Another Fed "Insider" Quits, Tells The Truth

Tyler Durden's picture

Once more, an "insider" from The Fed exposes the reality of an academic ivory tower clueless of the real financial markets. Former adviser to Dallas Fed's Dick Fisher, Danielle DiMartino Booth speaking in a CNBC interview slams The Fed for "allowing the [market] tail to wag the [monetary policy] dog," warning that "The Fed's credibility itself is at stake... they have backed themselves into a very tight corner... the tightest ever." As she writes in her first Op-Ed, "The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive... All retirees’ security is thus at risk when the massive overvaluation in fixed income and equity markets eventually rights itself."


Via The Liscio Report,

The Great Abdication

The business cycle is dead! Long live the business cycle!

Not too long ago, in a land not so far away, the business cycle was declared to be defeated. Policymakers at the Federal Reserve were credited with slaying the pesky beast that featured recessions as part of its nature. Such was the faith in the permanence of business cycle’s demise that the era was given its own label, The Great Moderation, a perfect world in which inflation ran not too hot or too cold and profit growth was accepted as the steady state.

As is so often the case, reality rudely disturbed nirvana’s prospects. The Great Moderation devolved into the Great Recession precipitated by one of the most devastating financial crises in U.S. history. The veneer of calm advertised over the prior years was stripped away. In its stead, economists had to concede that an era of benign monetary policy had encouraged malinvestment, the scourge that Austrian Ludwig von Mises warned of in the early 20th century. An overabundance of debt, if left unchecked, inevitably leads to the misallocation of resources. In the case of the first years of the 2000s, the target was, of course, the housing market.

The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive. It goes without saying that the heat of the financial crisis merited a monumental response on policymakers’ part. That said, the most glaring outgrowth has been politicians’ exploiting low interest rates to their benefit. While it’s conceivable that well-intentioned central bankers want no part in encouraging Congressional malfeasance, the fact remains that the lack of action on politicians’ part would not have been possible absent the Fed’s allowing Congress to abdicate its responsibilities to the manna of easy money.

Of course, we all appear to have been spoiled over the last 25 years. A funny thing happened when the Fed placed a floor under stock prices with assurances that investors’ pain and suffering would be mitigated – recessions faded from the norm. Over the past 25 years, the economy has contracted one-fourth as often as it did in the 25 years that preceded this benign era. Hence the illusion of prosperity, one that has rendered investors complacent to the point of being comatose. That’s what happens when entire industries are able to run with more capacity than demand validates simply because the credit to remain in operation is there for the taking. To take but one example, capacity utilization is at 78.1 percent, shy of the 30-year average of 79.6 percent some six years into the current recovery. The downside is that the cathartic cleansing that takes place when recession is allowed to play out all the way to the bitter end of a bankruptcy cycle never occurs – winners and losers alike stay in business.

The savvy fellows in the C-suites are not blind to reduced competitiveness. As such they are remiss to expand their core businesses too much, that is, until the time they can truly assess the operating environment in a post-easy money world. The tricky part is that the credit is still there for the taking. What’s to be done? In the words of one of the wisest owls on Wall Street, UBS’s Art Cashin, such environments raise the not-so-fine art of financial engineering to a “botox state”. It’s no secret that companies have been gorging themselves on share buybacks and mergers and acquisitions, non-productive but highly lucrative endeavors. When combined the results are magnificent – costs are cut, profits juiced and bonus season becomes the most wonderful time of the year.

The insult added to the economic injury is the players who are compelled to underwrite the not-so-virtuous cycle. Broken pension accounting and incentives continue to force the hands of the individuals tasked with allocating the portfolios underlying the nation’s $18 trillion in public pension obligations. One of the least discussed consequences of easy monetary policy is the damage wrought on the nation’s pension system. Not only have low interest rates compounded underfunded statuses, they have driven pension assets into riskier and less liquid investments than anything prudence would dictate. The catalyst is the perverse rate of return assumptions that are wholly disconnected from reality. Averaging 7.75 percent, these bogeys have forced allocations into credit plays, many of which are caged in the least liquid corners of the debt markets. The irony is that many pensions have sought to diversify away from their bloated equity holdings by seeking out what they perceive to be the traditional safe harbor of fixed income investments, much of which flows straight back into the stock market via debt-financed share buybacks and M&A.

All retirees’ security is thus at risk when the massive overvaluation in fixed income and equity markets eventually rights itself. Pension math, however, will forestall the day of reckoning in the financial markets given the demographic surge in retiring beneficiaries that require states and municipalities to top off pensions’ coffers. Pensions will thus dig themselves into a deeper grave than they would otherwise by buying the credit craze more time.

