An Open Letter To The Fed's William Dudley

Authored by MN Gordon via,

Dear Mr. Dudley,

Your recent remarks in the wake of last week’s FOMC statement were notably unhelpful.

In particular, your excuses for further rate hikes to prevent crashing unemployment and rising inflation stunk of rotten eggs.

Crashing Unemployment

Quite frankly, crashing unemployment is a construct that’s new to popular economic discourse, and a suspect one at that.

Years ago, prior to the nirvana of globalization, the potential for wage inflation stemming from full employment was the going concern.  Now that the official unemployment rate’s just 4.3 percent, and wages are still down in the dumps, it appears the Fed has fabricated a new bugaboo to rally around.  What to make of it?

For starters, the Fed’s unconventional monetary policy has successfully pushed the financial order completely out of the economy’s orbit.  The once impossible is now commonplace.

For example, the absurdity of negative interest rates was unfathomable until very recently. But that was before years of central bank asset purchases made this a reality.

Perhaps, the imminent danger of crashing unemployment will give way to the impossibility of negative unemployment.  Crazy things can happen, you know, especially considering the design limitations of the Bureau of Labor Statistics’ birth-death model.

Secondly, muddying up the Fed’s message with inane nonsense like crashing unemployment severely diminishes the Fed’s goal of providing transparent communication.  In short, Fed communication has regressed from backassward to assbackward.

During the halcyon days of Alan Greenspan’s Goldilocks economy, for instance, the Fed regularly used jawboning as a tactic to manage inflation expectations.  Through smiling teeth Greenspan would talk out of the side of his neck.  He’d jawbone down inflation expectations while cutting rates.

Certainly, a lot has changed over the years.  So, too, the Fed seems to have reversed its jawboning tactic.  By all accounts, including your Monday remarks, the Fed is now jawboning up inflation expectations while raising rates.

Congratulations and Thank You!

History will prove this policy tactic to be a complete fiasco.  But at least the Fed is consistent in one respect.  The Fed has a consistent record of getting everything dead wrong.

If you recall, on January 10, 2008, a full month after the onset of the Great Recession, Fed Chair Ben Bernanke stated that “The Federal Reserve is not currently forecasting a recession.”  Granted, a recession is generally identified by two successive quarters of declining GDP; so, you don’t technically know you’re in a recession until after it is underway.  But, come on, what good is a forecast if it can’t discern a recession when you’re in the midst of one?

Bernanke’s quote ranks up there in sheer idiocy with Irving Fisher’s public declaration in October 1929, on the eve of the 1929 stock market crash and onset of the Great Depression, that “Stock prices have reached what looks like a permanently high plateau.”  By the month’s end the stock market had crashed and crashed again, never to return to its prior highs in Fisher’s lifetime.

To be fair, Fisher wasn’t a Fed man.  However, he was a dyed-in-the-wool central planner cut from the same cloth.  Moreover, it is bloopers like these from the supposed experts like Bernanke and Fisher that make life so amiably pleasurable.  Do you agree?

Hence, Mr. Dudley, words of congratulations are in order!  Because on Monday you added what’ll most definitely be a sidesplitting quote to the annals of economic banter:

“I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go.  This is actually a pretty good place to be.” – William Dudley, June 19, 2017

Thank you, sir, for your shrewd insights.  They’ll offer up countless laughs through the many dreary years ahead.

Too Little, Too Late

When it comes down to it, your excuses for raising rates are not about some unfounded fear of a crashing unemployment rate.  Nor are they about controlling price inflation.  These are mere cover for past mistakes.

The esteemed James Rickards, in an article titled The Fed’s Road Ahead, recently boiled present Fed policy down to its very core:

“Now we’re at a very delicate point, because the Fed missed the opportunity to raise rates five years ago.  They’re trying to play catch-up, and yesterday’s [June 14] was the third rate hike in six months.


“Economic research shows that in a recession, they [the Fed] have to cut interest rates 300 basis points or more, or 3 percent, to lift the economy out of recession.  I’m not saying we are in a recession now, although we’re probably close.


“But if a recession arrives a few months or even a year from now, how is the Fed going to cut rates 3 percent if they’re only at 1.25 percent?


“The answer is, they can’t.


“So the Fed’s desperately trying to raise interest rates up to 300 basis points, or 3 percent, before the next recession, so they have room to start cutting again.  In other words, they are raising rates so they can cut them.”

Unfortunately, Mr. Dudley, the Fed miscalculated.  Efforts to now raise rates will be too little, too late.  To be clear, there ain’t a snowball’s chance in hell the Fed will get the federal funds rate up to 3 percent before the next recession.  You likely won’t even get it up to 2 percent.

