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Janet Yellen Is A Religious Nutcase

Politics / US Federal Reserve Bank Jul 15, 2014 - 05:56 PM GMT

By: Raul_I_Meijer

Politics

Janet Yellen is a religious nutcase. She may not appear like one at first glance, but take a look at her picture again and you may find that instead that’s exactly what she looks like. She may have that nice little grandma façade, but then those are often the worst cases. I realize this is not a nice thing to say, but there are limits to what even nice little grandmas can say and do, especially when they run a central bank where an embroidery class would seem like a much better fit.


The New Yorker has a portrait of Yellen that is behind a paywall, but CNBC has enough to get to the gist of it, which saves us from having to read about her hairdo too. They first refer to an older speech of hers, which nicely sets the tone:

“Although we work through financial markets, our goal is to help Main Street, not Wall Street.”

No, she really said that. CNBC, however, states the obvious:

“More than five years after the financial crisis, historically high numbers of Americans are still out of the labor force.”

AP, on the other hand, doesn’t seem to think this is a problem:

While unemployment stood at 6.7% in February, it has now fallen to 6.1%, the lowest point since September 2008, reflecting strong job growth in recent months. The economy has created an average of more than 200,000 jobs a month over the past five months, the strongest stretch since the late 1990s.

That looks more like the official party line. But we do remember, don’t we, that in the last BLS survey full-time jobs actually went down quite a bit, only to be replaced with a larger number of part-time jobs?! And we haven’t forgotten either that US Q1 GDP was down -2.96%? Sorry to repeat those things all the time, but they’re important when it comes to what Yellen has to say.

Still, while that first statement of hers was just a simple lie, this nest one is the clincher for me, this is where religion comes in and reason is washed away with the bathwater, and this is why I don’t hesitate to call her a nutcase, even though I don’t find that easy:

The Keynesian tradition, Yellen told the magazine, and the line of research known as “behavioral finance” have “come out of this crisis with greatly enhanced prestige in academia, and in institutions like [the Federal Reserve].”

I tell you, I can take a lot, but that truly pisses me off. That sort of blind arrogance makes Mrs. Nice Little Grandma an enormous danger to America. Bernanke and Yellen have blown up the Fed balance sheet to the tune of $4 trillion, and that’s just one of many tricks in their books. While unemployment rates only appear to have fallen because millions of Americans are no longer counted as participants in the labor force. And the number of people on foodstamps has shot through the ceiling and never came back down. And, and, and.

Meanwhile, Wall Street profits have shot up and stock markets set new records all the time. That last bit is what I guess gives Yellen the guts to state that the “Keynesian tradition” has been vindicated. She can do so only by conveniently forgetting that we’re in the sixth year of the alleged recovery, and we’re nowhere near past the end of the crisis – which must be setting records -, even if she would like to differ on that.

Well, if she feels that the Keynesian approach has been such a ravishing success, why doesn’t Yellen:

1) cut QE asset purchases to zero immediately, 2) sell off all assets presently on the Fed’s balance sheet, and 3) raise interest rates?

Because, and this is painfully obvious – I wish I could make this a multiple choice question for you, but there is only one possible answer – it hasn’t been successful at all. That’s why AP writes:

Yellen has stressed that while jobs are now being produced at a faster clip, the economy still needs the Fed’s help in the form of low interest rates because a variety of indicators, from measures of long-term unemployed to wage growth, still remain weak.

And that’s why Yellen tells the New Yorker:

… even when the headwinds have diminished to the point where the economy is finally back on track and it’s where we want it to be,” she told the New Yorker, “it’s still going to require an unusually accommodative monetary policy.”

What she says there is that the economy is where she wants it to be, but at the same time it’s not. Your average run of the mill mortal soul might think that the Keynesian measures have either been successful or they’ve not. But no, Yellen sees a third way: it’s both. The deity is always right, and when he’s not, you just pray harder. She believes in Keynesianism, so much so that if “accommodative monetary policy” doesn’t work, she pours on more, and “unusually” accommodative monetary policy. Little grandma’s deity is never wrong. I’m sure that reminds many of you of little old ladies you knew at one point or another in your lives.

If we were to summarize Bernanke and Yellen’s policies over the past 6-7 years, it would come down to something like this:

The Federal Reserve’s view is that it’s quite alright to not restructure debt in the banking system, no matter how large that debt is, and that you can – easily – avoid having to execute such restructuring by simply pumping seemingly unlimited amounts of additional debt into both that same banking system and – to a much lesser extent – into the economy at large.

It is useful to note here that not long after Ben Bernanke took over as Fed head, he talked in one of his speeches about the ‘uncharted territory’ the Fed was entering: he meant that nobody before in history had faced a crisis like the one we had in 2008, and nobody had ever attempted the response he was spearheading.

