After last week’s air tragedy, maybe a poor thought process but please stay with me. Would you ever get on an airplane if there was no pilot? Would you be confident of reaching your destination safely? Of course not. Whether you know it or not, you are living in an economic and financial “airplane” with Janet Yellen as the pilot. The sad thing is this, even she admits the airplane is broken, I’ll explain why shortly.
Mrs. Yellen gave a speech Friday for the San Francisco Fed. The full text can be found here. Before getting into the particulars, I must say it is “sad” to see our “pilot” go back and forth while not saying much of anything…and what was said was largely incorrect or misinformation. In short, I believe Mrs. Yellen was pandering to Wall Street with her continual line of “we will raise rates later but not yet, and when we do is will be gradual” (my paraphrase). As I have written many times before, the Fed cannot raise rates and if they did the markets will not even be open for trade within two weeks!
First and foremost, let’s look at a few of the Fed’s assumptions. They assume unemployment is 5.5%, the economy is growing and inflation is “too low” and well below 2%. Let’s pull these assumptions apart and then put them back together. Unemployment is not 5.5%, this is total fallacy. The workforce participation rate is plumbing 40 year lows now and those “not looking for work” …because they cannot find any are just thrown in a heap and forgotten about. This has the effect of making the “potential” workforce smaller than it really is, a statistical gimmick for the ages. If unemployment was calculated as it once was back in 1980, the rate would be above 17% as calculated by John Williams Shadow Stats. The 5.5% number is a hilarious fabrication Joseph Goebbels would be ashamed of!
Next, we have the economic growth rate. Friday’s final 4th quarter report claimed 2.2% growth, if you look at the Fed’s OWN MODEL, the first quarter is growing at .2% (NOT two percent, POINT two percent!). If we go one step further and look at “how” the growth rate is calculated, we see there is an “assumption” for inflation. The way it works is the inflation assumption is deducted from the nominal growth rate to arrive at a real growth rate. If inflation is low, it’s only a small deduction to growth. If inflation is high, the deduction to growth will be greater. For example, if we have nominal growth of 3% and inflation at 1%, the real rate is 3% minus 1% =2%. But what if the inflation rate is really 5%? Now we get 3% minus 5%= a negative 2%, or contraction …otherwise known as recession…and herein lies the problem!
The Fed uses BLS statistics for their models and uses CPI and PPI numbers in their calculations. These are NOT true inflation numbers. Yes, they are massaged, twisted and just plain made up, but this is not the “fallacy”. The definition of inflation or deflation has nothing to do with “prices”, price movement is the result, not the cause. The growth of, or the contraction of the money supply is the definition of either inflation or deflation. Janet Yellen knows this, Bernanke and Greenspan knew this …they don’t want YOU to know this. They don’t want you to know this because if you did, then you would know we have not had a single quarter since 2007 with real growth!!!
Now that we have that out of the way, let’s look at a few of her quotes and finish with a “Q+A” mind blower. Mrs. Yellen contends “With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year.” She followed this by saying …the economy in an “underlying” sense remains quite weak by historical standards. So which is it? Strong or weak? Of course, all of this was prefaced by admitting to “extraordinary monetary ease” over the last six years and then later spoke about the timing of rates hikes being difficult because of the “long lag times”. Does six years qualify as “long”? I can still remember studying money and banking in college, the “lag time” was generally considered six to nine months, has so much changed in the thirty years I’ve been out of school? (The answer of course is yes, it has).
Another quote, and an obvious case of “mental lag” on her part, she said, “An environment of prolonged low short-term rates could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield”. Really? Ya think? Are you saying that abnormally low short term interest rates tend to blow bubbles faster than Lawrence Welk?
Before getting to the real fun, let’s look at what I think was a first admission on the part of the Fed regarding their balance sheet. Mrs. Yellen said “But if growth was to falter and inflation was to fall yet further, the effective lower bound on nominal interest rates could limit the Committee’s ability to provide the needed degree of accommodation. With an already large balance sheet, for example, the FOMC might be concerned about potential costs and risks associated with further asset purchases.” Do you understand what she just said? In my own blunt words, she said “if the markets were to turn down and economy further down from here, since interest rates are already at zero …there is nothing we could do. We have already expanded our balance sheet to the limit and would risk bankrupting even ourselves with further bond purchases. We are out of ammo”! Sad, but very true, the Fed can only rely on falsified data to portray growth and can only threaten higher rates, but never deliver them.