Nonetheless, you should stay the course.  If you’re gonna raise rates, then raise rates.  Don’t cut them.  Raise them.  Then raise them some more.

Crash stocks.  Crash bonds.  Crash real estate.  Crush asset prices.  Purge the debt and speculative excesses from financial markets.

Let marginal businesses go broke.  Let too big to fail banks, fail.  You can even consult with Dick “The Gorilla” Fuld, if needed.  Then let nature do its work.

In essence, bring the paper money experiment to a close and shutter the doors of the Federal Reserve.  No doubt, the economy and millions of people will suffer a painful multi-decade restructuring.  But what choice is there, really?

Let’s face it.  The Fed can’t hold the financial order together much longer anyway.  Why pretend you can with utter nonsense like crashing unemployment?  It’s insulting.

Your credibility’s shot.  Better to get on with it now, before it’s forced upon you.

P.S.  What’s up with Neel Kashkari?  The man has gone rogue.


Cordeezy (not verified) Sat, 06/24/2017 - 18:49 Permalink

Are we proposing the fed never raise rates?  I think then Fed just has no idea what it is doing.  It is only raising rates so that when the economy goes south they can bring the rates back down to 0. 

Paul Kersey Croesus Sat, 06/24/2017 - 19:16 Permalink

What's the point of sending a Dear Santa letter to Dudley, a guy who spent 21 years at Goldman Sachs, the last ten of those as the Vampire Squid's chief economist (right up until the 2008 crash, orchestrated by the Goldmanites)? He want to work at the FRBNY to keep Goldman Sachs from imploding.

In reply to by Croesus

el buitre J J Pettigrew Sun, 06/25/2017 - 10:08 Permalink

To evaluate the Squid, you have to look at the planet's (apparent) financial rulers, not just the USSA, but starting with Goldman Sucks and satanic Skull and Bones frat brother Munchkin.  He was in charge of Goldman's IT computer rigging of all the world's markets.   Or perhaps with Prince Draghi, BoE Carney (what a great name for a central bank fürher), and the list of hits goes on.  Strangely enough, our favorite dual citizen Zionist, born in Zambia, and former president of the central Bank of Israel who then moved to the dog from the tail that wags it,  and now the real head of the Fed behind the Pillsbury Doughgirl, Stanley Fischer, jumped right into academia and government, and never earned his epaulets at the Squid.

In reply to by J J Pettigrew

fattail Iconoclast421 Sun, 06/25/2017 - 09:07 Permalink

In essence, bring the paper money experiment to a close and shutter the doors of the Federal Reserve.  No doubt, the economy and millions of people will suffer a painful multi-decade restructuring.  But what choice is there, really? The choice is war, silly.  Then yuge deficits, followed by ZIRP, then QE4.  The paper money experiment is not going to end, it will be extended, and they will pretend that they are doing something to save the little people on main street.  Really they will just be buying up more assets on the cheap with printed money.  Rinse. Repeat.

In reply to by Iconoclast421

Swamp Yankee Sat, 06/24/2017 - 18:53 Permalink

CLub FED has run out of leaver to pull and buttons to push. Take my advice: stop worrying, get a a lawn chair, a pack of wieners and a looooooooooong stick. May as well enjoy the firepile! Long on mushies.

ebworthen Sat, 06/24/2017 - 19:00 Permalink

"Dear Mr. Gordon,Thank you for your letter.When the purpose of the Federal Reserve is to crush the middle-class and debase the value of a person's labor - why would we be concerned about rationality, transparency, or credibility?Warm Regards,Mr. Dudley"

Let it Go Sat, 06/24/2017 - 19:02 Permalink

 A series of what would have at one time been considered outlandish  ideas, such as a war on cash, forgiving debt through a debt jubilee, giving everyone a guaranteed income, and even injecting money into the economic system by dropping it from a helicopter have all found their way into conversations about ways to jump start the economy. This should be a reason for concern.An example of just how delusional we have become as to the fragility of our financial system is that many people have taken comfort in the efforts to control the banking sector through legislation following the 2008 crisis. The Dodd Frank Act of over 2,300 pages and still growing, is the longest and most complicated bill ever passed by the U.S. legislature. The article below makes a case that claims of economic stability are just an illusion.

illuminatus (not verified) Sat, 06/24/2017 - 19:17 Permalink

Sometime I think there are only a few of us here that think the FED know exactly what they are doing and their dual mandate has little to do with it. Somehow I also think that people who think that the FED are stupid are more than naive.  For one thing, all you people that think the FED are stupid should consider that they managed to capture the right to manufacture money, and that is just the tip of the iceberg.  

el buitre illuminatus (not verified) Sun, 06/25/2017 - 10:24 Permalink

Exactly, one of the first rules in Sun Tzu's Art of War (written 24 centuries ago) is to convince the opposing general that you are a fucking moron.  Works every time.  Of course the Fed, or rather the people who give it orders, know exactly what they are doing.  This doesn't mean that they are necessarily going to win the great neofeudal world lockdown battle though.  One of humanity's greatest assets is its unpredictability, even for the quantum, multidimensional AI.

