The Fed & "The Grandest Con Job In The History Of The World"

Submitted by Thad Beversdorf via First Rebuttal blog,

I used to get a kick out of the cute little children waiting for the Fed Chair to come and deliver presents or coal.  So giddy and excited from the anticipation of not knowing who Janet thinks were good boys and girls.  Who’s going to be rewarded and who disappointed?  And I don’t know how many people asked me today what the Fed will do.  My answer was “The same f@#*ing thing they always do, nothing.  So stop asking”.

You see if you read some of Stanley Fischer’s early work on the rational expectation model you find that the key to fixing the lack of long term effectiveness to monetary policy is by confusing the working man. The idea being, people will act rationally with the information they are provided and so what typically happens is that people change their behaviour which counters the impact of the policy being implemented.  The solution is to keep us guessing.  And so what they have done for essentially every meeting is nothing.

However, they use the media to talk about all the things they just might do.  And the pundits on television go on and on about all the things that might happen and what the follow on implications will be given those alternatives and then the moment comes and ahhh nothing, damn they fooled me again!  I really thought this time was it gosh golly dang it!.  I guess it was just that this or that was just slightly out of place otherwise they said they were totally gonna do this or that.  So close, but ultimately they are right.  Yep they made the right choice based on all the variables.  They are just swell.

At this point, I just get annoyed with the ridiculous foolishness of people.  We’ve got to start using our own brains.  The Fed stopped using any benchmarks because while the benchmarks were improving, the economy wasn’t and isn’t.  And so they were being railroaded by the transparency that benchmarks provide.  And now it is just a black box of various indicators that will be analyzed in real time to form justifiable actions, far too complex for you and I but trust them that there is a definite method and it’s very quantifiable at that, they just can’t tell us what it is because it would just confuse everyone.

Does anyone really not get it??  I mean I was under the impression that the pundits on television were just acting for the sake of good drama.  Is that not the case?  Are people really still confused by what’s happening in the market and broader economy?  It’s been 6 years of the absolute same bullshit.  How could anyone not clearly understand exactly what is behind the action or non action of the Fed???  Come on people wake up.  Take a deep breath, grab some coffee, do whatever you need to do but please wake the hell up.

The economy is a wreck.  Debt to GDP is at even higher all time record highs than the stock market.  Demand is absolutely dead except for the flooding of debt that continues to bury the average consumer.  None of that equates to economic growth.  It’s just cash flowing today rather than tomorrow.  And so there can be no rate hike.  Not for, well ever.  Perhaps in 2 years we see a token quarter point to make it seem like we’re not completely dead but we are.  Our economy is dead.  You take away the increases to household debt and you have negative GDP.  If you want to keep it in the calculation well then you have to take it out of your forecasts because you can’t count those purchases twice.  And what you buy today with money you don’t have means money you do have in the future will not be available to buy anything.  Is that clear to all?

I might sound a bit frustrated but I am frustrated.  It’s one thing to throw your hands up and say I get the system is a complete sham but I just don’t have a solution.  But please do not sit there and pretend that there are any market forces behind the financial markets other than the Fed.  And please do not pretend that the current policies are expected to generate economic growth.  But please do acknowledge that you understand what is happening here.  If you don’t, well then take a giant step back and have a good look around.   For what is happening is the grandest con job in the history of the world, bigger than the Trojan Horse by at least a few hands.  There is no coming economic growth.  That jump in GDP that they’ve been promising each quarter for 20 quarters now is not coming.  In fact, it only gets worse from here.

And those all time highs in the stock market, well until you cash out, those remain unrealized and I would suggest cashing out.  The reality is the powers that be are out of the market and preparing for a big sweeping transfer of wealth from all those little retirees and soon to be retirees out there that believe the market is no longer a risky asset. Their assets will be picked up for pennies on the dollar.  The point is folks play along for the entertainment of it.  Play along because it’s tradition.  But don’t play along because you think the market is still some random response to fundamental supply and demand relationship. 

The market has not been a function of fundamentals for some time now and is not reacting to them in any way, shape or form.  To wrap this up I think it’s fine to play make believe with the magical Fed Chair and wish upon a star that she will pick you the winner today.  But do it with your eyes open.  Like Christmas, I still enjoy playing along with the kids regarding Santa, but I’m not putting my hopes, dreams and future on him.  Make sense?