by Jeff Berwick, The Dollar Vigilante:
The real product of the Fed these days is not monetary policy but disbelief. People can’t believe the amount of speculation, conversation and outright complexity that results in… nothing.
Yellen is basically presiding over the deflation of the Fed’s reputation. Every month more and more credibility leaks away.
And this month was no exception. For weeks leading up to the FOMC meeting on Wednesday, there were grim articles and interviews stating that a “hike” was possible if not probable.
And again nothing happened. I’m not surprised of course.
Since we started TDV, I’ve said that they’d never raise rates again (and have had people laughing at me for more than six years now for that stance.
But once again, I’m right. The Fed made no movements again. The 0.25% in December last year which nearly collapsed the world’s markets doesn’t really count because it was so tiny (and they’ve backed off it ever since).
Trump was also correct in regard to a rate hike. He said the Fed might raise in January, but not until then because a hike – and subsequent market volatility – might jeopardize the election for Killary.
But there are bigger issues involved here than accurate predictions. The larger issue is that the Federal Reserve is bleeding credibility like it has an open wound.
After the decision, Yellen tried to defend it by explaining that since the economy was improving so much she didn’t want to interfere.
What Yellen is good at is threatening rate hikes and not following through. The idea that the largest economy on earth has only tightened a mere 25 basis points over the last decade is beyond astonishing.
And with all of this paralysis, we’ve had the accompaniment of millions – billions – of complications as bureaucrats meet and industry leaders debate what’s coming next.
And nothing ever does. Just more talk. More articles. More interviews about infinitesimal monetary movements.
25 basis points – that’s been the center of discussion for nearly a decade. 25 basis points is hardly a baby step.
But for Yellen, it’s a chasm too far.
All she ever does is explain what she might do – and then she does nothing.
Just one more week, one more month, one more year – and the economy is bound to thunder aloft. But it never does.
She lost her credibility long ago. The US can’t afford a significant rate hike because the government owes too much money. The US government has doubled its debt in just the last eight years alone, to now well over $19 trillion.
But that’s something else Yellen will never discuss. They’re scared to hike, even nine years into an alleged recovery. At all costs she intends to keep the tale alive.
The recovery is coming … it’s on its way … it’s almost here.
She’ll keep preaching this mantra as long as she has to. If she actually does raise rates significantly, fedgov obligations will soar while tax revenues collapse. The debt itself expands rapidly, leading inevitably to default. And if you thought a country like Argentina defaulting could cause shockwaves across the world… you ain’t seen nothing yet if/when the US defaults.
And then Yellen has to explain the government’s default, which is a good deal more difficult than explaining month after month why she’s going to yank on rates NEXT month.
And gradually credibility trickles away. I stopped believing in central banking long ago. But many people are only waking up now. Every time Yellen fumbles in front of the podium for another month, more people start to question what the hell she is doing.
That’s the real product of these FOMC meetings: Disbelief and incredulity. Yellen has gone from a decision maker to an apologist. And I doubt very much that the Fed can recover at this point. She may not be the last Fed chair, but she’s certainly presiding over its collapse.
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