Meanwhile, would-be retirees who don’t have the safety of promised pensions continue to be punished by low interest rates. The past seven years have criminalized conservative cash savings. The Swiss Re report quantified what U.S. savers have lost in interest income at $470 billion, while debtors had an easier time. It’s no coincidence that the average 401k balance for a household nearing retirement will only cover two years based on the nation’s median income. Nor is it any wonder that the labor force participation rate for those aged 55 and older has increased by three percentage points over the past decade. If only they were all earning what they did in their prime years.

And the lesson to be learned when making ends meet is simply not feasible? That would be the tried and true economic offset, the magic behind the miracle of our consuming nation, which for too long now has been debt that pulls forward the demand that should have to wait. Despite the collapse in mortgages, overall household debt remains elevated; it isn’t that far below its pre-recession level, and households are now splurging on cars as lending standards have caved. Even credit card borrowing is making a comeback – the average household’s credit card balance of $7,177 is the highest in six years. Meanwhile, student debt is scaling record heights as families struggle to keep pace with the most egregious inflation plaguing household budgets, that of higher education.

As for the gravest sin of the QE era, in the fiscal year 2015, the U.S. government paid 1.8 percent on public debt. One would be hard pressed to identify any other debtor whose borrowing costs decrease despite its trebling in debt outstanding. Actually, that’s a privilege we need to protect. As for indemnifying the nation’s balance sheet, that opportunity has been squandered by spineless politicians who would rather maintain the veneer of scant deficits rather than extend the maturity of the nation’s debts. Our wise neighbors to the south recently issued a 100-year bond. Where, one must ask, is our leaders’ wisdom when we need it most?

Could it be that hiding behind the Fed’s largesse is the path of least resistance? It would certainly appear to be the case. All the while, the excesses in the financial markets continue to build unchecked. The time has long come and gone to abandon the model-driven decision framework that pushes the Fed into an ever-shrinking corner. It is high time central bankers acknowledge their complicity in enabling Congress to fiddle while the country burns. As was the case with the revelation that the Great Moderation was but a myth, it is crucial that our leaders retake the country’s reins thus also bringing to an end the deeply damaging era of The Great Abdication.

*  *  *

Well now we know who will not be invited to Jackson Hole any time soon...

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csmith's picture

Where has she been?

SWRichmond's picture

Stopped listening at about 2:30 when she started saying the Fed should have gone LONG..."look at [those smart people who issued] 100 year bonds."  Like the American people should be indentured for 100 year bonds?  Fuck you.  Talk about a giant intergenerational screw job, like the one we already have isn't bad enough.

Save_America1st's picture

EXACTLY!!!  And Mises is her hero???   Mises woulda slapped that bitch silly.  Sounds like she went out and got herself a publicist and is now being auditioned for a spot on one of the Biz channels.

Can't wait to hear Schiff tear her analysis and statements apart.

Temporalist's picture

Yes let's be like Great Britain and Mexico!  We can only aspire to be Japan.

Beam Me Up Scotty's picture

100 year bonds?  Hell why not go for the 1000 year or the million year bonds.  Push the debt so far out into the future, no one will be around to collect on it.  Then party like its 1999!!

Captain Debtcrash's picture
Captain Debtcrash (not verified) Alvin Fernald Jun 17, 2015 10:51 AM

Of course the fed members know it’s a sham.  They will not tell us the truth about what they are doing and thus we must look at the evidence and history to determine how they might react. If they want to call that being a conspiracy theorist, then I’ll wear that title proudly.

NoDebt's picture

They're all tough guys once they're no longer in a position to do anything about it any more.  But while they're in, they toe the Keynesian line and snap sharply to monetary attention like good little soldiers, all in a row.

PRO.223's picture

Did someone actually expect me to click to watch that idiot on MSNBC?

Ward cleaver's picture

Pro, when u r auditioning for a talking head position u can't turn down any channel. Hope she got Al "The Raisen" Sharpies autograph. Next stop the Bill Maher show and it's diversity of guests.

Silky Johnson's picture

I'd drop a load in her, that's about all she's worth.

TerminalDebt's picture

I came here for the woman in red, I was duped

Silky Johnson's picture

I'd drop a load in her, that's about all she's worth.

