Federal Reserve Chair Janet Yellen is no longer helming the U.S. central bank, and she will now spend her free time remarking on her tenure – and likely gaining a lucrative Wall Street position and giving expensive speeches. On Sunday, Yellen discussed her four years at the Fed in an interview with CBS News’s Sunday Morning, which suggested that she is blind to the dangers of the policies emanating from the Eccles Building.
Yellen stopped short of calling the surging prices in U.S. stocks and real estate a bubble, while also recognizing that the current expansion could survive another few years since “recoveries don’t die of old age.” Despite lending her support to new Fed Chair Jerome Powell, Yellen conceded to the network that she was disappointed President Donald Trump failed to nominate her for a second four-year term.
Let’s play the world’s smallest violin for Ben Bernanke’s successor.
President Trump regularly tergiversated on his views pertaining to Yellen. But Trump understood, at least at one point in time, the bubblemania originating from the printing press. So, it isn’t necessarily surprising that he chose someone else to lead the Fed, even if it is Janet Yellen with a tie.
The central bank will now move ahead without Yellen. And all that could be said is: good riddance.
Janet Yellen’s Money Printing Madness
Critics of the Federal Reserve System have been warning for years that the national economy would derail amid surging inflation. This has yet to happen, though there are signals of its inevitability.
Simply put: Yellen did not have to endure the headaches of a significant economic contraction. This alone will permit the Keynesians, the Democrats, and the press to champion her as the greatest Fed Governor since its inception a century ago. Would this be an honest assessment?
From the time she sauntered into the role as Fed Chair in February 2014 to the moment she exited the most powerful organization in the country, the money supply, or M2, spiked nearly $3 trillion to just under $14 trillion. This substantial increase enabled Yellen to pump money into the economy to fuel the current boom and the stock market party – and the many economic bubbles.
In the end, the American people will suffer the consequences of the so-called smartest men in the room with a good old-fashioned bust, as well as a tidal wave of price inflation.
Inflation Fears Growing on the Street
It is true that the hyperinflation predictions of Peter Schiff, Jim Rogers, and Marc Faber have yet to be realized. However, it would be silly to dismiss any inflation at all.
The Consumer Price Index (CPI) has advanced since the end of 2010, while the Producer Price Index (PPI) is up. Food inflation has been prevalent: since 2014, ground beef prices surged 80%, eggs have jumped 60%, and seafood has increased 40%. Healthcare has climbed, tuition has risen, and real estate continues to be booming.
For the first time in quite a while, Wall Street appears to be frightened of inflation. According to Bank of America Merrill Lynch’s January fund manager survey, rising inflation and a bond crash are the greatest risks for markets.
More inflation could be imminent as the Fed weighs the option of lifting the “target” price inflation rate above 2%.
Bubbles Ballooning – Burst Approaching
During the aforementioned debate with his presidential opponent, Trump warned about the bubbles inflicting the stock exchange. But there are many more bubbles than merely in stocks – the king of bubbles, Alan Greenspan, has been sounding the alarm for the last year or two.
The residential housing market is behaving in the same manner it did a decade ago. Commercial properties are experiencing their best prices since the economic collapse – the Commercial Property Price Index has advanced more than 100%. The U.S. is awash in credit card, student, and auto loan debt. The fundamentals are not sound in vintage cars, art, and cryptocurrencies.
What about bonds?
Despite the Fed raising interest rates, they are still at historic lows. The Bank of Canada (BOC), the Bank of England (BOE), the Bank of Japan (BOJ), the Swiss National Bank, and the European Central Bank (ECB)are also maintaining low rates – some of them are in subzero territory, too. When rates normalize and monetary accommodation eases, then that is when the bond market bubble pops.
The market is still being flooded with government bonds: last month, the U.S. government auctioned $66 billion in Treasury securities, up from $62 billion in the fourth quarter of last year, and governments worldwide are selling ultra-long bonds.
It will be even worse for the U.S. because central banks are beginning to sell Treasuries. Bond markets were rocked last month when it was reported that China, the biggest holder of U.S. debt, is considering either slowing down or stopping purchases of U.S. bonds. And that would be a disaster for Washington.
End the Fed
Will Powell be the final Fed Chair? Former Representative Ron Paul (R-TX) had this to say about Powell:
“Jerome Powell may seem to be assuming the Fed chairmanship at a time of increasing prosperity and renewed respect for the Fed. However, the prosperity is an illusion built on a series of Fed-created bubbles whose bursting will cause a major economic downturn. This will increase both the growing challenges to the dollar’s world reserve currency status and the number of people seeking alternatives to Federal Reserve-created fiat currency. Powell could be the last Fed chairman if the next Fed-created economic crisis leads the people to force Congress to audit and then end the Fed.”
It isn’t Yellen, or even Powell that’s the problem. It is the Federal Reserve System that produces the booms and busts.
President Trump is celebrating the meteoric surge of the Dow Jones, S&P 500, and the NASDAQ over the last 12 months. But what happens when the stock market crashes? Will he take credit, or will he resort his past statements? The Dow plunged nearly 700 points last week, and it suffered triple-digit losses to start the trading week. The stock market is, as Trump described, a “big, fat, ugly bubble.”
The Bernanke-Yellen coalition oversaw bubblemania, and Powell will oversee the crash. The public, the Democrats, and the media will blame Trump for the bust, even though Yellen has kept the Fed’s printing press working overtime for years. It’s time to end the Fed.
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