Janet Yellen Is Wrong About Inflation

Tyler Durden's picture

Submitted by Bill Bonner of Acting-Man blog,

Noisy Figures



Janet Yellen has dismissed rising inflation figures. They were “noisy,” she said. She didn’t like the sound of them. Valid numbers are harmonious. Invalid ones are cacophonous.

But after so many years of listening to such loud noise coming from her own colleagues, poor Ms. Yellen may be tone deaf. At least, that is one explanation for her nonchalance toward the threat of inflation.

As we pointed out yesterday, the Titanic-like US markets glide over the smoothest seas in nearly a decade. The squalls and swells seem to have disappeared. The VIX, which measures the market’s expectation of 30-day volatility, shows little fear. Portfolio protection is as cheap as it’s been in the last quarter century.

The S&P 500 has not moved as much as 1% on any trading day in the last 45. Investors no longer lock their doors or even put on their seat belts.



Financial Grotesquerie

All the while, the Fed pushes down interest rates. With so much cheap money available, people find ways to put it to use. Speculations … lifestyle enhancements … silly and worthless projects.

One of the main uses of corporate debt has been stock buybacks. Even start-ups are buying their own stock as soon as the post-IPO lock-up period is over. Our jaw drops at the thought of it. A start-up that can’t think of anything better to do with cash than buy its own shares?

But if you aren’t staggered by that, here’s another example of the financial grotesquerie that has become so common: Central banks are speculating on stocks, too.

The whole hullaballoo is so remarkably cockeyed, it deserves further commentary.

The banking cartel – with special permission from government – offers free money to choice borrowers. Corporations borrow this free money and use it to buy their own shares and cancel them (making outstanding shares more valuable).

And to prop up the market even more, central banks – searching for the yield they’ve denied savers (and themselves) on their bond portfolios – buy stocks.

Who can be opposed to it?


commercial and industrial loans

Commercial and industrial loans – into the blue yonder, via Saint Louis Federal Reserve Research – click to enlarge.


More Inflation = Less Growth

With so much cash pushing them forward… and the soft cushion of central bank guarantees trailing behind them… is it any wonder stocks move higher and higher?

Still, there are always a few things that could wreck this program.
China could collapse in a crisis. War could breakout in the Middle East or in Eastern Europe. Central banks might lose control of interest rates – at the long end of the curve. Bonds could dive.

But the most obvious risk is money itself. Money that comes “out of thin air” might someday go back from whence it came. The dollar could fall against foreign currencies. Or it could fall against the goods and services it is called up to buy. Either way, it could send the sleek touring car into a ditch.



Money, after having fallen into the ditch


That is why the measure of inflation is so important. If consumer prices are rising faster than the authorities say, it means two important things:

First, real GDP is not growing. Real GDP growth is adjusted for inflation. More inflation, less real growth. Second, the real cost of borrowing is much lower than we think. If inflation is higher, the real interest rate is lower. So what’s the story?

The Fed says 2% is the right number for consumer price inflation. MIT’s (more accurate) Billion Prices Project puts the annual rate of consumer price rise at 3.91%. And since 2000, Washington says consumer prices are up 39%. Trouble is we can’t find any significant price that is up so little.

Crude oil is up 314%. A dozen eggs rose 106%. College tuition is up 68%.
The typical house has risen 50%.

Is this noise too?



On the way to pay for a hot dog before its price rises …

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crazybob369's picture

A fine sentiment. But how exactly? Too many piggies feeding off that trough.

Ghordius's picture

interesting idea. but how? fiat money has a life of it's own. and usually dies, eventually. by mis-management

how is it that all the "End the FED" proposers never ask for splitting the USD? there are twelve FED banks. now this would be doable

NY/Wall Street could call their dollar the American Pound, just to keep the mirror image intact

NotApplicable's picture

How many banks should the Euro be split into?

