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STAFF NEWS & ANALYSIS
Meme Machine: Fed Idiocy Goes Unremarked
By Daily Bell Staff - February 01, 2016

Federal Reserve: Credibility on the line … Sam Fleming in Washington … Last month's rate rise is drawing criticism. Some say it should abandon plans to increase again soon … While economists are almost equally divided on whether Federal Reserve chair Janet Yellen will raise U.S. interest rates this week, the bond market suggests policy makers will wait. – Financial Times

Dominant Social Theme: The Fed will need to readdress the research that resulted in the 25 basis point rate hike. But it's totally understandable given the complexity of the decisions and the pressures of the job.

Free-Market Analysis: If you raised prices on a particular item and caused its entire market to collapse, you'd probably be fired.

But that is not what's happening to Janet Yellen. Instead, we're exposed to articles like this one in the Financial Times that go on and on – presumably with a soporific strategy.

The major media is obviously not enamored with mocking Ms. Yellen. The idea is that we ought to recognize that being the boss of the Fed is an extremely hard job. Yellen doesn't need our contempt; she needs our understanding.

The article is artfully written. Eventually we are supposed to lose track of its point and simply, vaguely recall that Yellen is "watching the markets closely."

It does begin with some criticism of Yellen's tepid hike, coming a few days before the market disasters. The first weeks of January were the worst EVER RECORDED. It made Yellen's decision to hike look, well … idiotic – not that FT will use that word.

Stung by brutal declines in the S&P 500 index, some Wall Street investors are accusing the Fed of failing to appreciate the dangers brewing overseas. Instead of soothing the markets, US policymakers are accused of fraying nerves and exacerbating outflows from emerging markets by purportedly clinging to a strategy that envisages further increases this year.

"The market views tightening as a mistake now," says Jordi Visser, chief investment officer at Weiss Multi-Strategy Advisers. "I don't think 25 basis points matters much but the market clearly does. We're now closer to a recession than we all realise."

While this sort of reporting is at least realistic, the Financial Times can only keep it up for so long before returning to the kind of tone and descriptions that central banking always receives in mainstream media.

It is a respectful tone with ruefully analytical descriptions. Second-guessing of Fed decisions is an "occupational hazard," we learn. Ms. Yellen has received irate criticisms from the "political right" but also from "poorly positioned" hedge fund managers.

The article soon provides us with a retrospective, reminding us that Ms. Yellen was "initially praised for her handling of the rate rise." It came, by the way, "without a single voice of dissent."

You see?

Everyone was on Ms. Yellen's side at the time. It was an eminently practical move.

The article trundles along in this way, soliciting a broad gamut of opinions along with descriptions such as "controversial" and "renewed criticism." What will the Fed do now? "They hold, they postpone, but they don't reverse."

Along the way, we get a compendium of already discussed-to-death points about the world economy, including the oil price shock, China's market weakness and America's continued economic struggle despite the "green shoots" that Ms. Yellen and her cohorts evidently detected.

Here's how the article concludes:

Ms Yellen will give further clues in February when she addresses Congress in testimony on Capitol Hill. A few weeks after the Fed lifted rates in a flurry of optimism, the ground has shifted beneath the feet of Ms Yellen and her policy committee. Whether or not their gamble on higher rates ends up being vindicated will depend heavily on global developments, many of them well beyond America's control.

And here is our conclusion: By any measure this was a whopper of a miscalculation. Now for the next umpteen months, economic descriptions will have to be carefully fudged so that Yellen and the rest of the Fed Board don't look even more foolish than they do now.

Does anyone really believe the world is healthy economically? Europe is racked by migration issues. Russia and the Middle East are bogged down in a shooting war. Saudi Arabia and many multinationals are trembling from precipitous drops in the price of oil.

The US is supposed to be the healthiest among the West's industrialized countries, but 90 million workers have "stopped looking" for work and over 40 million Americans are on food stamps.

Perhaps these statistics weren't available to Ms. Yellen when she decided to hike. Or perhaps she'd just forgotten about them.

