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November 23rd, 2013

Why Grandma Yellen Is A Bad Choice For Federal Reserve Chairman

By

With the bloated state of the US government debt and the shutdown, Fat Shaming Week was appropriate in more ways than one. Now, horror of horrors, Janet Yellen has been nominated by Obama as the first woman chairman of the Federal Reserve. She will almost certainly be confirmed.

The FED has been a contentious organization over the last couple of decades

Where Alan Greenspan was once the cheer of Wall Street and the friend of investors around the globe, it is now seen that his policies, far from creating a more balanced economy actually led to the tech boom/bust at the turn of the millennium and his stimulus to try to ‘fix’ that problem led to the housing boom/bust and virtual collapse of the entire global financial system. Conveniently retiring a hero before the full scale of the disaster he created could be pinned on his watch, Alan then went on to pen his memoirs which he titled “The Age of Turbulence”. Sounds more like the morning after a bad vindaloo than anything to do with sound monetary policy. Love your work Alan. Where can I get a job like that?

Alan is a classic case of Government being the disease it pretends to cure

While the FED is not strictly speaking a government branch, being a private bank, essentially the banker to the government, it is a politicized organization that carries considerable weight, but has very little public oversight or transparency.

Ben Bernanke, Greenspan’s successor has been even more controversial. Before he took office he jokingly announced he would drop money from helicopters if he thought it would stave off a depression.  If that isn’t the ultimate beta male quote I don’t know what is. Whatever happened to action and consequences ?

This little quip earned him the nick name of Helicopter Ben in the press and he has most certainly lived up to that name; although sadly for Joe Public helicopters are nowhere to be seen, rather he’s preferred to air lift money into the vaults of his bankster buddies.

A career academic who’s never had a ‘real’ job, preferring to be an esteemed professor at Princeton (writing long winded waffle on the 1930s depression), Bernanke has never successfully launched a product or run a business, yet somehow this armchair economist was deemed to be the best man to put in charge of economic policy of the richest, most prosperous nation on the planet. This so-called economic expert has been known to make comments such as “no one can predict the price of gold” and “no one saw the crash coming” – although sound minded traders and hedge fund managers were able to do both.

During his time in power US debt has mushroomed from a few trillion or so up to $16.7 trillion and Obama has now run out of money and is begging Congress to add another quick trillion to his credit card limit, which will be unlikely to last until the end of his term.

The problem with socialism is you rapidly run out of other people’s money to spend

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So what can we look forward to in 2014 as another historic milestone in feminism is notched up? Women are traditionally unwelcome in banking circles. It remains a bastion of male tradition. Suits, cigars, gentlemen’s clubs and BDSM don’t generally fit well with conservative senior ‘ladies’. After all that number crunching and masonic trouser rolling, a few cigars and a good whipping by some brunette hottie just hits the spot. Not any more: cigars and black leather are out, necklaces and brightly colored ‘old bag’ couture is in.

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In Wall Street speak, Yellen is seen as a ‘dove’ who tends to keep monetary policy loose and easy, lowering interest rates and keeping the punch flowing as long as possible. Get used to hearing the term quadrillion, (1000 trillion) because that is most likely where the US debt level is headed, as the USD devalues, interest rates creep up and the government frantically tries to bail water out of the sinking ship of its broken economic and budgetary policy by raising more and more debt. Currently the US is like a teenager with several credit cards, using one to make the minimum payments on the other, while hurriedly applying for more cards (been there done that). The only difference is that Mommie Yellen and Daddie Bernanke happen to run the bank and can keep approving new cards.

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Under the current state of affairs, if interest rates creep up to the normal 6-7% level, almost the entire Federal Tax revenues will be spent servicing interest repayments. Thus begins the nightmare akin to the situation in Greece, whereby cutting Government spending and raising taxes, kills the economy and tax revenues fall, whilst interest demanded by investors goes higher and higher.

But how can interest rates creep up you might ask if the Fed controls them?

Well, while the FED can set the interest rate at which all the other US banks borrow dollars from the FED (the FED creates the USD notes from thin air), the market place can simply move bond prices around until interest rates have increased regardless of the FED’s actions. With interest rates at historic lows, in order to lower them any further the FED would essentially have to pay banks to borrow money, a rather inverted situation that has been known to happen in Switzerland from time to time. But we don’t have the problem of uber-safe fiscal policy driving the USD stronger. The USD has been steadily losing respect and purchasing power since Clinton left office.

So in order to hold interest rates artificially low, what Bernanke has been doing is buying government bonds in the bond market, to hold the prices up. When bond prices are higher, it implies a lower interest rate. As bond prices fall, you acquire the bonds for a cheaper price, and thus the ‘coupon’ (the interest you receive) is proportionately higher.