Ghordius's picture

currently, the members of the ECB are 18 national banks. but usually it's all about Greece or Germany that - depending from who talks - should exit the club. reasoning varies, depending from who is talking

this is without counting the currencies that are pegged to the EUR. and I forgot how many will join next year. I think it's two more

anyway, after all those years of hearing and reading that we should break up... why does is this "sound advice" not followed through at home? hint, hint

Haus-Targaryen's picture

Wait wait wait wait wait ..-

You'Ve gotta be shitting me.  You are FOR the division of the USD into 2 or more differing currencies, but you want to keep the EUR status quo? 

el oh fucking el.

Ghordius's picture

first, this is ZH. It could be sarcasm, couldn't it? second, it's like divorces. for some, anathema and unnecessary, for others absolutely necessary

I am just reacting to this "End the FED" with a constructive proposal. If I was American and I was planning to do something about the FED, I'd propose exactly that

you want to break the EUR. you should be providing the reasoning why my counter-proposal is wonderful. think about that

chinoslims's picture

Im all for competing currencies.   It will one of them honest as a store of value

Parabox's picture

An honest store of value would probably be a bridge too far for the banking elite, but at least a competing currency might highlight the corruption of the other competing currencies, assuing they dont all just secretly fix to each other.

gcjohns1971's picture

I am fine with any number of currencies, defined on any basis you might like, regional, state, town, even local bank...(that would take us back to the 19th Century).

All of those are fine, because a currency is only the numerator in the transaction. What is pertinent is the denominator.

So long as the denominator is constant, the numerator doesn't matter.

Ghordius's picture

further, you could be creative about that. instead of territorial (a kind of system that does not reflect current American thinking and smacks of outmoded) division, it could be in... political parties

a Republican Dollar and a Democratic Dollar. with a Republican national debt and a Democratic national debt. how about that?

El Vaquero's picture

Come on Ghordius.  The only differences between the Republicans and the Democrats are over specific issues.  Gun rights, (faux) religious issues and gay rights are the biggest ones.  Other than those issues, Democrats and Republicans are the same party.  It's a farce.  When you get down to NSA spying, economics, big government and foreign policy, they are the same party.

Ghordius's picture

for being the same party, the levels of partisanships are astounding. and increasing

El Vaquero's picture

Yet we have continuity of policy in terms of government spending, in terms of foreign policy, in terms of NSA spying, etc...  The continuity of policy taken in conjunction with the fact that when somebody fucks up, big time, the worst that they have to worry about in most instances is getting grilled by a congressional committee, only to go home at night and sleep, safe and sound, should tell you that a lot of that partisanship is for show.  Look where the action is and look where the theater is.  The people here may be extra partisan, but the government certainly only yells about being partisan.  It does not act on it.

gcjohns1971's picture

They are not nearly so different as that.


They are the exact same people in many cases who change one speech writer for another with their party affiliation.  One of them is an imaginary party.  If I had to pick I would say the Republicans are imaginary, because the policies they choose are inevitably those the Democrats have maintained since the 1930's.

Truly, the stump speech is different.  That and only that.  Not the votes on issues, not the faces, not the advisors are different. All are party interchangeable.

Tasty Sandwich's picture

"End the Fed" makes a good bumper sticker.

Go ahead and end the Fed.  Shut down the empire and see what happens.

Like I care.

Ghordius's picture

the empire consists in one plucky hegemon and many trusty allies. which might complain about your cavalier way of setting strategic policy

I'll give you an alternative: why don't you let us allies vote too for your president and/or your senate?

Haus-Targaryen's picture

That would be an exceptionally shitty day.

Tasty Sandwich's picture

Would be over in a flash.

Just make sure you're outside.

Tall Tom's picture

Ideally near Ground Zero at a Primary Target...


You will not feel a thing.

Tall Tom's picture

That would be the best day of my life...Shitty for whom?

overmedicatedundersexed's picture

Ghordius, if american people had a vote, your american bases would have long gone from the EU.

gcjohns1971's picture

They do.