And it’s even more useful to note that since then, the Fed hasn’t come back out of that uncharted territory, it has wandered ever deeper in (and is now hopelessly lost, if you ask me).

But you wouldn’t know that from listening to Yellen speak today, or Bernanke in his last Fed head years, for that matter; it was never mentioned again. They have both been seeking to come across as if they did and do know what they were and are doing, and people mostly swallowed the message whole.

This week, she’ll talk to Congress trying to convey that same notion, that she’s in control. They’ll buy most of it, because they too have long forgotten that ‘uncharted territory’ idea Bernanke mentioned, and no-one there thinks of asking Yellen about it. But she will get asked why, now that she seems certain she’s got it down, she doesn’t raise rates and/or sell assets. And she’ll answer something to the extent – though not in those words – that her deity is always right, just occasionally slow.

Meanwhile, elsewhere, it’s all Keynes all the time too. 2 Bloomberg pieces:

China’s New Loans, Financing Top Estimates

China’s broadest measure of new credit topped analysts’ estimates in June, signaling policy makers’ shift toward supporting economic growth over reining in shadow banking. Aggregate financing was 1.97 trillion yuan ($317 billion) in June, the People’s Bank of China said on its website today, compared with the median estimate of analysts for 1.425 trillion yuan. New local-currency loans were 1.08 trillion yuan and M2 money supply grew 14.7% from a year earlier.

Eh, excuse me: “M2 money supply grew 14.7% from a year earlier”?! China doesn’t have a money supply problem, it has a velocity of money problem. Like the rest of the world. People are not spending.

China’s Local Governments Pile On Stimulus

China’s regional governments are starting to pull out their own stimulus cards to shore up growth as central authorities limit aid for the economy. Northern Hebei province, whose 4.2% first-quarter expansion pace was less than half that of a year earlier, will invest 1.2 trillion yuan ($193 billion) in areas including railways, energy and housing. Heilongjiang province in the northeast, with 2.9% growth that was China’s lowest in the first quarter, will spend more than 300 billion yuan over two years in areas including infrastructure and mining. Any borrowing to fund the investment risks exacerbating financial dangers from local-government debt that swelled to about $3 trillion as of June 2013.

China’s local governments to a large extent work through shadow banks. Any questions?

2 Wall Street Journal articles attest to Lord Keynes’ adventures in Europe:

IMF Touts Quantitative Easing Benefits for ECB

Large-scale purchases of government bonds by the European Central Bank would boost euro zone inflation and stimulate demand for bank credit, the International Monetary Fund said Monday in its latest effort to tout the potential benefits of quantitative easing in Europe. The IMF stopped short of calling on the ECB to immediately embark on the policy, which stirs deep skepticism in the euro zone’s largest member, Germany. [..] Quantitative easing “can push up inflation by raising consumption and investment across the euro area, and support that trend by reviving the supply and demand for bank credit,” wrote Reza Moghadam, head of the IMF’s European department, and the department’s deputy director Ranjit Teja.

They don’t really want inflation, they want to force people to spend. But people don’t have enough, either money or confidence, to spend. Still, they have a solution for that too: coax them into borrowing more. The Lord Keynes would have wanted it that way. Or so they say.

Debt Purchases Are Within ECB’s Mandate: Draghi

European Central Bank President Mario Draghi said Monday that large-scale purchases of public and private debt fall “squarely” within the ECB’s mandate to keep inflation low and stable. Draghi’s remarks, at a hearing at a newly formed European parliament that met in Strasbourg, France, are the latest indication that the ECB is open to additional aggressive stimulus measure if they are needed to keep inflation from staying too low for too long. He said the ECB’s ultralow interest rates – the ECB cut them to record lows last month and installed a negative rate on bank deposits at the central bank, the largest institution to do so – haven’t fueled asset bubbles but warned of “frothy” conditions in the housing markets of some euro-area countries. Regulatory policies are the primary defense against such risks, Draghi said, adding that monetary policy isn’t the right instrument to use at a time of low inflation.

Let’s hope the Germans have gained some extra strength from winning the World Cup, and continue to refuse to succumb to the Yellen, Bernanke, Lagarde and Krugman-led destruction of their children’s futures. And remember that there is no historic proof that what all these people are doing has even the potential to work. No proof whatsoever. It’s just faith based economics.

Throughout history, many bloody battles have been fought, and many societies destroyed, over religious conflicts or through sheer religious zealotry. Are we really sure we are ready to let that kind of thing knock on our doors? I’m asking because that is what’s happening.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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