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Trading  | December 5, 2017

Submitted by Rudy Havenstein

After years of seeing terrible market news and commentary, I’m pretty jaded, but when I saw the recent Marketwatch op-ed, “Janet Yellen’s true legacy is her focus on middle-class wages” (by Tim Mullaney), I thought such nonsense needed a reponse that went beyond 280 characters. (Half of Mullaney’s article is an anti-Trump rant, which is fine, and which I will ignore).

“If something is nonsense, you say it and say it loud.”
– Nassim Taleb

The article’s tagline, “Outgoing Federal Reserve chairwoman is a true populist, representing the interests of ordinary people”, reflects an Orwellian perversion of language that is so common today, a bizarro land where “inflation” is “growth”, “debt” is “wealth,” “QE” is “economic stimulus,” and “plutocracy” is “populism”.  

 Janet Yellen heads what is arguably the most anti-populist entity on Earth. It’s a very strange world we live in, where the actions of the head of a private bank cartel are declared to be “populist” by countless econ professor cultists and their media acolytes, as average Americans stand in stunned amazement at the elites’ cluelessness. 

So what is “populism”?  I asked Google, which hopefully excluded any Russian propaganda from the answer:

Ok, I don’t know about you, but reading that I immediately thought “That’s Janet Yellen.”  (I would prefer for this article to be about someone truly evil, like Alan Greenspan or Tim Geithner, as I’ve always thought of Yellen as more of a caretaker, a bit like Bruce Dern in Silent Running.)

This ridiculous idea of the Fed as “populist” is not a new phenomenon.  You have, for example, Canadian humor magazine Macleans back in 2014:

And none other than noted hairdresser Paul McCulley said this recently:

[You may remember Paul McCulley as the guy who said in 2002 (to cat afficianado Paul Krugman’s glee), “Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”  So how’d that work out for the average American? ]

Mullaney writes:

We hear a lot about populism these days, a political philosophy the dictionary says is about a party or faction “seeking to represent the interest of ordinary people.” And that’s what Yellen did as Fed chair….

Really? I suppose it’s fitting that a day after the Marketwatch propaganda dropped, the @FedHistory account tweeted this:

(As an aside, I ruined the #FedHistory hashtag for the Fed, but that’s another topic.)

Ok, so Aldrich…Aldrich…rings a bell. Oh yeah…

So who were these founding populists, “seeking to represent the interest of ordinary people,” who assembled on Jekyll Island?


Clearly these were the Joe Six-Packs of the day.

The “duck hunt” ruse was due to the incredible secrecy regarding the Federal Reserve’s formation:

Apparently the founders of the Fed weren’t committed to the “transparency” we have today, where, for example, Fed meeting transcripts are released after a 5-year lag, presumably to give the statutes of limitations time to expire. (Another canard is that the Fed is “independent”, which apparently it is from a corrupt, feckless Congress, but hardly from Citadel, Barclay’s, Pimco, Goldman, Citigroup, JPMorgan or Warburg Pincus, but I digress.)

So why such secrecy if these populists were just there to “represent the interest of ordinary people”? 

Surely the public would have supported the two main reasons these men formed the Fed, to stifle competition and arrange for the socialization of bank losses?  I mean, to mandate price stability and stable employment?

Father of the Fed Paul Warburg tries to explain:

So, um…even a century ago the populace had “a deep feeling of fear and suspicion with regard to Wall Street’s power and ambitions.”  Maybe for good reason, then as now.   Upton Sinclair, in his 1927 novel “Oil!” (an inspiration for the film “There Will Be Blood”), happens to give a very good description of the Federal Reserve:

Clearly, Mullaney sees Janet as a different animal than the founders of her cartel:

“…she held interest rates low enough, for long enough, that consumers’ debt-service burdens reached 20-year lows while real household incomes recovered all of the ground lost in the recession and moved toward all-time highs.”

As is typical of Fed cheerleaders, all credit for any recovery goes to the Fed, and no blame for the preceding bubble and collapse.  The heroic arsonist helped put out the fire!  I will concede that Yellen’s Fed did oversee lowering rates to prehistoric levels, and also induced massive additional consumer borrowing.  The “debt burden”may be low now, but God help the poor debtors if rates ever return to anywhere close to average historical levels (not to scare you, but that’d be around a 5% Fed Funds Rate).   Of course, by then Yellen will be long gone, giving $500k speeches (inflation, you know), collecting her COLA-adjusted pensions and perhaps muddying the minds of another generation of Berkeley undergrads. She’ll be fine.

So yes, low rates are awesome, but while Citigroup (which should not exist) et al. may be able to borrow at 0%, still NO ZIRP FOR YOU!