This is how the government has been able to plough itself into such incredible debt. The FED has been buying some $80 billion of bonds per month; so essentially the FED is creating dollars out of thin air to fund the US government liabilities at a nice low interest rate. The FED is floating the market for USD debt, acting as buyer of last resort. If a CEO did that with his stock or bonds he’d be in jail in a flash (and he’d have to use real money to do it).

If history is any kind of indicator, watering down or ‘debasing’ the money supply, if not the cause, is a huge red flag in the decline of many nations stretching back in history from Germany post WW1, to France in the Louis 15-16 era right back to the Romans putting less and less gold into their coins. You can fool the markets for a while but when confidence is lost, no one will trust your fake coins anymore and you are automatically in the poor house.

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Yellen for 2014 is all set to continue this insane policy that looks ultimately set to turn the good olde US of A into a something more along the lines of Argentina. In the 1900s Argentina due to its natural resources and climate was one of the wealthiest nations on the planet. People flocked to Buenos Aires (think California) and the city is filled with impressive buildings from the beginning of the 20th Century.

Poor financial policy soon turned the country into a cess pool of socialism and enormous debts, ultimately resulting in the entire banking system being shut down and for some months the whole country returned to a dark ages style barter system. While confidence is built up slowly, faith is instantly replaced with fear and there is no middle ground.

The most epic crash of all time occurred in Holland in 1637

Tulip bulbs became the talk of the town and rose in value some 60 times, until finally investors looked at what they were buying and holding and hit the bid. That was the end of that. Families lost their fortunes and things returned to normal.

tulip

US government debt is no different to tulips.  Value is set only because of confidence in the paper. Presently there is confidence and the game of musical chairs can continue for some time to come. However the dance of the FED seems to be that when one chairman retires a hero, another is put in place to ‘rescue’ the system from some unforeseen crash that takes place on his (or in this case her) first year or so. Bernanke is out of there. He needs to write his memoirs quick smart before the shit hits the fan.

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It’s one thing for someone to build a delicate house of cards, and another to have someone else jump in and take over, least of all a woman and a rather old one at that.

Generally speaking old women tend to lack a certain amount of brain power and prowess, being rather absent-minded and lacking clear mental clout. Even Thatcher lost her way as she aged. Women live longer but they do not age well. Aside from Queen Victoria, who was largely a figurehead, there are precious few examples of old women holding important positions of power. They say the FED chief is more powerful than the president.

Now is hardly the time to turbo charge the drive for equality and feminism. I feel like I’m back in high school, hoping for the dynamic young alpha male maths teacher that could control the class rather than the daft old bat who had to dish out detention nonstop and still had a riot on her hands.

While this might be a gross generalization, generalizations are good in politics. Would you want a known white collar criminal with a felony conviction for fraud running the FED. Would you want a grandma ? Only the alpha male has the balls to take the unpleasant leadership decisions and cut a path out of the swamp. Grandma ain’t the one to save the day.

If you think into it logically, as only an alpha male can, the bank collapse in 2008 meant market conditions were MORE not LESS risky, meaning that interest rates should have risen and lending should have decreased. Instead the FED engineered the opposite. It’s not dissimilar to firemen, rocking up to a burning building and pumping gasoline onto the fire, and arguing that it will help the house burn down faster and then the fire will go out. Granny Yellen is going to need napalm after the Bernanke years.

Fireman do sometimes light fires to stop larger ones, however in this situation, the problem is the inflamed USD and US economy. Setting them on fire as the FED has done is likely to simply burn them out altogether. Snorting cocaine might enable you to walk on a broken leg, but it won’t heal it.

Let’s take one more quick example from history from the 1960s and 70s, Nixon the original devil that started debasing the USD by removing the gold standard, set the world on fire with terrible inflation. Gold shot from $35 an ounce to $800. When Regan came into power in 79, his FED chairman Paul Volcker had the balls and the good sense to rescue the USD by cranking interest rates as high as 20% and held them there for three years. I don’t fancy the US government chances with a debt of 16-20 trillion on the books if interest rates go that high – and they are unlikely to with Granny Yellen baking us all yummy apple pie. Let’s just hope we don’t get the shits afterwards.

If Yellen presides over the destruction of the USD, dithering about, trying to appease everyone but making no one happy, like only a grumpy, batty old grandmother can, perhaps the manosphere will have the last laugh sooner than it expects. In the meantime, buy a gun and plenty of ammo—you’re gonna need it.

Read Next: There Is No Hedge Against Inflation


About the Author

is originally from London. He has traveled the world, speaks 4 languages and although sporting a degree from one of the finest engineering universities in the world, he's never done an honest day's work, preferring to live by his wits. He is a perpetual insomniac and rarely wakes up before midday.

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