is 0.125%.

5. NIRP is beyond even the new-normal central bank deviousness. Negative interest rates are so destructive even to Fed-coddled entities, such as the banks, that the Fed doesn’t want to try them.

To continue reading: The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart

Brexit is Just What the Dr. Ordered, by Peter Schiff

Brexit will save Janet Yellen and the Fed from a decision to raise interest rates for a long time. From Peter Schiff at europac.com:

Janet Yellen should send a note of congratulations to Nigel Farage and Boris Johnson, the British politicians most responsible for pushing the Brexit campaign to a successful conclusion. While she’s at it she should also send them some fruit baskets, flowers, Christmas cards, and a heartfelt “thank you.“ That’s because the successful Brexit vote, and the uncertainty and volatility it has introduced into the global markets, will provide the Federal Reserve with all the cover it could possibly want to hold off on rate increases in the United States without having to make the painful admission that domestic economic weakness remains the primary reason that it will continue to leave rates near zero.

For months the corner that the Fed has painted itself into has gotten smaller and smaller. It continues to say that rate hikes will be appropriate if the data suggests the economy is strong. Then its representatives continually cite (arguably bogus) statistics that suggest a strengthening economy, which cause many to speculate that rate hikes are indeed on the horizon. But then at the last minute the Fed conjures a temporary reason why it can’t raise rates “right now,” but stresses that they remain committed to doing so in the near future. But each time they conduct this pantomime, they lose credibility. Sadly, Fed officials are discovering that their supply of credibility is not infinite, even among those who would like to cut them a great deal of slack.

But the Brexit vote saves them from all this unpleasantness. Now when critics question the Fed’s unwillingness to deliver on the suggested rate hikes, given what they believe to be a strong economy, all the Fed needs to do is point to the “uncertainty” that will be in play now that the world’s fifth largest economy is disengaging from the European Union. And since this process is bound to be long, messy, and fraught with uncertainties (as there is no precedent for a country leaving the EU), this will be a handy excuse that the Fed will be able to rely on for years.

Brexit could also place severe strains and uncertainties on the global currency markets. The fear of financial losses could encourage investors to seek safe haven assets like gold and, at least for now, the U.S. dollar. Given that there is already much concern that the dollar is valued too highly against most currencies, and that this has created imbalances in the global economy, any surge in the dollar that results from Brexit may have to be fought by the Federal Reserve through lower interest rates and quantitative easing. This would rule out the potentially dollar-strengthening interest rate hikes that they supposedly planned on delivering. So as far as Janet Yellen is concerned, the British have given her the gift that keeps on giving.

To continue reading: Brexit is Just What the Dr. Ordered

She Said That? 6/22/16

There are two signals that, occurring together, are virtually infallible indicators that a recession is imminent, if it has not already arrived. The first is a front page headline on a major periodical minimizing the chance of a recession, or assuring us of its impossibility. The second is a statement from the head of the Federal Reserve, minimizing the chance of a recession, or assuring us of its impossibility. When the two happen simultaneously, it’s almost a guarantee of the opposite. From chair of the Federal Reserve, Janet Yellen, from a headline story in The Wall Street Journal.

Federal Reserve Chairwoman Jane Yellen said the chances of recession this are “quite low” despite mounting worries that the U.S. could be heading toward a downturn after seven years of tepid econoic expansion.

“The U.S. economy is doing well,” she said Tuesday, kicking off two days of testimony to Congress on the economic outlook and monetary policy. “My expectation is that the U.S. economy will continue to grow.”

The Wall Street Journal, “Fed Chief Minimizes Chance of Recession,” 6/22/16