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Janet Yellen's Shame

Sep 15, 2016


NORMANDY, France - A gentle reader reminded us that we haven't given an update on Elizabeth since we returned to France.

So sorry. She is doing much better; thanks for asking. She's walking around... though still a little fragile.

Elizabeth spent three weeks in bed following herĀ fall from a horse. What did she do during the time she was immobilised?

'I read a biography of Joseph Fouche by Austrian writer Stefan Zweig,' she told us. 'It is magnificent. Zweig explores how politics really works.

'Fouche was in charge of suppressing resistance to the French Revolution. He was sent to Lyon, for example. The jails were full of people who were opposed to the revolution. Fouche took them out of the prisons, tied them in groups, and shot cannons at them.

'He had begun his career in the priesthood... and became a mass murderer. Like Stalin. Then, he was marked for the guillotine by Robespierre. But Fouche turned the situation around; Robespierre was sent to the guillotine instead.'

Playing Politics

In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price.

You may get a little wild and crazy from time to time, but you are always called to order by your customers.

That is true of honest banking, too. Back when such a thing existed, the job of an honest banker was to aggregate people's savings and lend them to worthy borrowers. You make too many mistakes... your customers leave, and you go broke.

Politics is a different game altogether. It produces no wealth of any sort. So the only way you can prosper in politics is to connive, cheat, and steal - manipulating your friends...sidelining your enemies...and exploiting the public.

It is a game of taking wealth, not making it. And you have no customers... so there's not much of a check on how out-of-order you can get.

Still, a politician is not always lying... not always stealing... and not always wrong. Occasionally, he blunders into honesty and slips into truth.

On Monday, for example, Republican presidential nominee Donald Trump said Fed chief Janet Yellen should be ashamed of herself for what she was doing to Americans and for creating a 'false stock market'.

The financial press was quick to condemn Mr Trump for 'undermining confidence' in the Fed and the stock market. It was 'irresponsible' to question the Fed's integrity and its non-partisan mission, said the pundits.

Widely dismissed was the idea that Ms Yellen was 'playing politics' with the Fed by supporting the stock market to embellish President Obama's last months in office... and help Democratic nominee Hillary Clinton slide into the White House after him.

But Mr Trump is right: Politics is the Fed's game.

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Grand Larceny

No president has ever added to a nation's wealth. Neither has any central bank.

Neither produces anything... nor offers a service... that anyone would willingly pay for.

Nor does either have to make a profit... or make payroll.

At best, a wise central banker - like a wise president - eliminates the errors of his predecessors, allowing an economy to recover. At worst, he doubles down.

Of course, Ms Yellen should be ashamed of herself. But the shame is far deeper than Mr Trump imagines. He thinks she is just 'playing politics', trying to get Hillary elected; actually, her crime is far greater.

Ultra-low interest rates do not create wealth. They just shift it around, from savers to borrowers. Borrowers pay less to service their debts; savers see their interest income disappear.

The biggest borrower in the world is the US government. It is also the biggest beneficiary of the Fed's EZ money policies. You can do the math yourself.

Were the feds forced to pay another 2% on the national debt, for example, it would be nearly $400 billion a year in extra interest payments. That is money the feds don't pay...and savers don't get.

It's the grandest larceny on earth.

The Real Shame...

Super-low interest rates - aided and abetted by QE - also boost stock prices.

This creates the 'false stock market' Mr Trump is critical of.

Central banks are buying stocks to feed their QE programs as bonds dry up. The idea is to stimulate their economies; the result is to stimulate Wall Street.

Between them, the Bank of Japan and the Swiss National Bank own about $300 billion worth of stocks. And many of the Swiss National Bank's holdings are listed in the US.

This, too, should be a source of deep shame for all central bankers.

Fed policies may not be designed to benefit Democrats or Republicans. But they are intended to prop up the entire class of Parasitocrats, chiselers, profiteers, zombies, and cronies that benefit from politics.

The Fed helps Wall Street steal hundreds of billions from middle-class savers... favours powerful insiders with the lowest borrowing costs in 5,000 years... connives to raise stock prices to the highest levels ever seen...

...and it collaborates with the Parasitocracy to keep the whole shebang going... at the expense of ordinary households.

An honest banker protects the public from bad money and bad debt. Ms Yellen does neither.

That is a real shame.

BILL BONNER Founder, Agora Inc

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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5 Responses to "Janet Yellen's Shame"


Sep 17, 2016

Very good article on analysis as to how the hard earned savings gets translated into cheap money which borrowers may use unwisely leading to wealth destruction.

However , I understand most central banks will buy government bonds. Are they allowed to buy stocks?!,!.Can any one throw some light as to what major stocks central banks own out of $ 300 Billion


janak makwana

Sep 16, 2016

And this very shame is intended to be practiced by the Indian Rulers when they insisted the RBI Governor to go for the rate cut very much against the interests of the savers and to the benefit of the borrowers. Undoubtedly this is also a seer shame....


M. H. Nayak

Sep 15, 2016

Dear Bill,

What surprises me, for one, most is the way you have been making it up by way of publicity for your forthcoming sales of the book: Hormegeddon.

Any sane person on this planet, did know, even before "2008 Wall Street events" that former Fed. Chairman, Allan Greenspan, was giving those flowery speeches in front of Senate Committee, with barely any truth in it.

As regards the Q.E. 1,2,3 etc. that followed the "2008 events", it was but inevitable consequences.

But what is equally surprising for the Common Man on this planet, is how any person in authority, either a politician or an economist worth his/her salt, does not speak about the destructive affect of these Q.E.s have on the Developing & Under-developed countries everywhere.



Sep 15, 2016

What do you want? The austerity like Europe.



Sep 15, 2016

The question that needs to be asked is that 'are the central banks truly independent of government interference'? Now in India, commerce minister wants to join the currency war. It was reported today on CNBC. They want a 'calibrated ' rupee devaluation. But they fail to understand that they cannot control markets forever. If you want rupee to be say at 75 against USD, it may go to 90 or 100 as well creating huge inflation in the run up to 2019 elections. Hopefully new RBI governor would protect Indians from this.

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