The Fed Chair Who Kept Yellen “Wolf!”

Written by on March 20, 2016 in Bankers & Wall St., Government, Policies with 3 Comments


BY Jeff Berwick |Dollarvigilante

The meeting is over! The FOMC has spoken, and the reality has been recognized:  The US economy is a disaster and as a result gold will benefit as it always does from fiat’s misery.

Janet Yellen didn’t say that of course. She is trying to pretend that there is a “recovery” going on in the US economy.

Related Article: Economic Recovery? 13 Of The Biggest Retailers In America Are Closing Stores

But by backing off serial rate hikes, she made her and the Federal Reserve's real feelings clear. The economy is not recovering. Jobs are not returning. Industry is not recovering. The only thing that is recovering is the price of gold against the dollar. The rest of the economy is in a recession verging on depression. In fact, “depression” is a better word. But mainstream's presstitutes have been taught not to use it. Just the way they’ve been taught to cover these horrible FOMC meetings. Sonorous monetary and economic phrases are employed in their articles to ensure the results sound deeply thoughtful.

Actually, the entire process is ridiculous. Fed members look at falsified government numbers, white paper analyses based on those fake numbers and maybe an article or two – also unrepresentative of the truth – before making up their minds about the single, idiotic question that they have to decide. Up or down.

That’s basically what the fuss is about. Interest rates – higher or lower? Should they charge more or less for the fake fiat currency that banks issue when you come in to borrow some money?

Fundamentally, the system is corrupt. This small group of academics is simply fixing the price of credit and forcing people to pay an arbitrary number. But interest rates have a wider function than simply lining bankers' pockets.

Interest rates govern the balance between the supply and demand for credit, which is funded by savings,  i.e., actual sacrifices in consumption. If consumers abstain from consumption they are freeing up real resources for reinvestment in various higher order stages (or lines) of capital goods production. This investment is the source of growth, and of the ability for a society to consume ever more on the whole. The central bank policy on the other hand tricks us into spending our wealth instead of creating more of it. It does this by obliterating the trade off between investment and consumption.

No need to sacrifice consumption, the central bank will fund investment by enabling and supporting fractional reserves instead. Nobody need save ever again! Obviously, aside from the strain on the fixed amount of resources (labor, fixed capital, equipment, etc.), much investment is wasted on projects that are never finished because when the banks stop issuing duplicate receipts on the existing pool of savings, i.e., when they stop inflating money, it is revealed that there are not enough savings to fund the plans and we have simply consumed our existing wealth.

Instead of several different interest rates determined democratically in the free market like the prices of most other goods, which optimizes their allocation, a small group of know-it-all bureaucrats force the markets, communist central planning style, to stop everything they are doing every couple of months while they weigh their political interests off against each other in a constant fight over control of the nation's pool of wealth.

Price fixing never works, whether in credit or other goods.

It’s caught up to them now. They've printed and printed and created great asset bubbles but they have destroyed real economic capital in the process. They have tried to direct investment top down, with the printing press, effectively destroying the entire function of interest rates. It's why we have recessions. The manipulation of interest rates.

Now, unsurprisingly, nobody wants interest rates to go up, even though if they don't there will be hell to pay on the inflationary front. Nobody believes this right now but they will. Indeed, after years of asset inflation leaving equities, fixed income, and real estate assets over-valued almost everywhere (by most reasonable standards), the central banks find themselves in the familiar historical position where nobody wants them to raise rates.  At some point, the gap between the central bank's bearish economic outlook and the market's bullish valuation of stocks and bonds has to narrow.

That’s what the Fed is struggling with currently. That’s what is on the minds of central bankers around the world.

Related Article: New Bank Bail-In System Goes Into Effect In Europe Jan 1, 2016

And so… forbearance.

Yellen couldn't hike. She couldn't even announce more hikes. Instead, on Wednesday, Lyin’ Yellen announced that rates would stay the same, just as we said they would, and that the Fed wouldn’t be hiking anytime soon. She couldn't even bring herself to read the lying script about the “economic recovery.”

There ain't one. Instead, as we’ve mentioned numerous times before, gold is benefiting from the Fed’s reluctant economic honesty. Gold prices  spiked as soon as the announcement was made on Wednesday and  extended gains Thursday after it became clear that the Fed, far from initiating a series of rate hikes, was going to go out of its way to make sure that any hikes in 2016 would be few and far between. Say one or two at 25 basis points.  And I don't think they will at all.  I said that after the last meeting.  I actually guaranteed they wouldn't.  The next moves will be down and then negative… they just need to get cash out of circulation before going too heavily negative so you can't take your money out of the bank.

Yellen’s statements dropped the dollar and sent crude oil over $40.00 a barrel. April Comex gold moved up toward $37.50 at $1,267.50 an ounce. May Comex silver up $0.501 at $15.72 an ounce.

Gold generally is on a tear, up some 16-percent plus in 2016. The golden bull is intact, even if the mainstream media never writes about it. We’ve been in a secular bull market cycle in the precious metals for about 15 years now, since 2000-2001. We’ve seen several short lived stock bull markets through that time period but they’ve always lapsed. This latest one will, too, because like all the others it is the result of Fed stimulation and not much else.

Related Article: Rigged Gold Price Distorts Perception of Economic Reality

In fact a study came out recently showing that something like 90 percent of the current stock market move was due to the Fed’s policy of low interest rates and liquidity.


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3 Reader Comments

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  1.' David James Russel says:

    See A Change Of Consciousness in Our World

  2.' Kathleen Russell says:

    I pulled out of the market and am planting a garden. This was not done based upon fear of doom though. It’s just common sense for these times.

  3.' Gregg Stotesbery says:

    I used to be a lemming and jump in fear at such reports.
    I saw the pattern,
    I’ve felt the manipulation.
    No More

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