Friday, November 22, 2013
In a post in the CBB on prudentbear.com, Doug Noland prints some of the Senate interview of the soon-to-be Fed Chairman, Janet Yellen, who, in my personal opinion, is in turn playing the same part for the Bernanke Fed that he played for the Greedsfan: ushered in right before the periodic collapse takes place so as to allow the Maestro, numero deux, to leave with his reputation remarkably untainted, even though he brought about, once again, the world's biggest financial catastrophe, isolating millions more in job limbo, which means premature deaths by the millions, as in the former USSR, as no job means no home, no health insurance, which means no health care.
But what the heck. At a quarter of a million dollar paycheck, amounting to a cool million for a 4year term, who cares? And that's just the nominal salary, counting none of the perks that jerks in government 'service' serve up to themselves.
One of the terms used in the interview over and over is "Financial Stability". How it is the Fed's job, as it increases its balance sheet using the same concept of SIV's that Enron employed and was later adopted by the same banks who constructed it for the Oil services giant (there's that word service again ... whether it's politics, the military or the banks, whenever you hear that term, just open your wallet and empty it out, because all service providers demand HUGE tips) in the first place, to ensure such stability.
Yellen then states, in literally the same breath that, "Low interest rates (yes those low interest rates promulgated by ...hmmm, oh yeah, the Fed) can induce risky behavior", because, as we all know, stability and risky behavior always go hand in hand. She then assures the panel that the Fed under her, will be especially watchful of the largest institutions, those threatening financial instability the most. She fails to mention that those institutions' size is a function of the Fed and the Federal government that abetted their getting so huge in the first place so as to allow them to compete with the European Banks, even though every European bank is teetering so precariously on the edge of insolvency that the Societe General has brought a claim against a humble (well okay, not so humble, but he shouldn't be: while Janet has proclaimed that as late as 2007 she had nary an inkling of the trouble brewing, Mish, was giving a blow by blow account of how, when the collapse began, first the monolines (remember them anyone?), the ratings agencies, the banks with the aforementioned SIV's fraudulently held off their books in full view of the Fed who gave this vehicle for misrepresenting the Banks' true value by holding their liabilities in a separate company, Enron-style, so that their bottom line could be elevated, deceiving shareholders, their full blessing), blogger who's been fined 8,000 euros (no euro sign on keyboards), for pointing this out.
"I think it’s important for the Fed, as hard as it is, to attempt to detect asset bubbles when they are forming". But the Fed doesn't have to, there are plenty of people, outside of the Fed, pointing at Fed policy who both saw asset bubbles forming, and, correctly, laid the blame for those asset bubbles forming squarely where it belonged: at the Fed's doorstep, for the low-interest rate policy that encourages, by their own stated objectives, risky behavior. People take their money out of bank accounts that although they are called Savings account, are as a direct result of Fed policy, losing accounts, as they pay less interest than the real rate of inflation, which, again, as a result of Fed policy, are rising on those items that people HAVE to buy, while decreasing only on those things they'd LIKE to buy, like computers and HDTV's, and game consoles and stupid smart phones.
So, how does JY plan to deal with these TBTF institutions? Which she admits "has to be among the most important goals of the post-crisis period" (never mind that this is the fifth year and all that the Fed's done so for is encourage even MORE TBTF criminality by working with the administration to use Fannie-Mae, Freddie Mac, the FHA, and the FED itself to arbitrarily and systematically elevate the most commonly owned asset in the country, the Homes of the citizens, beyond their market valuations in order to elevate the US economy above its actual value and allow municipalities, who exist on the property taxes that would plummet if homes were allowed to fall to their true marketplace prices, to stave off bankruptcy. There are at least another 50 Detroits, kept from insolvency simply by the policy of the Fed purchasing MBS that the marketplace won't touch, because, being the instigator and perpetrator of fraud, albeit with a wink and a nod from the government on all levels, the private sector knows that the valuations, on which the value of those MBS's are based, are laughably elevated.
But since, as she claims, we are making progress, but, "We have on the drawing boards the possibility of requiring that the largest banking organizations hold additional unsecured debt at the holding company level to make sure that they are capable of resolution.” Wonder what kind of artists they have manning those drawing boards that it's taken more than 5 years and nothing except the further deterioration of the economy and the banking sector has occurred, although the signs of it are TARP'd over by the very Fed that's supposed to be "monitoring the situation".
