Wednesday, July 2, 2014

Bonus Coverage: Clueless Keynesian Economists and Crazed Inflationist Janet Yellen

Here's some bonus coverage from today's EPJ Daily Alert:

According to data released today by ADP, employment at companies climbed in June by the most since November 2012.

The 281,000 surge exceeded the most optimistic forecasts in a Bloomberg survey of Keynesian trend following economists. The median estimate of economists called for only a 205,000 advance.

The job increases came pretty much across the board. Manufacturers, builders and other goods-producing industries increased headcount by 51,000. Employment in construction rose by 36,000, while factories added 12,000 jobs. Payrolls at service providers climbed by 230,000.

Companies employing 500 or more workers added 49,000 jobs. Medium-sized businesses, with 50 to 499 employees, took on 115,000 workers and small companies increased payrolls by 117,000, the most since February 2012.

This is going to get the Keynesian trend followers very bullish on the economy at a time when money supply is decelerating and may be close to ending this round of the manipulated economic surge. Since Keynesians really don't have a theory beyond changes in "animal spirits" to explain inflection points in trend, they never see them coming.

My book, "The Fed Flunks" includes a chapter detailing my real time warning of the Great Recession and contrasts it with the clueless comments by Fed officials at the time , including then-Fed chair Ben Bernnake.

Not much has changed. Here's the latest comment, via Bloomberg, from a typical Keynesian trend follower after the ADP numbers released today:

“It all points to a relatively optimistic outlook,” said Lewis Alexander, U.S. chief economist for Nomura Holdings Inc. in New York.


Orders for goods produced in U.S. factories fell 0.5% in May, but this was largely because of fewer Pentagon bookings. Military orders can be quite volatile and do not fit in as well with overall business cycle movements. Orders climbed 0.2% excluding military-related items. In April, factory orders were revised up to show a 0.8% increase instead of 0.7%.


Janet Yellen  delivered the 2014 Michel Camdessus Central Banking Lecture at the International Monetary Fund in Washington, D.C., this morning. What really stood in her speech was her amazing justification to continue aggressive money printing by claiming that money printing has limitations ,i.e., that is monetary policy has limitations. Clearly, she is not advancing an Austrian School Business Cycle Theory view of the causes of the business cycle.

Indeed, at one point in the speech she made her view clear:

"monetary policy faces significant limitations as a tool to promote financial stability"

This is a very strong signal that she will not be afraid to keep on printing as indications of price inflation acceleration become more obvious.

At another point she even poohed, poohed the idea that the Fed should have printed less before the financial crisis of 2008 and resulting Great Recession:

"It is not uncommon to hear it suggested that the crisis could have been prevented or significantly mitigated by substantially tighter monetary policy in the mid-2000s. At the very least, however, such an approach would have been insufficient to address the full range of critical vulnerabilities I have just described. A tighter monetary policy would not have closed the gaps in the regulatory structure that allowed some SIFIs and markets to escape comprehensive supervision; a tighter monetary policy would not have shifted supervisory attention to a macroprudential perspective; and a tighter monetary policy would not have increased the transparency of exotic financial instruments or ameliorated deficiencies in risk measurement and risk management within the private sector.

"Some advocates of the view that a substantially tighter monetary policy may have helped prevent the crisis might acknowledge these points, but they might also argue that a tighter monetary policy could have limited the rise in house prices, the use of leverage within the private sector, and the excessive reliance on short-term funding, and that each of these channels would have contained--or perhaps even prevented--the worst effects of the crisis.

Wow, that's what a hardcore inflationsits sounds like.

And if that doesn't clue you in to the fact that she is a major money printer, further in her speech she made the point even clearer:

"In recent years, accommodative monetary policy has contributed to low interest rates, a flat yield curve, improved financial conditions more broadly, and a stronger labor market. These effects have contributed to balance sheet repair among households, improved financial conditions among businesses, and hence a strengthening in the health of the financial sector. Moreover, the improvements in household and business balance sheets have been accompanied by the increased safety of the financial sector associated with the macroprudential efforts I have outlined. Overall, nonfinancial credit growth remains moderate, while leverage in the financial system, on balance, is much reduced. Reliance on short-term wholesale funding is also significantly lower than immediately before the crisis, although important structural vulnerabilities remain in short-term funding markets.

"Taking all of these factors into consideration, I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns."

Hell hath no fury like accelerating price inflation with a big time money printer running the central bank.

As I have been pointing out here in the ALERT, there seems to be the possibility of a short-term slowdown in money growth at present, but this appears to be more the result of technical factors rather than any planned slowdown by the Fed, beyond the minor tapering of QE3, but at the first signs of any economic downturn, because of this slowdown, Yellen is going to go aggressively to much greater money printing. The investment focus should continue to be on investments that will benefit from accelerating price inflation.

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1 comment:

  1. RW- how the hell do you read this shit, let alone listen to an unpleasant and monotone voice spout this bullshit?!?

    Thanks for doing it for us!