Once you’re manipulating markets, it’s a hard habit to break.
By Bill Bonner, Chairman, Bonner & Partners:
Poor Janet Yellen.
Usually, we reserve our pity for the poor, the downtrodden, and the hopeless. But today, we spare a thought for the clueless… and feel Yellen’s pain.
Markets are tense. Investors seem to be holding their breath. Everyone is waiting to see what the Fed will do. There must be hundreds of thousands – if not millions – of well-educated adults sitting on the edges of their seats, eager to hear what this rather ordinary functionary will say.
No Return to Sanity
Will Janet Yellen proudly put the Fed on the side of the angels, announcing that she and her crew have decided to move the Fed’s key interest rate to a more normal level… regardless of how much it costs the cronies?
Will she admit that the Fed’s ZIRP and its three QE programs have been failures? Or that they have shifted trillions of dollars toward the rich while leaving Main Street poorer?
Will she beg forgiveness for such errant policy decisions over such a long time and vow publicly never to interfere with the market again?
No, she won’t.
She will say the outlook is favorable – generally, clearing skies and fair weather is in the forecast. But there are some clouds forming out to the east that could lead to stormy weather.
So she will urge a cautious return to normalcy. She may be feeling confident and allow for a small rate increase… or she may be feeling fearful and decide to hold off for a while.
We don’t know. And it probably doesn’t matter much.
Permanent Emergency
Once you begin manipulating markets, it’s a hard habit to break.
First, investors come to look forward to it. Then businesses become hooked on it. And then you can’t stop even if you wanted to. After nearly seven years of emergency financial policies, we are now in a permanent emergency.
But it is a phony emergency. Markets are supposed to go down as well as up. They’re supposed to correct their mistakes. They’re supposed to destroy malinvestment to make way for new capital formation. It’s never been a real emergency; it was capitalism at work.
Poor Janet Yellen must not know what to think.
On the one hand, she is lauded as the most powerful woman in all history. Helen of Troy was a bit player by comparison. Cleopatra was merely the love interest in the battle between Julius Caesar and Mark Antony. Susan B. Anthony? No one knows what she did, if anything.
But Janet – she has the entire world economy in her hand. She can squeeze it. She can bounce it on the floor. She can do what she wants with it.
On the other hand, there are the dark nights… when she must realize she is in way too deep. She is supposed to do what no mortal can do. She is in charge of fixing – at least to the extent she is able – the most important price in a market economy: the price of credit.
It must have occurred to her that she shouldn’t be fixing it at all. Only the gods know what the price of credit should be. She is just human. If she sets the price of credit, she is bound to err.
What’s going on? Has she been set up to take the fall for Greenspan and Bernanke?
But wait… in a fiat money system banks don’t lend out deposits, or even a fraction of deposits. Instead, with a few keystrokes, banks create money ex nihilo (out of nothing) when they lend. Surely, the head of the central bank can decide at what price banks can rent out capital, no?
Janet Yellen’s Brain at 4 a.m.
If I raise the rate, just a little, I’ll probably be hailed as a sober, responsible economist. After all, it is unnatural for the federal funds rate to be so low for so long. And those charts and graphs on my “dashboard”… they seem to be saying that things really are returning to normal. People have jobs. The economy is growing. Why worry?
Of course, I know perfectly well those charts are mostly garbage. All the data is so jigged and jived by the back-office boys, who knows what is really going on?
And here I’ve got Bill Dudley at the New York Fed, Goldman Sachs, and Larry Summers all telling me that natural market forces are already tightening credit conditions… without waiting for the Fed. And that if we raise rates now, we’ll just be making a bad situation worse.
Maybe they’re right. But those zero-bound rates must be causing distortions that we don’t know about. The junk bond market, for one. And the corporate bond market, in general. How were we to know those rascal corporate execs would borrow money at our low rates just to goose up their shares, via buybacks, so they could earn even fatter bonuses?
And now, stock prices depend on our ultra-low rates. That’s crazy. They must know we’ll raise rates sooner or later. Then the people who bought stocks at some of the highest valuations in history – like those gamblers at Goldman – they must realize that they’ll lose money.
I guess it’s almost our duty to teach them a lesson.
But what if all these dumb-heads who’ve been gaming the Fed… betting that we’ll keep ZIRPing along for far longer than we probably should have… what if they panic?
What if we get a couple days of 1,000-point drops on the Dow? Won’t they all start pointing their fingers at me, claiming I caused the panic?
Of course, I did nothing of the sort. It’s not my fault they bought stocks at such high valuations. We were just trying to boost asset prices so the “wealth effect” would make Americans rush out and spend.
We have to raise the interest rate at some time, or the entire system will become unmoored… drifting to who knows where… and washing up on who-knows-what rocks.
But what if Larry is right? What if a rate increase makes credit conditions too tight? What if that provokes a sell-off in stocks… and sets in motion a chain of events such as those that led to the Great Depression?
Then stock markets plunge. The “wealth effect” turns negative. World trade collapses even further. Unemployment rises. And we end up in a new depression that lasts 10 years…
What if they say it’s my fault? What if they call it the Yellen Depression?
Oh, no… It’s not fair… It’s not fair… Boo-hoo… sob… sob… I should have stayed at Harvard. I’d have tenure. I’d have a nice pension. George and I could go the Martha’s Vineyard in the summer. It would be such a nice life. By Bill Bonner, Bonner & Partners
A New Global Recession? Read… A Worrying Development for Stock Market Bulls
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
“Once you begin manipulating markets, it’s a hard habit to break.”