Haven't you been following the US Immigration issue?

Haven't you been following how the courts struck down identification for voters?


Come see for yourself. 

All you need is a bill, such as a utility bill,  in your name sent to a US Address to show which district you reside in (whether or not you actually reside there). 

With that you can go to the board of elections to be a registered voter, and subsequently vote. You can even have your US absentee ballot sent to your European address.

Millions upon millions of foreigners vote in our every election.

You didn't think WE chose Obama did you?

NOTaREALmerican's picture

Indeed, competitive currencies provided a way of comparing the relative "honesty/efficiency" of the various nations of Europe.    Having 12 currencies in the US would be a way of decentralizing the power, which - of course - is why the Boyz in Brussels and NYC wouldn't agree.

Ghordius's picture

are you sure about your argument? first, it just showed which were more dis-honest. by devaluing more

second, it brought us in intra-european currency wars. and lots and lots of external speculation. from London and NY, in particular

Dr. Krugman would be delighted to see the return of this great breaking of windows, but I can tell you it was not good for trade or biz or value adding of any kind

NOTaREALmerican's picture

Well,  (thinking like an economist here) if I pull an assumption out of my ass that:  All larger powerful organization WILL be run by the smartest-n-savviest asshole sociopaths it follows that the smart-n-savvy asshole sociopaths would want larger organizations.  

All I did was reverse the assumption I pull out of my ass:   if the smart-n-savvy asshole sociopaths benefit from large centralized organizations, what's the opposite of large centralized organizations?

I'm just assuming (like an economists) that the only protection the normal people have is to somehow force the smart-n-savvy asshole sociopaths to spend SOME of their time fighting with each other instead of being able to concentrate solely on screwing the normal people.  

Urban Redneck's picture

Well, since you asked - in 8 (relatively) easy steps, that can be incorporated under a single convenient and marketable theme.


gcjohns1971's picture

fiat money has NO life of it's own, but springs from the imagination of the people who issue and accept it, and usually dies for that reason eventually - by mis-management.

There. Fixed that for you.

Thought Processor's picture



The ONLY inflation the FED recognizes is WAGE inflation.


This is why all other inflation data points have been eliminated over time, ie: food, energy, and anything else required for normal people to live.  If you do not include it, it must not exist.  


Therefor No wage inflation = no inflation in the FED's eyes.


The big banks are only concerned about rising wages and a big part of their job is to help keep the inflation of those wages in check.   It's Crony Corporatism run amuck.


And we wonder why things are so fucked up.

NOTaREALmerican's picture

The peasants must be kept in their place.   If they a bigger percentage of the pie they'll just waste it.    Best to let the job-creators create more jobs with it.

island's picture

Yeah. "The small people" are just superfluous to the powers that be.


--- as for inflation --

INFLATION can be a sign  of a growing real economy.

INFLATION does not CAUSE a growing real economy.

It is friggin' amazing ignorance is so prevalent in the ivory towers, and beyond.

island's picture

Janet apparently doesn't do her own grocery shopping. 

rubiconsolutions's picture

'They were “noisy,” she said....'

No. Noisy is my wife coming home from shopping and suggesting somewhat sarcastically that we take out a second mortgage to feed our family. Noisy is listening to my neighbor complain because gas prices are going through the roof and how it has impacted his business. Noisy is listening to my parents who only five years ago had a very nice nest egg and today survive on Social (in)Security alone becuase ZIRP has decimated their savings while inflation has gone through the roof. Screw you Janet and your "noise" problem. End the Fed and repeal the 16th amendment.  

tempo's picture

Those that define inflation say there is no inflation. That's it.

orangegeek's picture

so now that Q1 GDP has been adjusted down (they subtracted stuff from Q1 to push it into Q2) all is good, right?


problem has always been deflation, so none of these Yellen-antics should have an impact


you can put lipstick on Yellen, but it's still a pig

CrashisOptimistic's picture

"problem has always been deflation"


The bond guys almost always get it right.

