Monday, July 28, 2014

Will Janet Yellen Turn The Right Knobs & Flip The Right Switches?

By Chris Rossini

Mohamed A. El-Erian, a recent addition to the gaggle of central planning defenders at BloombergView, is anxious about what the future holds for the Land of Oz.

Will the Great Wizard, Janet Yellen, turn the right knobs and switches?

Let's go through El-Erian's concerns one-by-one, and apply some clear thinking to them:

1. To what extent is the central bank's policy approach increasing the risk of financial instability down the road? This question is preoccupying a growing number of regional Fed presidents.

Well, since the Fed has distorted the marketplace with piles of malinvestments and debt, while at the same time twisting the capital structure into an Aunt Annie's pretzel, the "risk" of economic reality intervening (i.e, what central planners call "financial instability") is weighing in at a cool 100%.

The planners think they can turn the economy into a kaleidoscope and avoid the ramifications. Not gonna happen.

Next question...

2. How much damage has the recession inflicted on the economy’s growth potential and its productivity, thus limiting the effectiveness of Fed policies?

Recessions do not inflict "damage". The Fed's manipulation of the money supply inflicts the damage. The "good times" are really the "bad times". Recessions are the cure to the Fed's artificial interest rate drug. Recessions are the detoxification.

The planners hate the thought of detox. They're addicts!

What's next?

3. How quickly will this year’s faster-than-expected drop in the unemployment rate translate into wage gains, and will they undermine the Fed’s 2 percent inflation target?

The economy is not some type of Rube Goldberg machine, where you press a button here, turn a knob there and everything will work as your mind imagines it.

Land, labor, and capital should be able to move freely between private property owners in the marketplace. Supply and Demand, as well as Profit and Loss will provide the guidance. No government intervention, because it only adds friction. Aggregations known as "unemployment rate" or "wage gains" do not exist. For there are no grand manipulators.

And surely, there would be no such thing as an "inflation target"! Counterfeiters need not apply. Go set some other goals for yourselves.

4. How should policy makers respond to a seemingly endless series of geopolitical shocks, the cumulative impact of which is getting harder to dismiss?

The Fed is the heartbeat of the Empire. Geopolitical "shocks" have to be financed somehow. Want less of them? Take away the Empire's printing press.

Simple enough, right? And no math was involved!

5. By carrying the bulk of the economic-stimulus burden, does the Fed risk undermining the political and operational autonomy that is so critical to its effectiveness?

The economic-stimulus burden is carried by the unsuspecting public! For when the house of cards comes down, it is Joe American who gets wiped out financially, has to close his business, and is foreclosed upon. Joe American, educated in government's schools, doesn't know any better. He just takes a whipping over, and over, and over, and over.....

The Fed is not "autonomous". It is the great enabler of the Welfare State & Warfare State. We don't need that type of "effectiveness".

It is the destroyer of Liberty.


  1. What Is the Effective Limitation on the Fed's Ability to 'Print Money?'

    One of the reasons that this current scheme of the Fed seems to be succeeding is that instead of increasing the overall money supply by distributing it freely 'out of helicopters' and stimulating aggregate demand, they are printing loads of money and then carefully handing it to their cronies in the Banks and other private multinational corporations.

    And since they are dealing with the world's reserve currency, the base of their Ponzi scheme is very broad in its number of potential contributors.

    The resulting distortion does not yet result in a general inflation, but certainly facilitates a massive wealth transfer that has been ongoing already for some time, from the public to the privileged in a corrupt and systematized plunder.

    This system will not cohere. But it is very profitable for the status quo in the short term, if one ignores the consequences. It can result in a society turned upside down, a bizarro world where nothing makes sense.

    Wars have been fought to sustain such looting, and to distract the people from their misery. It always ends badly, in social disruption and worse.

    1. tom, I fear you're right. Wars, and rumors of wars...