As for real incomes, I do hope we can someday get back to Nixon-era levels.

 To Marketwatch Tim, Janet Yellen is some sort of mythical figure, able to single-handedly create jobs, hike wages, and ameliorate the consumer debt burden.  This of course is nonsense.  First of all, look at Janet Yellen’s resume:

Other than perhaps some hiring at the Fed and the Berkeley econ department, it is hard to imagine any jobs that Ms. Yellen herself actually created.  Maybe she hired someone to garden her yard, and that’s commendable, but Yellen strangely believes that without formerly-tenured econ professors running things (to borrow from Jim Grant), the US economy would collapse:

“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not.”
Janet Yellen, 1999

This is a rather laughable statement coming from someone who won the 2010 NABE “Adam Smith Award”.  So how the heck did US unemployment drop to 5% in 1900 without a former Berkeley econ professor to guide it?  How did it even get as low as 4% in 1890 with no FOMC?  I guess it’s a mystery. 

Speaking of Adam Smith, he described the folly of Janet’s position well in “The Wealth of Nations”:

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

Anyway, academia has been very good to Yellen, as her 2010 financial disclosure report shows.  This report shows, among many other things at the time, over $21,000 a month just in University of California pension income, “$500k-$1M” in her Heartland 500 Index fund IRA and a $50,000 “honorarium” from Chinese internet company Netease.  No doubt she can also look forward to many days of giving $250,000 speeches to those who most benefited from her largesse.  Having such a huge income (at least relative to the median US wage earner, who makes $30,557 a year) no doubt factors into Yellen’s fervent desire to spike the cost of living for the peasants. 

Throwing in Janet’s $200k Fed salary, a very conservative estimate puts Yellen’s annual income in the top 99.9% of all AmericansQuite literally, Janet Yellen is the 0.1%. (To be fair, the Fed pays its staff very well, which is  probably a side-effect of being able to create currency at will). 

Yellen has served her 0.1% well.  Besides the Fed’s latest mandate, the booming S&P 500 index, and a 4.1% unemployment rate (which, if accurate, would mean Trump would never have been elected), Yellen oversees a nirvana where American wealth inequality is now at record levels on her watch, even worse than Russia or Iran(!!), with the top 1% now owning 38.5% of everything!  Yay!

A few more examples: The CEO-to-worker compensation ratio is at 224-to-1 in 2016, up from 22.5 back in 1973, millennials live with their parents at unprecedented historical levels (largely because Fed and government policies have made house prices far higher than they would otherwise be), and Americans are more burdened by student loan debt than ever.  I won’t even mention subprime auto delinquencies.  All this is in the 9th year of our incredible global synchronized recovery!  (What happens if there’s ever another recession, which of course there can’t be?)

Then there are the senior citizens who have been destroyed by ZIRP and inflation (which Yellen thinks is too low):

These seniors’ economic woes may explain why the elderly are the only demographic group with a rising labor force participation rate since 2000.  Would you like fries with that?

Meanwhile, the populist owners of the Federal Reserve are doing great        

Moreoever, the Fed’s real claim to fame since 2009, the stock market’s “wealth effect” (also known as “trickle down”) is lost on the 70% of Americans who make less than $50k and are not benefitting from the Fed casino.

“There is absolutely no econometric evidence that there is a wealth effect except for a very slim slice of our highest wealth individuals.”
Lacy Hunt

(I will, out of kindness, refrain from mentioning that In the pre-Fed Panic of 1907, the Dow fell 48.5% from its all-time high, while in the Fed-mentored Panic of 2008-2009, the Dow fell 54.4%.)

Everything the Fed has done this century has been designed to get Americans into more debt, and most importantly to protect the (global) too-big-to-fail money-center banks. Everything else is secondary.  Just one example of this reality is when a “lightbulb went on” for Neil Barofsky, the Special Inspector General of the TARP:

There you have populist Yellen’s Fed in a nutshell: it’s all about the banks.  (Note that “Turbo” Tim Geithner, former tax scofflaw, NY Fed President during the height of TBTF bank fraud, AIG-creditor savior, US Treasury Secretary, and overall weasel, is now being rewarded as President of Warburg Pincus).

The Federal Reserve and Janet Yellen, despite the magical thinking of the Fed’s many media shills, are no more “populist” than JPMorgan Chase or Lloyd Blankfein.  If the Fed ever happens to help “the average American” through some action, it’s by accident, and there is plenty of evidence that the average American has not only not recovered from Great Depression II, but is actually worse off in real terms.  Time to wake up.

“Ever get the feeling you’ve been cheated?”
Johnny Rotten


A revolutionary initiative is helping average Americans find quick and lasting stock market success.

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