T he money-moving world waits on tenterhooks for the Wednesday appearance
of America’s oracle, Janet Yellen, to step out of her grotto and state
whether or not she feels twinges of patience. Wikipedia notes that
Pythia, the original priestess of Delphi “…delivered oracles in a frenzied
state induced by vapors rising from a chasm in the rock, and that she spoke
gibberish which priests interpreted as the enigmatic prophecies preserved in
Greek literature.” Some things never change.
Patience for what? Well, whether to raise the Federal Reserve’s benchmark
short-term interest rate from near-zero to something microscopically above
zero. This is what the world foolishly turns on. And, of course, also some
oracular hint as to whether this momentous move might occur in April, June,
September, or not at all.
Some canny observers of the vaudeville that US money policy has become —
namely, Jim Rickards, David Stockman, Peter Schiff — maintain that Yellen and
her Fed are boxed in and can really do nothing. Their policies and
interventions regarding the flows of capital have done nothing so far but
disable the normal operations of markets and distort the valuation of
everything, especially the cost of renting money itself — for that is what
happens when you take out a loan. The net result of all that is a financial
picture that no longer reflects anything truthful about the actual economy,
being a trade in goods and services.
The transparent truthlessness of the Fed’s basic premises go far to
explain the chasm between official policy and reality — though it does not
explain the appetite for plain lying of the supposedly informed minority
cohort of the public, the deciders among us in business, politics,
and media. For instance, the employment numbers that came out of the federal
government ten days ago saying that the jobless rate is just over 5 percent.
Everybody not in a special ed class in America knows that this is a barefaced
lie. But nobody except a few mavericks on the web (see above) object to it.
Lesser official oracles such as The New York Times and the Wall
Street Journal report the lie without reservation and it gets absorbed
into the body politic like any other morsel of protoplasm into the mindless
amoeba that America has become.
So far, the Fed has tried to merely chatter about the possibility of
raising rates as a substitute for actually doing anything. That’s because
anything more than a gesture of raising rates will blow up the lucrative
carry trade arbitrage enjoyed by the banks that hold the Fed (and everybody
else) hostage, as well as the artificially inflated stock markets, and the US
government’s ability to service its debt. That’s a lot to blow up. The
wondrous levitating S & P index is the Fed’s substitute for reality.
While the public’s attention is diverted to that ongoing marvel, they fail to
see the appalling instability in currencies around the world, or the
booby-traps laid in bond markets everywhere, or the devastation thundering through
the oil industry, and the collapse of global trade relations that Tom
Friedman said would last forever.
I’m sure that on Wednesday Janet Yellen will make a big show of surgically
removing the word patience from the Fed’s so-called “guidance.” I’m
inclined to predict that the Fed will make a gesture of raising the benchmark
interest rate by 25 basis points or 25 measly hundredths of a percent. That
will be as far as they dare go. They will make this lame gesture in the face
of gales of bad news about what is really going on in a disintegrating global
banking system, and also the devastation in real economic activity. Within a
matter of weeks the oracle will step back out of her grotto and not only
revoke the benchmark interest rate rise, but announce Quantitative Easing 4
in order to attempt to reflate the nation, gasping like a dying grunion on
Redondo Beach. By then, the Fed will be completely out of cred. This will be
the biggest disaster of all, since the loss of faith in august institutions
will rage through every polity in the advanced economies. Nobody will believe
any longer in anything they say or do, and especially the value of the papers
(or digits) they denominate as money.