MonetaryApostate's picture

Gone are the days of fact based investigative journalism, replaced by the sensationalistic BS called the MSM, brought to us by robber barons inc., and if that's not enough to turn your stomachs, just watch all of the houdini acts the wealthy pull off when the going gets rough...  (E.g. Chair Hopping at the Corporate Mashups...)


This one's lost, time to leave....

Excursionist's picture

Somehow everyone is three degrees removed or less on LinkedIn, so I checked out her background just now...

We shouldn't be too hard on her.  Prior to advising at the Dallas Fed (whatever that means) she was a columnist for the Dallas Morning News.

Before that she was in sales at DLJ.  <yaaaaaaaaaawwwwwwwwwwwwwn>  Just another talking head with institutional gravitas behind her back.

Model T's picture
Model T (not verified) Excursionist Jun 17, 2015 11:42 PM

It means she gives good head and keeps the office secrets quiet.

Thecomingcollapse's picture

That very distant photo of the red dress was doing her favors, up close she looks butch and manly.... Shall we say rather Bruce Jenner-ish


EscapingProgress's picture

"The Fed's credibility itself is at stake..."

Oh, I thought the Fed lost all credibility in 1929.

Mat Cauthon's picture

Hells, Scientology has billion year servitude contracts.  And the Fed is nothing more than a bunch of bad economic professors worshipping at the foot of a dead man (Keynes).



Dovie'andi se tovya sagain (It's time to toss the dice)

Got Karatbars?

Oh regional Indian's picture

Yes, it seems eternal apparational riches via fraudulently obtained debtvantage is the future for all punctured sovereigns (as in wehrever the BIS holds sway on monetary policy)...

And seriously Japan....I don't knwo about Mexico that much, but long first had Japan experience.

The BOJ via F.E.D global connected yen carry siphon is going to have to clamp shut and start reversing sometime soonish. Japan cannot go on bloating for-ever....

But as we discovered lately, they will blow it via China...or perhaps Chindia...lot's of lemmings to scalp here yet......a master-stroke if they pull it off....

But anyways, yes, Debt addled, punch and other-wise drunk brits and japs and hombres are the leaders...

Heaven help the indebted...


The Wizard's picture

"she started saying the Fed should have gone LONG"

Exactly what I thought when she said 100 year debt instruments. Having a background in what the world calls "economics" I believe she is wrong about reliance on models. The problem is the type of models used in economics. The models do not reflect "reality" and are created based on Keynesian theory. Also, the models fail at calculating/considering manipulation of the markets. Rather than developing models of how human behavior is formed and executed, economists create models from ridiculous theories and try to make the real world behave accordingly. They along with the central bankster associates want to rule the world.

In one respect she is correct, this is the tale wagging the dog.

Chupacabra-322's picture

"What does it matter" - Killary War criminal Tresonist Clinton

It's a Criminal Fraud Global UNITED STATES,CORP. INC. system owned by criminals & run by criminals set to collapse all done by design, all done by agenda.

Why debate it any further? Why argue again & again over the same Political, Economic, Educational & Religious System all based on deception, lies & fraud?

Hope for the best,( sarcasm) expect & continue to prepare for the ultimate epic Collapse.

Public hangings to follow.

TheReplacement's picture

You missed the part about how well the domestic economy is doing with things like wage inflation...

Headbanger's picture

It's what I said here many times before.

The Feral Reserve has to save their own ass now

So they're going to raise rates no matter what and fuck the markets.

NoDebt's picture

You should talk to Doc Engali about that.  He might even take a sandwich bet against you on that point.  Ask me how I know.

Gambit's picture

Fine! I'll talk the bullet since no one wants to: How do you know debt?

ShorTed's picture

 Stay away from construction sites honey.

Dadburnitpa's picture

She's just a past-her-prime whore trying to make a buck.

Athemos's picture

This is a bait and switch.  No truth here.  They are making it sound like the Fed made a mistake.  There is no mistake here.  What is coming is EXACTLY what they wanted.

Zirpedge's picture

Athemos gets it. This is social engineering, c'mon it's on MSNBC for god sake! Present to the subjects an insider breaking out of their corrupt institution (Snowden) Give her a mouthful of half truths that glean over the core issues and then have her present the next phase of monetary expansion that was always the goal to set te hooks deeeper into your neofeudal order.  

Eireann go Brach's picture

How to become famous in 30 seconds or less! Tell all on the rats still on the ship!

Creepy A. Cracker's picture

Total click-bait photo.  Don't look too closely.

Arnold's picture

Linda Carter in her wonder woman years.

Carpenter1's picture

True whistleblowers don't live, much less get MSM airtime. 



