Dear Janet Yellen: Check mate
At its core, the only tool central planners have is the “printing press”. The question is then more about whether to print or to print more. Granted, what they do with these new dollars can be put towards propping up either the stock market and the Dow Jones Propaganda Average, or bonds, or other assets. And of course, the flag ship is the Federal Reserve Fund rate at which depository institution interest rate is based.
The fact that this is planned by a group of academic economists rather than the free market should tell you right away that we are not in a free market capitalist system. Anyone who would start yelling at free market capitalism for the crash of 2008, 2000, 1994 bond, 1987 black Monday as well as the next coming crash should realize this first.
The tool of central bankers is only available to them as long as they maintain the illusion they are in control and that they know what they are doing. Considering that they are doing the work that should actually be done by the free market 24 hours a day, 365 days per year – that is the aggregate decision done by all buyers and sellers in the market place – they need to induce some uncertainty as to what they will do. Since their decision is not made every hour of the day but rather only when they have those meetings and it is there to prop up a flawed fiat debt based currency system. This explains the term “Fed Speak” that surfaced during Alan Greenspan tenure as Fed Chairman.
But look at this chart and observe that as we go closer to today, the interest rate changes are less frequent. And about flat today for past 7 years. Prior to 1993, the variation was almost “free market” like compared to what we have seen since year 1993 and in particular, since the year 2002.
And now, since 2009, any similarity it had with a freely established market rate has completely gone. As the years passes, the Federal Reserve has even more difficulty trying to maintain the illusion they are in control. To me, the fact the interest rate are less free market like is an indication the system is getting sicker and sicker and closer to collapse.
And now Yellen and the Fed are faced with a dire situation.
For the past 5 years, the collection of Fed mouthpieces (the press, the Fed Presidents…) have been repeating they are about to raise rates from these unprecedented, never seen before (certainly never seen in a free market), interest rate of near 0%. And let’s remember that in some countries, they are dealing with negative interest rates on some bonds! The investment market, hedge funds etc see that the economic data is not as rosy as the government data is depicting it and although they prefer to maintain a trust in the Fed’s action and ability, they are wondering if or rather how long they will keep their control of the public perception and of their ability to maintain the system. (Public perception is the major part of the Fed role)
Which brings it to what action will the Fed take during the meetings in the next few months? Will they raise rate so that they don’t look like Lucy yanking out the ball from Charlie Brown (ie: fed will raise rate – not, fed will raise rate – not, …) or they will kick the can down to the next Fed’s meeting. If they admit they cannot raise rate or otherwise the economy get hit heavily, the investment crowd will lose trust in their ability. On the other hand, if they don’t raise rate with the same cryptic verbiage as before, they will look more and more as Lucy while at the same time the bad economic data is getting harder to hide. As an indication, we can expect more and more articles such as this one to be popping up:
If they do raise rate, such as last year, they will accelerate the economic issues such as those listed in this article and if a crash was coming so soon after raising rates, they will look like real bad decision makers and lose severe credibility giving them little ability (if any) to restore the system post-crash. Never mind that the whole system (Federal Reserve, Fiat debt based currency) is crappy and responsible for the issues and cannot be sustained forever.
So, in terms of maintaining the illusion of control, it is Check mate for the Fed.