Ticks on a Dog
A brief comment on Fed chief Janet Yellen’s revealing speech at the University of Michigan. Bloomberg:
“Before, we had to press down on the gas pedal trying to give the economy all of the oomph that we possibly could,” Yellen said Monday in Ann Arbor, Michigan. The Fed is now trying to “give it some gas, but not so much that we’re pushing down hard on the accelerator.” […]
“The appropriate stance of policy now is closer to, let me call it neutral,” Yellen said in response to questions during an event at the Gerald R. Ford School of Public Policy at the University of Michigan. Yellen said she expected the economy to continue to grow at a moderate pace and that gradual interest rate increases “can get us where we need to be.”
Central planners groping in the dark…
Every society is ruled by an elite. They prey upon the common folks like ticks on a dog. They work their way into positions of power and influence, using a combination of brains, connections, and claptrap.
The mob generally looks up to them, impressed by the hocus pocus. And then, eventually, the ticks grow too many and too fat. The poor dog weakens… and the magic fails.
Where exactly we are in the process, we can’t be sure. But surely, we took another step toward the eventual catastrophe when Ms. Yellen spoke.
Everything she said was preposterous.
The economy is not growing at a “moderate speed.” If it is growing at all – it depends on how you calculate consumer price inflation – it is doing so only at stall speed.
Officially, per capita growth is less than 1% a year. What kind of “oomph” is that?
Nor is the Fed neutral. How can you call a federal funds rate that is more than 100 basis points below the inflation rate “neutral”?
No oomph in sight, but it’s beginning to smell a bit funny
It is nothing of the sort. Ms. Yellen says she is “pressing down on the gas pedal.” There’s nothing “neutral” about that.
People who don’t respect the logic of their own metaphors are sometimes lazy thinkers. Sometimes they are mixed up. And sometimes they are just blah-blah-blahing for the fake news media and the yahoos who believe it.
Ms. Yellen thinks the economy runs like a machine. If it is sluggish, it is up to her and other Fed engineers to press down on the accelerator. If it is running too fast, they ease off.
This metaphor is clearly absurd. If she and the Fed could increase the speed of the economy simply by pressing down on the gas pedal, what are they waiting for? There are 66 million working age Americans without jobs.
Hey, why not give them a little gas?
Please pull the right lever…
Also, Ms. Yellen says she aims to get the economy “where it needs to be.” But how does she know where it needs to be? An economy is not a machine. And it never needs to be anywhere. It simply is where it is.
The authorities can slow it down with silly rules and regulations. Or they can mislead it with phony interest rates and fake money.
Is the economy a machine? No, it isn’t.
They can also force people into win-lose deals that waste capital, retard wealth building, or in some cases – the Soviet Union from 1917 to 1989, Germany from 1937 to 1945, China from 1949 to 1979, Venezuela from 2001 to 2017 – they even send the whole economy into reverse.
Self-respecting witch doctors and fortune tellers look at Ms. Yellen with contempt. She can make the economy worse. She can’t make it better.
Image captions by PT
The above article originally appeared as “Charged by an Enraged Bull” at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
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