The FED does not have your back anymore, expect an "accident" soon.



The FED is not made up of bumbling ivory tower types, it's run by the big banks. These decisons are planned in conjunction with the macro goals of the psycopath elites. This is why trusting the CB's to take care of you forever is a mistake. Psycopaths do what psycopaths do, they destroy shit. These ones are gearing up to destroy this system cause they want a more controlled one.


Imagine that; having total control of the monetary/financial system isn't enough for them. They want more.

SWRichmond's picture

Psycopaths do what psycopaths do, they destroy shit.

Yup.  For their own benefit, only.

JRobby's picture

warning that "The Fed's credibility itself is at stake... they have backed themselves into a very tight corner... the tightest ever."

Credibility is at stake? Really? I guess for the clueless (yet to be clued in). The FED exists to increase the wealth of it's members and those that really own the members, period! As far as the Fed Stocked Acedemia story goes......that one is 50+ years old now.

Throw that Money & Banking textbook on the fire on Xmas eve. You won't have any presents this year.

Veriton's picture

The banksters are having lots of "insiders" from lots of organizations come forward to tell the public "what's really going on." But what they're really doing is spinning a false narrative for public consumption. The Fed is no "academic ivory tower"; it is a wealth extraction mechanism run by the bankster families and their minions. The Fed knows exactly what they're doing, and it's all on purpose.

Here is a notable example:

Globalist shill Paul Craig Roberts and globalist octopus Goldman Sachs confirm bankster strategy for Greece
Carpenter1's picture

Damn dude! I'm really getting to like you. 


Listen to this guy, he knows of what he speaks. 

847328_3527's picture

"Quantitative Pleasing,"... mmm .. so size does matter?!

DuneCreature's picture

You got it.

The FED fraudsters and bankster buddies have a cadre of spin doctors that keep everyone debating all the wrong shit.

Hey, Carpenter1, I think you have a distraction bot hitting on you below. Don’t let ‘her’ alluring tone and all those ooohs and aaaahs fool ya. …. She’s only in it for her coder’s pay check.

~ DC

Implied Violins's picture

Hey, great to see you posting here. I've been leaving links to your pieces here and there. I've not seen a better overall explanation for what is going on than what you have proposed on your site. For anyone wondering about Veriton, click on the link and go through his archives. Lots of good verifiable background info there.

Oh, and kudos for exposing those Veteran's Today punks. Just saw that there was a falling-out among authors there, with Jim Fetzer starting his own website and linking to your 'expose's' of Gordon Duff and others! A nice feather in your cap for sure!

DuneCreature's picture

Yep, one of the best write-ups I’ve seen on this disinformation, mind man-nip, rule the narrative horse shit.

Watch the hands and follow the money (if possible) in both directions. Up and down the chain.

Lips? … Not so much.

~ DC

doctor10's picture

BINGO!!  The Greece asset-stripping project has been put into place to punish Greece for not extracting enough via taxation.


In most countries, the central bank asset stripping is dependent upon IRS reporting requirements which provide a road map to that countrys' and their citizens assets. Greece-and Italy-have never been very particular about compliance with their citizens' asset reporting requirments.  One of the reasons they were brought into the EU was to bring the full weight of Brussels down upon them.


Once the data is collected, targeted taxation and regulation provide the mechanisms to complete the asset stripping project. Just before the government legislature is to vote, the immigration gates are opened to quell the native opposition to being raped.


Lather, Rinse, Repeat until you're about as stripped as the USA is today.  They started the European project in 2000


The guys on the inside of each country making it happen are the ones that make out pretty well-besides the banking houses!




jcdenton's picture

"The Fed knows exactly what they're doing"

You think? Look what entity created it:

When the Superior General says print. You print ..


What's a game changer? When Texas establishes it own Fort Knox. (possibly at Fort Hood.)

500 metric tonnes is not a bad start. Considering that the Union, purporting to have ~2000 metric tonnes, more likely is scrapping by to produce 1 single metric tonne. (Sans Amb. Leo Wanta's claim to have his own personal stash of 2000 metric tonnes, on top of his purported (confirmed via a U.S. District Court) $31.2 trillion.

nevadan's picture

Wow!  An Austrian at the Fed.  Who'd a thunk it.

Veriton's picture

The development of Austrian Economics was fostered by the European royal families, then later by the Rockefellers. It is the economic theory underpinning the New World Order, and this woman is shilling for the NWO.

The coming BRICS gold standard, Ron Paul, and the Rockefellers Like it or not, here is more on the Rockefeller connection to Austrian economics