So so true.
It does seem like they’ll push the increase off until October. We’ll know soon enough. And you give her a lot of credit – awake at 4 a.m.? I think some of the powers-that-be have no trouble puppet-mastering the economy and sleeping quite soundly.
Yea it doesn’t seem like they’re about to raise interest rates.
1) an interest rate hike would cause the USD to appreciate, which hurts exports. Buffett mentioned this in an interview on CNBC
2) an interest rate hike could bring stocks down after what happened in August. The Fed doesn’t want to risk that.
3) with all the external bearish forces from Europe, China, Russia, and other BRICs, now is probably not the best time to hike rates.
Sorry Bill I do not buy it. Janet does not lose any sleep at night because she is beyond the law and not accountable. She refuses congressional requests without fear.
“Markets are supposed to go down as well as up. They’re supposed to correct their mistakes. They’re supposed to destroy malinvestment to make way for new capital formation. It’s never been a real emergency; it was capitalism at work.”
Amen
With a manipuated market, likely there will never be a ‘right’ time to increase interest rates, so why wait? Why not raise them now?
As it us, inestors who prefer to save and accumulate cash have been subsidising borrowers long enough. It is time to show the market who shoukd really be the boss.
It’s a nice daydream ML but it’s not going to happen that way. I doubt you could get even a handful of investors to agree on where to have coffee. The same is true of farmers and commodity prices or my own career in transport in regards to freight rates. Yes, it’s true that if a large percentages of farmers or investors or truck drivers stopped working or selling or buying they could bring the country to its knees. But then what? The invisible hand would look for end runs around the problem and those organized “strikers” would have a momentary rush of power before it was snatched away. And anyway the individuals in the movement wouldn’t last long before the bills came due and they couldn’t pay them because cash flow stops. They won’t stop until the collapse forces it on them. Even the contrarians fall into different camps. King Dollar vs Dollar Hyperinflation for instance-two diametrically opposed outcomes. Eventually one group will be proved right and the other wrong. Which will it be? You pays your money and you takes your chances. Tic Toc
The Fed, as we currently know it, has been in existence for 102 years. It is a PRIVATE bankster cartel dominated by a few families, but at the top of the fiat currency chain, it is the Rothschilds.
U. S. history:
1784 – Isaac Roosevelt and Alexander Hamilton start the Bank of New York.
1791 – ‘The First Bank of the United States’ gets a 20 year charter. It is run by the Rothschilds.
1811 – The charter expires and Congress does not renew it.
1812 – Britain and the U. S. wage war.
1816 – Congress grants ‘The Second Bank of the United States’ a 20 year charter. It is run by the Rothschilds.
1833 – President Andrew Jackson starts removing the government’s deposits from the Second Bank of the United States to banks run by non-Rothschild entities.
1836 – Congress does not renew the Second Bank’s charter. The Executive branch and Treasury are in effect the nation’s central bank.
1841 – President John Tyler vetoes the Congress’ act to renew the charter for the Bank of the United States.
1862 – By April, President Abraham Lincoln issues $450 million of fiat currency to finance the Civil War.
1865 – Lincoln is killed.
1913 – President Woodrow Wilson sets up the Federal Reserve. It is run by the Rothschilds and a few other families.
1933 – FDR claims a ‘State of Emergency’ and Congress grants him unconstitutional power. On behalf of the Fed, FDR confiscates citizens’ gold which then goes to the Fed in exchange for ‘Federal Reserve Note’s. The fiat currency of the USA is now completely owned by the Fed.
1963 – On June 4, President John F. Kennedy signs Executive Order 1110, which returns to the U S government the power to issue currency without going through the Fed. On 22 November, JFK is killed.
1971 – President Nixon takes the dollar off the gold standard. The U. S.’s fiat currency has no intrinsic value from this time forward.
We know what’s transpired since. Clinton signs the Gramm-Leach-Bliley Act and Wall Street runs wild with their new powers. The Fed prints $4 trillion to give to the banksters, sets up QE and ZIRP which transfers wealth away from the masses and into the hands of the 0.1%. Then we get the Cromnibus Bill of 16 December 2014, which puts the FDIC on the hook for HUNDREDS of TRILLIONS of dollars of Wall Street derivatives.
Janet Yellen is not the decision maker at the Fed. Sure she wears the crown, but she’s a puppet of the Rothschilds. She does hold the fate of humanity in her hands because over the years Congress has abdicated its duties and let the power to issue currency be taken from the Treasury, where it belongs, and given this power to a private cartel of elite banksters. The two party status quo is happy with this set-up. Wolfstreet followers, are you happy with this set-up?
The banks don’t need the fed to raise interest rates, they can raise them anytime they want. Credit cards are up to 30% in some cases without the fed mandating it. The zirp policy is a floor in the market, not a ceiling. That fact that even sophisticated investors don’t understand this is a joke.
Ah this song is on my head as I read this:
Your lights are on, but you’re not home
Your mind is not your own
Your heart sweats, your body shakes
Another kiss is what it takes
You can’t sleep, you can’t eat
There’s no doubt, you’re in deep
Your throat is tight, you can’t breathe
Another (QE to Oblivion) is all you need
Ohh oohh
You like to think that you’re immune to the stuff…oh yeah
It’s closer to the truth to say you can’t get enough
You know you’re gonna have to face it
You’re addicted to (ZIRP, NIRP and money printing)
Vespa. Love it. “Might as well face it we’re addicted to (easy money)…”
Harvard? Berkeley!