Lastly, during the Q+A session Mrs. Yellen made the comment “cash is not a convenient store of value”. After it was all said and done, CNBC’s Rick Santelli went off on a rant and can be seen here.
If I may interpret for you, Mrs. Yellen is saying they not only “want” to debase the dollar and create inflation, they absolutely MUST debase and devalue the dollar in or to “reflate” and KEEP REFLATING! There is no other alternative but we already knew this. We knew she knew this, what was shocking is she actually said this! Let me finish with a three word translation for you, “Cash is trash”. Janet Yellen, 3/27/14.
Cash is not a convenient store of value….
Now that is a mouthful that a fiat peddler could choke on….lol
As soon as the minions of the world realize that there is a vast difference between real money and fiat currency, we can begin our return trip towards sound money.
We will prevail. Soon they loose control of their juggling act.
it’s a three ring circus!
A note from the trenches.
The Davos World Economic Forum which was held just two months ago, ended with a communicate which listed the events which most “concerned” their members. The top five of which are;
1/ Interstate Conflict
2/ Unemployment
3/ Asset Bubble
4/ Fiscal Crisis
5/ Profound Social Instability
These are the worlds most wealthiest people. “Concerned”?
More like running scared! Here’s their solutions;
1/ An expansion of multistakeholders.
2/ Deeper collaboration
3/ Building heavier resilience
4/ Preemptive mitigation of risks
Okay. Those four points require translation;
Bigger global corporate conglomerates that will amalgamate and ultimately end in global governance, Ushering in an era of “New World Order”, that will require draconian laws to enforce this “order” with the result of more prisons.
They would dearly love to make “cash trash”! In this way everyone would be forced to use the NWO digital currency. Which is easy to track, turn on or turn off, as a reward or punishment. Welcome to the “new normal”.
it will be worse than a “bumpy ride”, crash landings always are.
The problem with digital currency is it requires a stable internet. In the event of major social instability what are the chances of that? If authorities want to make people value precious metals the best thing they can do is institute digital currencies only.
true.
It’s nice to hear the Fed finally “‘fess up”, even if it was unintentional.
They can manipulate their numbers in a microcosm, but they can’t make everything match up from a macro standpoint.
Another good one, Bill
thanks BP.
It’s interesting that martial law exercises are being held in the US, although “they” claim it is only practice in local population control for overseas deployment. In fact, the US military has many wholly fabricated movie set Middle Eastern villages as a learning experience. Not difficult to connect the dots. The lock down of Watertown, Mass after the Boston Marathon farce wasn’t enough of a learning experience? Then, on the financial front, first there was ZIRP and now comes NIRP to Europe. How soon before actual bail-ins? Will Europe be the template for the US? All I know is that after Cyprus, my bank has control only over monies I need for Bill Pay. I wonder what the catalyst will be for the SHTF? WWIII may be too extreme (but one never knows with psychos in control), so obviously another false flag. So many options for one, so little time to prepare.
do the best you can with what time is left.
I keep wondering what the police officers, military personnel et al will do once SHTF and they too – along with the rest of the sheeple, at that point more like angry mobs, that they are supposed to keep in check – realize that they get paid only in worthless paper? Then what??? The social fabric of societies around the world will be put to a serious test.
most will take care of their own families.
Had an opportunity this past weekend to try and expose the truth to a few people.
Of course they all disagreed with me but in the end I know that they left with at least a glimmer of understanding that not everyone believes that everything is fine.
I have adjusted my approach to saying.
I believe this is a good time to reduce debt or have no debt.
I state that in the event that the Sh-t does hit the fan that it is good to have as much of your assets in the form where there is little to no third party risk involved.
I amuse them with my stories of how I challenge politicians and bankers to tell the truth about how our monetary system works and what risks pertain at this time.
I downplay the preparations I have personally made.
Watched the Four Horseman Movie 2009 this weekend.
