The disintegration of central banking shifted to overdrive in November. The
Senate Banking Committee's listless accreditation of Janet Yellen as next Fed
chairman was not a surprise, but it was notable that vigorous critics of
Chairman Bernanke, such as Senator Bob Corker, dozed through the hearing. When
the bubble of all bubbles bursts, and the Senate and Congressional oversight
committees fulminate at central bankers, it will be those politicians who
should sit in the dock. They could have acted. Instead, the Senate is whisking
Bernanke-Squared to the throne, as quickly and quietly as possible.
Yellen is very much the academic
economist: in complete control of what cannot be known (macroeconomic
silliness), setting world policy on such, and with no knowledge of the
specific. She explained before the Committee, that stock prices are O.K.
("I don't see at this point, in major sectors of asset prices,
misalignments.") She is not concerned about "bubble-like conditions, since
"price-to-equity ratios" are benign. As distant observers of the
stock market know, it is the "price-to-earnings ratio" she was
supposed to memorize before the hearing.
The (Always)
Brilliant Larry Summers, another macroeconomist who has never had an original
thought in his life, blurted
before the IMF on November 8, 2013, that conventional macroeconomic thinking
leaves us in a very serious problem. It is not startling; though it would have
been surprising at some point in the past, for this master cylinder of central
planning, after admitting his generation of economists has failed, to not then
offer his apologies and announce his permanent departure to Tierra del Fuego.
Instead, Summers continued: "The
underlying problem may be there forever," which, in the world of Summers,
Bernanke, Yellen, means the period until they are run out of town and sentenced
to a prison cell, with their mouths taped, while Alan Greenspan sits on the
other side of the iron bars, lamenting the decline of economists' prescriptions
since his departure.
Summers (before the IMF) offered advice
that is now conventional among conventional macroeconomists. He advises the
bureaucratic class to impose a negative 2% or 3% interest rate on the 99% of
Americans competing in the Hunger Games.
It seems like yesterday when convention held that savers earned interest, and,
no inflation (of prices) was the goal. This was the balance between savers
being paid to lend their money, and borrowers paid interest to use the money.
The rate paid was the meeting of minds among lenders and borrowers, a free
forum of expression to which, someday, we shall return.
For now, American university professors control markets. The route to the
apathetic acceptance of redistribution and confiscation from the public has
been laid by a careful and gradual brain washing.
The Economist was neither careful nor gradual with a front-cover story
in its November 9, 2013, issue: "The Perils of Falling Inflation."
The lead story warns: "The biggest problem facing the rich world's central
banks today is that inflation is too low." (This "rich world"
foolishness will not be addressed here.)
It is too low, for reasons not stated in the Economist. Inflation is too
low, remember, for the "rich world's central banks," (not for us),
because a financial economy needs larger quantities of money, credit, and
accounting tomfoolery to prevent its collapse. The rich world's economy not
only needs more finance, it demands an expanding base of finance, growing at an
exponential rate, to remain whole. In 2000 and 2007, it was merely a slowing in
the growth rate of credit creation that was followed by the plunge.
The various gimmicks are long in the
tooth, so: "We need lower credit standards, a weaker banking system, and
credit needs to be extended to the bankrupt to prevent liquidation of the Bank
of England."
The Economist did not say that,
though the statement is part-and-parcel to perfidious Albion's calls for the
British people to spend and borrow themselves into penury. In the past three
months, Bank of England Governor Mark Carney announced banks could cut their
cash reserves "to support economic growth;" banks could now submit
"any identifiable collateral" and it would be welcomed at the Bank of
England; and the economic "recovery" is, quoting Carney, "still
reliant on rising home prices and consumer demand." The result:
interest-only mortgages: "borrowers, expecting to make the majority
of the return from rising property prices" (Andy Lees, The Macro Strategy Partnership News Daily,
November 19, 2013) is all that's left between the former Bank of Canada
governor and a one-way ticket back to Banff. This is a desperate strategy by
Carney.
Back to what the Economist did say;
it was a whopper: "central banks' inflation target [is] 2%" and this
has been "the cornerstone of central banking for decades." This is an
attempt to erase history. Obliterating the past has been essential to the rise
of Bernanke and Yellen. Their "2% inflation target victory" was described
in the following links, written at the beginning of 2012, at the time the Fed
asserted this new cornerstone of central banking: (see "Presidential
Rivals: Drop the.....this was on January 12, 2012", "A Quartet
of Fed Chairmen.... This was on January 20, 2012" and "Transparency
has Landed..." January 29, 2012").
A year earlier, in December 2010, the
Federal Reserve was handcuffed, since "an inflation target" of
anything other than zero percent was still an absurd notion, other than among
professors who had gone in for central planning. Bill King, in the December 14,
2010, "King Report" compared the past two communiqués by the Fed
after their November 3, 2010, and the December 13, 2010, FOMC meetings. The December
13, 2010, communiqué claimed "measures of underlying inflation have tended
downwards." This assertion was (in Bill King's words) to "deflect
political and public outrage at QE 2.0." King went on: "If the Fed
had to acknowledge there is inflation, their world is destroyed. QE would have
to be scuttled." (The Fed and Bernanke go on about inflation
"expectations" and try to ignore inflation but they are still faced
with a public of 300 million that cares what it is paying today.)
The consumer price index (CPI-U) rose 0.1%
in November 2010; it had increased 1.1% over the past 12 months. The Fed nearly
had to drop its money-printing, road-to-ruin because inflation was so high.
"The cornerstone of central banking" was established over the next
twelve months, culminating in the universally accepted practice of central
banks' non-stop, money-printing and inflation of credit, stocks, corporate
profits, buybacks, mergers, PIK bonds, rehypothecated collateral, and
speculators' fortunes. Particularly piquant have been the booming
auction-house, luxury-goods, and casino stocks.
The Economist's article was
unbalanced, sloppy, and abandoned by the starting team: much like the world's
markets. A suggestion for current asset allocation: where would you want your
money today if you knew interest rates will rise by 4.0% tomorrow?
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