J anet
Yellen and her Federal Reserve board of augurers might as well have spilled a
bucket of goat entrails down the steps of the mysterious Eccles Building as
they parsed, sliced, and diced the ramifications in altering their prior
declaration of “a considerable period” (that is, before raising interest
rates), vis-à-vis the simpler new imperative, “patience,” with its moral
overburden of public censure aimed at those too eager for clarity — that is
to say, the assurance that the Fed will not pull the plug on their
life-support drip of funny money for the racketeering operation that banking
has become.
The
vapid pronouncement of “patience” provoked delirium in the markets, with
record advances to new oxygen-thin heights. Behind all this ceremonial
hugger-mugger lurks the dark suspicion that the Federal Reserve has no idea
what’s actually going on, and no idea what it’s doing. And in the absence of
any such ideas, Ms. Yellen and her collegial eminences have engineered a very
elaborate rationale for doing nothing.
The
truth is, they have already done enough. They have succeeded via their
dial-tweaking interventions in destroying the agency of markets so that
nobody can tell the difference anymore between prices and wishes.
Coincidentally, it is that most wishful time of the year, especially among
the professional money managers polishing their clients’ portfolios as the
carols are sung and the champagne corks pop. Ms. Yellen should have put on a
Santa Claus suit when she ventured out to meet the media last week.
Not
even very far in the background, there is wreckage everywhere as events spin
out of the pretense of control. Surely something is up in the Mordor of
derivatives, that unregulated shadowland of counterparty subterfuge where
promises are made with no possibility or intention of ever being kept. You
can’t have currencies crashing in more than a handful of significant
countries, and interest rates ululating, without a lot of slippage among the
swaps. My guess is that a lot of things have busted wide open there, and we
just don’t know about it yet, like fissures working deep below the surface
around a caldera.
This
Federal Reserve is running on the final fumes of its credibility. Counsel
“patience” as it might, other institutions and the people running them may
run out of patience with it and start running for cover. When currencies
catch fire, even a run on the bank becomes an exercise in futility. The rot
is spreading from the margins to the center. In a world of oxidizing paper
obligations, the paper dollar is hardly a fortress but more like a stack of
empty foil-wrapped boxes displayed in the concourse of a shopping mall
scheduled for closure as soon as the holiday is concluded. Maybe some
wise-ass kid will just torch it. The security guard is still awaiting his
previous paycheck and is out drinking by the dumpster.
It will
be at least a couple of months before the Fed dares to start “printing” again
and a lot can happen before it does. If and when it does resume QE — and it
will be sorely tempted — all its credibility will finally be lost. What an
opportunity for another country, say a country with an already foundering
currency, to dare introduce money partially backed by gold. Could happen.
That hypothetical nation may be one with, say, substantial oil reserves,
something that even an economically depressed global industrial economy
desperately needs. That hypothetical nation may be one that is very weary of
being jerked around by the USA, with our augerers and vizeers, and
haircuts-in-search-of-brains.
Merry
Christmas everyone and, this dwindling year, be especially careful what you
wish for.