No Academy Award winner but worthy of the time spent watching it.
Keep up the great writings Bill..
You are one of my favourite people to follow,
Be proud of the contributions you are making to the cause.
thanks Mike.
I feel your pain, Mike. I bought my brother a silver coin for his birthday, which he liked. Later on he started lecturing me about great fluoride was for the water supply.
… and how the chemtrails help you breathe better!
One thing: the Fed can never “bankrupt themselves”.
The plan has always been to buy as much of anything as is necessary commensurate with maintaining continued support from Treasury buyers. This will go on and on and, as long as there are buyers for Treasury debt, it need not stop.
Only when sufficient debt buyers turn away from USD-denominated debt will there be problems. But that will be after our lifetimes.
” But that will be after our lifetimes” …wrong!
A few more months down the road and we likely will see evidence daily of the two tier gold system.
By two tier I mean the paper and physical daily movements in the price of gold.
I checked the paper price of gold a few minutes ago. It showed gold down $14..I checked the physical price and it was only down $2.00
Bill maybe you can do a piece soon on the new physical market in Asia.
because you are viewing “after” the COMEX close which is just after lunchtime.
I took Yellen’s comment about cash meaning this:
Holding cash at a zero or negative interest rate is not a good store of value because you are not getting any return on your cash. So she wants everyone to get rid of their cash and go buy things you probably don’t need. Her goal is to vastly increase money velocity to help create the inflation that she desperately wants and stimulate the economy at the same time.
Yellen and the Fed has been unsuccessful because the money is just going into stocks and bonds and creating bubbles.
you were correct Snoop all the way until the very last sentence. Raising asset prices and thus “the wealth effect” was all part of the plan.
Bill,
Love your writings. I would like you to give your opinion on the some notables. I have seen other people comment on observations the have seen about business activity. Restaurants are full retail appears to be busy etc. Here in Kansas city all contractors are booked, labor market is tight so how is it that our economy is struggling. I thought it was just that Kansas city was doing well but have been reading others parts of the country have the same issues. I just see the doom and gloom presently in the economy like you and Andy are seeing. Keep up the fight for sound monetary responsibility.
Rick
thanks Rick, I believe there are some strong pockets but overall business is weak.
Cash is not a convenient store of value. So why the hell is the fed printing it? Why is the FED using it to buy bonds? I know why, because most of our lives, cash is always used to buy trash. The truth is, many are waking up to this fact.
So Bill you are correct in using that headline. Always a pleasure reading your writings.
thanks Marco.
Minor correction Bill. Shadowstats has the unemployment at about 23%, not 17%.
yes I know Ken, John has two separate calculations, I chose the less dramatic. Thanks.
And probably the more accurate and believable of the two.
maybe and yes.
None of his recent Unemployment figures show 17%. For those who do not subscribe, and I am sure MF does, here is his definition and it does not reflect the 1980 calculation time frame but 1994. Even having used 1994 methodology, he does not come up with 17%. I am including the last 5 lines of his calculations.
“CIVILIAN UNEMPLOYMENT RATE (Seasonally Adjusted)
Unemployment Rate U-3 vs. ShadowStats-Alternate Unemployment Rate
The ShadowStats-Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted
“for the significant portion of “”discouraged workers”” defined away in 1994 during the Clinton Administration.”
The BLS estimate of the U-6 unemployment rate includes discouraged workers as currently defined (discouraged less
than one year). That measure is adjusted to include the ShadowStats estimate of the long-term discouraged workers —
those discouraged for more than one year — who no longer are included in the BLS calculations.”
U.S. Unemployment Rate
Official Official SGS
Year Month U-3 U-6 Alternate
2014 Sep 5.93% 11.72% 23.1%
2014 Oct 5.75% 11.48% 23.1%
2014 Nov 5.80% 11.38% 23.1%
2014 Dec 5.56% 11.20% 23.0%
2015 Jan 5.71% 11.31% 23.2%
2015 Feb 5.54% 10.99% 23.1%
It will not be that far away when we are all getting on planes that are pilotless.
Trains planes and automobiles! Good movie!
…and once upon a time, Flash Gordon was the future.