But the hike and its aftermath were destructive to the world's economy and terribly embarrassing for the world's leading central bank. It is a testimony to the extraordinary resilience of the Fed's super powerful meme that its board and Ms. Yellen in particular didn't suffer a good deal worst than they got.

Were the Fed an ordinary institution, were Fed officials evaluated the way normal people are, the hike would probably have been a flashpoint for a much larger firestorm of criticism.

But the Fed is not going to suffer from significant mainstream criticism. Not now and not ever. The US is struggling through a kind of Greater Depression along with the rest of the world, but you will never hear that phrase attached to our modern times.

And the US, according to the Fed, is beginning to scale the heights of a recovery. Never mind the trillions in national debt, the US$200 trillion in total, nominal debt and the thosand trillion in derivatives dealings.

The system is hardly realistic at this point. Banks are experimenting with negative interest rates and politicians and bankers are calling for the "end of cash." Switzerland of all places is about to have a vote on whether or not to provide its citizens with guaranteed income.

There is not an ounce of real truth presented in the mainstream media these days when it comes to the world's true economic situation. The discussion is no more realistic than the non-criticisms of Ms. Yellen's rate hike.

It is only the monopoly printing power of central banks that keeps the world's economy staggering along. But every day that goes by, distortions build. The dollar is manipulated higher while gold and silver are manipulated lower. In the US, anyway, the majority of jobs being created are in the service sector. Retirees are returning to work at McDonald's.

For those who understand – and many are readers of the alternative media – it is clear what needs to be done on a personal, national and international level. But as we have pointed out before, one needs to begin with a realistic assessment of what can be accomplished.

Conclusion: For the most part one starts by securing the wealth and safety of oneself and one's family first. This is not the time to "save the world." Far from it.

Posted in STAFF NEWS & ANALYSIS
  • tom hewitt

    The Fed increase was 1/4 of one percent, 25 cents of a one-hundred dollar bill. It’s effectively meaningless in financial terms to any normal person. Instead, it’s a signal, a signal that the wizards at the Fed are watching the situation carefully and will respond to the financial needs of the country. Changing rates is the only signal they can make, building a bonfire from reserve notes in front of the Federal Reserve Bank of New York wouldn’t be the kind of signal that people would understand.

    Janet Yellen simply occupies a post. She’s a figurehead for a group of people, the FOMC, that deliberates among its members as to possible actions. If there can be more than one opinion on a course to take, we’re no longer involved in any kind of scientific or even logical thinking. It’s PR. The economy is so complex that even Harvard and Berkley grads can’t get a grasp of it. But the job of the grads at the Fed is to maintain its supremacy in the economy and its control of the uncontrollable market. The rate was raised 25 basis points because they wanted to look like they were doing something when they didn’t know what to do.

    • Doc

      A rate hike of .25% is nothing when rates are at say 10%, agreed. But at these low rates they could imply a big change to anybody that has set things up at a lower rate. In November the effective fed funds rate was 0.12% and in December it was 0.24%, i.e. twice as high. That will have some very real consequences, apart from the signal that the hike might send.

      • Franktruth

        Somebody’s ox gets gored at .25%. And that somebody will likely not be a banker.

        • Doc

          Anybody that has issued a bond, for example, would be hit. Could be a bank as well of course.

  • ThomasJK

    So…..When interest rates have been reduced to a level that is far lower than they should have ever been and then kept there for far longer than they should have been kept there and the response of the real economy is to go “well, duh”, then, well duh, do you reckon it may be time to try shutting up the fed, disband the FOMC, and send everyone either home or out of the country in order to allow a somewhat honest entity, the free market, to reestablish at least a modicum of sanity into the credit markets? Let honest bankers be honest bankers — if there are any honest bankers, that is, but let’s by all means be rid of the shyster banksters and the whiney crony would be capitalist socialist financialists. Let the supply side be restored as the supply side and let the pumped up demand side go ahead and die the miserable death that it is destined to die whether pumped up or not. Hot air balloons have both altitude limits and time limits. We have reached both and now we are apparently expecting the FOMC to find a way to exceed both.

  • Pilgrim

    The question isn’t what the fed should set the interest rates at, the question is, should there be a federal reserve bank.

