Thursday, September 15, 2016

The Economy: "Janet Yellen’s Shame"

"Janet Yellen’s Shame"
by Bill Bonner

"A gentle reader reminded us that we haven’t given an update on Elizabeth since we returned to France. So sorry. She is doing much better; thanks for asking. She’s walking around…though still a little fragile. Elizabeth spent three weeks in bed following her fall from a horse. What did she do during that time when she was immobilized?

‘I read a biography of Joseph Fouché by Austrian writer Stefan Zweig,’ she told us. ‘It is magnificent. Zweig explores how politics really works. Fouché was in charge of suppressing resistance to the French Revolution. He was sent to Lyon, for example. The jails were full of people who were opposed to the revolution. Fouché took them out of the prisons, tied them in groups, and shot cannons at them. He had begun his career in the priesthood…and became a mass murderer. Like Stalin. Then, he was marked for the guillotine by Robespierre. But Fouché turned the situation around; Robespierre was sent to the guillotine instead.’

Playing politics: In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers.

That is true of honest banking, too. Back when such a thing existed, the job of an honest banker was to aggregate people’s savings and lend them to worthy borrowers. You make too many mistakes…your customers leave, and you go broke.

Politics is a different game altogether. It produces no wealth of any sort. So the only way you can prosper in politics is to connive, cheat, and steal- manipulating your friends…sidelining your enemies…and exploiting the public. It is a game of taking wealth, not making it. And you have no customers…so there’s not much of a check on how out-of-order you can get.

Still, a politician is not always lying…not always stealing…and not always wrong. Occasionally, he blunders into honesty and slips into truth. On Monday, for example, Republican presidential nominee Donald Trump said Fed chief Janet Yellen should be ashamed of herself for what she was doing to Americans and for creating a ‘false stock market.’

The financial press was quick to condemn Mr Trump for ‘undermining confidence’ in the Fed and the stock market. It was ‘irresponsible’ to question the Fed’s integrity and its non-partisan mission, said the pundits. Widely dismissed was the idea that Ms Yellen was ‘playing politics’ with the Fed by supporting the stock market to embellish President Obama’s last months in office…and help Democratic nominee Hillary Clinton slide into the White House after him. But Mr Trump is right: Politics is the Fed’s game.

Grand larceny: No president has ever added to a nation’s wealth. Neither has any central bank. Neither produces anything…nor offers a service…that anyone would willingly pay for. Nor does either have to make a profit…or make payroll. At best, a wise central banker- like a wise president- eliminates the errors of his predecessors, allowing an economy to recover. At worst, he doubles down. Of course, Ms Yellen should be ashamed of herself. But the shame is far deeper than Mr Trump imagines. He thinks she is just ‘playing politics’, trying to get Hillary elected; actually, her crime is far greater.

Ultra-low interest rates do not create wealth. They just shift it around, from savers to borrowers. Borrowers pay less to service their debts; savers see their interest income disappear. The biggest borrower in the world is the US government. It is also the biggest beneficiary of the Fed’s EZ money policies. You can do the maths yourself. Were the feds forced to pay another 2% on the national debt, for example, it would be nearly $400 billion a year in extra interest payments. That is money the feds don’t pay…and savers don’t get. It’s the grandest larceny on earth.

The real shame… Super-low interest rates- aided and abetted by QE- also boost stock prices. This creates the ‘false stock market’ Mr Trump is critical of. Central banks are buying stocks to feed their QE programs as bonds dry up. The idea is to stimulate their economies; the result is to stimulate Wall Street. Between them, the Bank of Japan and the Swiss National Bank own about $300 billion worth of stocks. And many of the Swiss National Bank’s holdings are listed in the US. This, too, should be a source of deep shame for all central bankers.

Fed policies may not be designed to benefit Democrats or Republicans. But they are intended to prop up the entire class of Parasitocrats, chisellers, profiteers, zombies, and cronies that benefit from politics. The Fed helps Wall Street steal hundreds of billions from middle-class savers…it favors powerful insiders with the lowest borrowing costs in 5,000 years…it connives to raise stock prices to the highest levels ever seen…and it collaborates with the Parasitocracy to keep the whole shebang going…at the expense of ordinary households.

An honest banker protects the public from bad money and bad debt. Ms Yellen does neither.
That is a real shame."

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