GUALFIN, Argentina – According to several headlines, the U.S. stock market rose yesterday “ahead of Fed.”
The Dow was up 229 points – or 1.4% – for the session.
And so, we return to poor Janet Yellen. Tomorrow, much of the world turns its lonely eyes to the Fed and its chieftain.
The Fed has as much as promised to make the blind see and the lame walk. It claims that it – and it alone – is capable of improving the U.S. economy and, by extension, the world economy.
People will earn more money. They will live better. And they will have less to fear from financial calamities, such as those that happened before the Fed was set up in 1913.
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In the popular mind – if there is such a thing – it is further believed that the Fed “won’t allow” a major bear market, because “it would be bad for the economy.” The Fed rules the entire universe of commerce, finance, and investment.
Janet Yellen rules the Fed.
But who rules Janet Yellen?
Yes, the weight of extravagant claims and preposterous promises now falls on one woman: Janet Louise Yellen of Brooklyn, New York.
During working hours, she holds her head up and talks the mumbo jumbo of a normal, confused economist. But late at night, after tossing and turning in bed, her thoughts must focus more clearly.
In moments of pure, enlightened terror, she must see the impossible position she has been put in.
“How am I supposed to know at what price credit should change hands? Of course, it is impossible,” she must think.
“Markets, not bureaucrats, set prices. Try to do it any other way and you always end up with a mess.
“And yet, here I am. I have a responsibility. I am head of the world’s largest banking cartel. I am charged – by law – to do four things.
“At least this is what the Fed’s website tells me…
“One, conduct the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.
“Two, supervise and regulate banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.
“Three, maintain the stability of the financial system and contain systemic risk that may arise in financial markets.
“Four, provide certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and play a major role in operating and overseeing the nation’s payments systems.
ZIRP for Zip?
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“I shouldn’t ask questions. I should just do the job.
“Full employment? Yes… I think we’re on the right track.
“Stable prices? Where did that come from? I didn’t know that was in there. No question – we nailed that one. Prices are more stable than we wanted.
“But we were aiming for 2% inflation. Well, how do you like that, we hit that target without even trying?
“But if the economy is as healthy as I say it is, it isn’t going to be bothered by a quarter-point rate hike. And if it isn’t as healthy… and the rate hike throws it into a tizzy… then all those seven long years of ZIRP did zip for the economy and rates may as well be raised anyway, no?” (Janet smiles; she is pleased with her turn of phrase.)
“Wait… maybe the employment picture isn’t as good as I’ve been told. There’s that former assistant of mine, Andy Levin, shooting off his mouth at Bloomberg.
“He says the U.S. is probably about two years away from achieving full employment… and that millions of Americans working part time would take full-time employment if they could get it. And many others out of the labor market might be induced back in if they felt they had a chance at a job.
“And there are all these clowns on TV explaining why I should or why I shouldn’t raise rates… or why I will or why I won’t.
“One tells me the unemployment rate is not as good as it sounds. Another says China is headed for a serious depression. Another worries that world trade is slowing.
“One says speed up. Another says slow down. They think I’ve got some kind of machine here where all I have to do is to stomp on the accelerator and the economy will race ahead. But if I had that, I would’ve pushed the pedal to the metal a long time ago. It doesn’t work that way…
The Biggest Mess in History
“And… oh no… maybe the whole idea is wrong…
“Maybe I didn’t read the job description closely enough. I mean, maybe you don’t get stability, full employment, safety, and so forth by pulling on these levers and turning these knobs.
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“Maybe being a central banker is not like being a car mechanic. Maybe it’s more like being a judge.
“Judges don’t have to come up with new tools, like quantitative easing. They’re not supposed to use unconventional methods. They’re not expected to improve the world, for Pete’s sake.
“Judges are just supposed to apply the law and come to the same judgment tomorrow that they made yesterday. The key feature of a judge’s role is a lack of innovation. You murder someone… the judge throws the book at you. Easy-peasy.
“Murder is murder every day of the year… Saturdays and Sundays included. It doesn’t matter what the unemployment rate is.
“Judge’s don’t have the world watching… anticipating their next move; their next move is supposed to be just like their last move. And they don’t have to care what happens after they render judgment. Their job is simply to render the correct judgment… every time… just like the last time.
“I bet judges sleep better at night.
“Maybe that’s the way central banking is supposed to work, too. It’s not for me to worry about the jokers who have gambled on low rates. What do I care if their stocks go down?
“But wait… if they go down too much… too fast… we could have… hmmm… a situation on our hands. And it could develop into a very big mess… the biggest mess in world history.
“Oh my… is it morning yet?”
Reprinted with permission from Bonner & Partners.