    • Samarami

      Thomas Pynchon would be proud of ya, Pilgrim. And the more pertinent question is, “…should there be a psychopathic group hiding under the brainless abstraction called ‘the state’?…” Or, rephrased, do “we” need “government” in order to be free???

      Because the only objective for the central bank abstraction is to fleece the flock. That’s what a state is all about. And what better than a “federal reserve” to do so? That was a stroke of genius in the science of rulership. It was more than a century in the making, and now can point to over a century of huge success! Ninteen trillion of “debt”! That’s with a “T”. Measured with a phenomenon called “federal reserve notes”.

      My, my! A remarkable triumph. Sam

  • Praetor

    Janet Yellen is not making this decision, someone else is! How hard is that. Everyone’s on her side, till she is no longer needed. Well she is old DB, she may be suffering from dementia. Times like these, reminds one of, ‘Qu’ils mangent de la brioche’ ‘ Let them eat cake’! And when they say things are getting better, that is exactly what their saying. I can’t think of one person I know that wants to save this old tired world. I think most would be happy to see it go down, and rebuild. Without the help of the so called smart people, such as Janet Yellen!!!

    I wonder how much does Yellen of the Fed make annually. “O’ wait, She does have insider info. That could make it worth all those hard decisions.

  • Doski

    Now that Yellen has launched the “test balloon” her handlers know where to invest before her next dutiful hike. And the Winners are . . .

  • Bruce C.

    Who knows what the Fed will do next, but this piece is a little confusing to me because there is a working hypothesis around here that says the US economy is planned to be weakened and/or the US dollar “crashed” in order to usher in (i.e, create a crisis that demands…) a comprehensive global solution like a one-world government and one-world currency. I mean, I/we(?) don’t know when (or even if) that’s going to happen but if it does wouldn’t it require the Fed and other financial power centers to create it?

    I would think the Fed, et al would have to do some pretty “crazy” things to create a major crisis. Besides that, since when (historically speaking) have central banks made “good” decisions? Don’t they always lower rates for too long and raise rates too late? So what’s the beef? The Fed is trying to raise rates so they can’t be accused of waiting too long (again). I suppose we could argue that they already lowered rates too low and for too long, but then maybe that’s the way they can make the world scream so “we” beg for relief.

    Personally, I think the Fed will raise rates again fairly soon. The markets are upset for far greater and different reasons than a 25 basis point increase in the Fed funds rate. Market interest rates are rising anyway. Foreign countries are weakening their currencies anyway, and by the Fed raising rates “here” it helps them all do that.

    Besides that, my own pet theory is its all about weakening all foreign currencies so much that they just adopt the US dollar. That, incredibly, may end up being the “new” global currency once and for all.

    I suppose the point of this piece is that the Fed isn’t being sufficiently censured but that assumes most people understand what’s going on. The same thing goes on in Europe and Japan. I haven’t read any criticism of Draghi or Kuroda/Abe either. At least the Fed is trying to “normalize” things. Those two jackals are completely off the rails and their economies are doing progressively worse. Their policies make the US economy look good by comparison.

  • rahrog

    She’s hot, I trust her

    • Franktruth

      Rahrog – Now, that’s funny!

  • alohajim

    Normalcy bias and generations of mass brainwashing is the problem. The mere idea of central banks creating currencies from nothing and setting interest rates is an abomination. That they actually exist and as DB points out have ‘directed’ the recent history of our world is a pox on humanity. Not many of us fully understand the extent of control and ownership that banking families exert over the planet. They’ve created a veritable shit show of killing, legalized theft and plunder, mindless materialism, and seemingly have managed to reverse the natural progression of mankind into regression. Media too soft on Yellen? No. Neither Yellen nor the media deserve any bit of our attention. Public figures of any stripe in positions of power are mere puppets and minions either loyally serving our banker overlords or too stupid to realize who they are serving. They don’t even deserve our contempt or criticism as that implicitly implies some sort of legitimacy where none exists. But if one believes in Karma you have to have compassion for both the stooges serving in the bankers system and the bankers themselves as they have created an incredible amount of negativity.

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