Finally, on the subject of "the Wealth Effect" that a rising stock market is supposed to have, Yellen has not only the wrong assumption about that effect, but the wrong assumption of what exactly is driving what. This so-called Wealth Effect the Fed has insisted on using as justification for its wrong-headed policies since it fomented the financial crash, is the effect that the Greedsfan Fed was able to work up to a feverish pitch of Irrational Exuberance because the foolish investing public felt richer as the rigged stock market shot ever higher. This was the period when Greedsfan and Cramer were like cheerleaders for one another, while they ignored the fact that the "Wealth Effect" was nothing more than a euphemism for fraud.
But when the Fed can obfuscate their actions, spout high-flying phrases and rabidly drawn conclusions from idiotic assumptions that appear to actually work when the polity is deluded by their legerdemain is one thing. To actively and assiduously try to pull the same trick when the entire audience can see exactly how you're pulling the strings in order to make the market's valuation increasingly divorced from its worth, it's not going to have the same impact. Even those who know that they shouldn't "Fight the Fed" and so move their cash into risky investments, ones that shouldn't be being made, they do so with one foot always ready to hold the door open for them to squeeze out of it before its slams in their face with their money on the other side of it: the very definition of entrenched instability. The exact opposite of Financial Stability, again, not Watched, not MONitored by the Fed but CREATED by the Fed.
Then, like leveraging itself, if you leverage on quicksand, you may be able to look like "The Smartest Men in the Room" for awhile, but when it undergoes liquefaction, every thing falls, so, as the Fed, by counting on a wealth effect to create 'animal spirits,' has been mistaken, in that they assume it works, and then go on to decide that a nascent recovery is taking place, "a recovery in housing that could drive a broader recovery in the economy". But, in a healthy economy, it is the other way around. If there were a true wealth effect, then there would be job growth and upward pressure on higher income for workers, not for the hoarders known as the rich. Krugman harps over and over again about 'the paradox of thrift", but never cites the paradox of funneling larger and larger proportions of company profits to the rich where it has the exact same effect as his paradox of thrift has: it takes vast sums of money out of the American Economy where it was produced and whose growth needs those profits reinvested in it, but ships it instead, by the boatload, to offshore bank accounts and foreign direct investment, and luxury goods and frat-brat toys, starving the economy that produced it. It's higher wages, not a contrived "Wealth Effect", that then gives people real confidence in their economic position, enough to consider purchasing such a big ticket item as a house.
By assuming the other way around, that you just make people 'feel' like their wealthy while you rob them of everything that gives them real financial stability: Health insurance, good education, and housing that's not jerry-rigged at a nose-bleed levels in order to trap them there when the next crash, (we now all know, you see) comes.
Claiming that we, when even the mere possibility of a tapering of the FED's program for financial instability called QE:
"saw mortgage interest rates rise in the space of a few months by over a hundred basis points, we had to ask ourselves whether or not that tightening of conditions in a sector where we were seeing a recovery (we were?) we did have to ask ourselves whether or not that could potentially threaten what we were trying to achieve: an improvement in the labor market ..."
Yellen lays bare the fraud at the heart of the monetary system. When even the whisper of a muting in the Fed's asset purchasing program of enlarging the balance sheet of the Fed by more than a $Trillion, that's $1,200,000,000,000.00 in less than a year, while at the same time the Pentagon comes forward with another $8trillion that has simply gone unaccounted for, one has to ask oneself, where are we? Stealth technology, which we paid for to use on other countries, is working the same way that stealth arming of a fundamentalist Muslim sect of Wahhabism during the Reagan years in order to fight our fight against the Soviet Union in Afghanistan: it is backfiring big time, and just as we blamed the terrorists that we ourselves created for what happened on 9/11 instead of the government goons that put such an odious operation into place in the first place, we are doing the same thing, only now with the entire economy, using the "Stealth Effect" in economics to fool the public into thinking their richer than they are so they can be suckered yet again into putting themselves into debt for decades to pay for an asset whose price has been purposely elevated far above its real worth by a private institution that now has the government by the balls. And the icing on the cake is that you can tell the public they're being lied to right to their faces: That's what the Wealth Effect's stated purpose means, pumping up the stock market so that people will feel wealthier than they are so that they will more readily spend money they haven't earned yet, but that they feel assured they WILL have. Like extend and pretend: they know that you are so stupid you'll never notice that that's a catchy phrase for lying to your face 'cause that's what you like. It's all over but the Yellen. And that'll commence shortly after the Bernank steps down.
Posted by Robert Lowrey at 5:15 PM