In reply to by illuminatus (not verified)

BuckWild Sat, 06/24/2017 - 19:41 Permalink"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.Alan GreenSpan 1966 The federal reserve is an insidious process designed for the confiscation of wealth through inflation and deflation!

PrometeyBezkrilov Sat, 06/24/2017 - 19:35 Permalink

"The Fed has a consistent record of getting everything dead wrong."Who said it is wrong? It benefits the oligarchy, hence it is right for the ruling elite. It means the Fed has a consistent record of getting things right-hence the rich get rucher and get more control and the poor get poorer and have less control over their lifes.

two hoots Sat, 06/24/2017 - 19:39 Permalink

The Fed is for the Fed, Dems for Dems, Repubs for Repubs and the people are something they must all pretend to give a damn about and occassionally pet.  Don't get your expectaltions too high.   Why do these Fed people give talks anyway, rhetorical?

decentraliseds… (not verified) Sat, 06/24/2017 - 21:59 Permalink

 Why waste time on this alligator when the swamp’s most critical economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their dominant military force resides. The US Constitution is therefore the “kingpin” of an all-inclusive global financial empire. These fictitious entities now own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation, regulatory capture, MSM propaganda, and congressional lobbying. The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual states, smaller sovereign nations, and eventually to buy out the USA itself. The only way The People can regain our sovereignty as a constitutional republic now is to severely curtail the privileges of any corporation doing business here. To remain sovereign we have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't afford to privatize our Treasury to transnational banks anymore. Government must be held responsible only to the electorate, not fictitious entities; and banks must be held responsible to the government if we are ever to restore sanity, much less prosperity, to the world. It was a loophole in our Constitution that allowed corporate charters to be so easily obtained that a swamp of corruption inevitably flooded our entire economic system. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 option to do this, for which the electorate will need overwhelming consensus beforehand. Seriously; an Article 5 Constitutional Convention is rapidly becoming our only sensible option. This is what I think it will take to save the world; and nobody gets hurt: 28th Amendment: Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to: 1, prohibitions against any corporation; a, owning another corporation; b, becoming economically indispensable or monopolistic; or c, otherwise distorting the general economy; 2, prohibitions against any form of interference in the affairs of; a, government, b, education, c, news media; or d, healthcare, and 3, provisions for; a, the auditing of standardized, current, and transparent account books; b, the establishment of state and municipal banking; and c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.    

bjax Sun, 06/25/2017 - 07:59 Permalink

Has anyone noticed that how ever many people vent thier spleen about the Fed, nothing changes? Nearly ten years since the collapse, and here they are doing the same thing over and over again. Lying, cheating and stealing their way into the future year after year. Words are no longer enough to change the course of history in my opinion, if you get my drift. While people are fed ' no pun intended ' , they are complacent, once they get hungry they hit the streets, but not before. So for the moment, same shit different day.

Last of the Mi… Sun, 06/25/2017 - 10:51 Permalink

I actually think the Fed can hold things together quite a while, if not forever, much to the detriment of our economy, but I think they can do it. We're at a backwardation point already where the more the Fed does, the worse it gets on Main St and I think the Fed is slowly waking up to that, or at least aware the point is showing up more and more in criticisms of the Fed.

KingTut Last of the Mi… Sun, 06/25/2017 - 16:22 Permalink

As more an more things go into the danger zone, it's like the fed has to juggle more and more balls.  The harder it gets, the more likely they'll drop one, and that will set off a cascade.We have autos, student loans, high-end real estate, commercial real estate, retail, Illinois, pension funds, and baby boomers starting to liquidate instead of invest.  That's already too many balls.Read "Fed Up", and you'll realize the fed is totally clueless.  It run by a bunch PhD academics who couldn't run a lemonaide stand, let alone an economy.  There's no secret agenda there, unless you think Dynamic Stochastic General Equilibirum is a secert agenda.

In reply to by Last of the Mi…

surf@jm Mon, 06/26/2017 - 11:06 Permalink

Well, the only obvious solution, is to anoint Hillary as POTUS, and then the FED will have the real signal, that only really matters to them, as far as FED policy..........Whether the POTUS has a political party D or R before their name.......