LawsofPhysics's picture

"Deflation" is a fucking myth.  The central banks know this, and why they and their owners are always concerned about ownership. Who has title to land, control of resources etc.

No society/currency has ever collapsed or died because their purchasing power was too strong.

These fuckers also know full well that there is no political or monetary solution to resource scarcity.  Hedge accordingly. Remember is a global economy now, what awaits the earth is a global Weimar.


CrashisOptimistic's picture

LoPguy, my read is this: Do they understand the oil issue, or not?

It's possible they do not.  The Fed would go out and get opinions from various "well regarded" consultants, and of course they became well regarded by spending their careers telling oil executives whatever they wanted to hear.

So the Fed may not know.


They may know.  They may know they are fighting a rear guard action to buy time for . . . the great miracle of oil replacement.  They MAY be engaged in precisely that -- buying time for a miracle to occur.

I suspect it's the former.  That's too big a secret for staff not to leak.


NOTaREALmerican's picture

Why do we assume they are anything except highly educated people with economic OCD? 

Urban Redneck's picture

You definition of deflation is incorrect.

Increased purchasing power is a derivative and byproduct of deflation. A more appropriate description (if you want to avoid a money supply based definition) would be an environment where the price of money rises, ceteris paribus.

You might think there is an overabundance of dollars in existence. However, there are "only" about 12 trillion of them to meet the daily needs of 300 million people and heir bankster overlords, the US Stock market is 20 trillion, the US bond market is 40 Trillion, then there are those insane ferners who develop a fetish for Yellen's dirty linen in time of crisis.

Deflation is scarcity of USD resources. And the bankers will most certainly take advantage of their position in the event of deflation- to trade their worthless fiat for ownership of more real and productive goods. Same as it ever was.

LawsofPhysics's picture

"Deflation is scarcity of USD resources. And the bankers will most certainly take advantage of their position in the event of deflation- to trade their worthless fiat for ownership of more real and productive goods"  -- FAIL, this is only true if people still accept those dollars.  If no one wants those dollars, there is no "scarcity".

What part of all fiat goes to zero don't you understand?

Urban Redneck's picture

Only on a long enough timeline...

In the mean time... if the banksters and institutional wealth decide they don't trust counter-parties again... there isn't enough money to go around.

The odds of the world waking up very soon and no one being willing to accept GOLD for transaction settlement in the major economies greatly exceed the odds of the world waking up one day soon and no one accepting USD for transaction settlement in the major economies.

Criminalization does that to sheeple. In the meantime, there are legal tender and contract laws the world over to deal with the settlement of debt (-based money).

The aggregate demand of you me and 99% of the global population doesn't amount to squat compared to the transactional denomination preferences of less than 0.000001% of the population, and whether by accident or by design - these people are very capable of creating a deflationary shock and scarcity of USD, which would likely result in the accelerated collapse of American empire/hegemony.

gcjohns1971's picture

Tell that to Germany.

CB's know that Gold is valuable, that Gold is money.  That is why they persist in holding the 'Barbarous Relic'.

You probably knew that.

Your odds statement is demonstrably incorrect BECAUSE Central Banks who issue fiat want to store Gold. 

Even if no one would give me products for gold in my neighborhood, I could always find someone who would give me the local currency in return for Gold.

The odds of no one accepting dollars are INFINITELY HIGHER - or there would be no talk of tapering QE.


Urban Redneck's picture

Actually my statement is not demonstrably false. Furthermore, it is precisely because governments and central banks (who don't give a shit about YOUR rights) value gold, that the statement is true.

Where do most people spend/transact the bulk of their money- in stores (via credit/debit card or paper fiat) or in person to person transactions (via paper fiat or specie)? The legal tender laws are quite clear for the former.

pods's picture

Why is it people think that Mr. Yellen works for the people?


orangegeek's picture

the actually believe


the problem is that they don't think


just saying