“By a continuing process of inflation, government can confiscate, secretly an unobserved, an important part of the wealth of their citizens” – John Maynard Keynes
In human experience, “the system” has always served those at the top, those with power, wealth, prestige … those at the top of the system. Sure, there have been times when systems changed (e.g., American Revolution, or Bolshevik Revolution). But, eventually, the system turns to serve its new masters.
Today the global financial system serves the wealthy banking class and the wealthy political class (and all their hangers-on). The mode by which the system transfers wealth from the working class to these masters is the fiat currency. Central banks print money, stuff it in the pocket of their friends (in the system) and tell us all that they are doing God’s work (liars! … well, perhaps they tell the truth, but they serve a different god).
We’ve certainly harped on central banking, and a Biblical opposition to it, before:
- “Just Weights and Measures … and Money“
- “Wolves Guarding the Bankhouse“
- “Bernanke Prints On“
- “Federal Reserve Dangerously Close to Needing New Statistics“
In the last one we note that the Federal Reserve will justify printing until its hand is forced somehow. In the early 2000s they justified printing (or artificially low interest rates) based on the need to help the economy in the wake of the dot-com bust. They only stopped when the general public finally capitulated and agreed that, indeed, good times were here to stay and housing would never decline. The Fed tried in vain to slow things down a bit, but bubbles don’t deflate, they pop.
Nowadays they justify printing to help the economic recovery. Of course, the statistics they typically quote are inflation and unemployment rate. As we touched on in “New Statistics” above, the Fed uses the least useful definition inflation (i.e., prices for things I don’t buy). I can tell you that the price of food is up big time (as the father of four boys) … but this doesn’t count in “core” inflation.
As for unemployment, everybody knows it’s a flawed statistic. It only measures the number of people who want “a job” but don’t have one and are currently looking. The headline number then doesn’t include people who have stopped looking for a job, but still want one. Further, it doesn’t include people who have settled for a bad job because there are no good jobs to be had. Both of these weaknesses are in play today. Obamacare has led to a surge in part-time employment as employers dump full-time jobs in favor of tax savings (more jobs = lower unemployment). Further, Congress has recently cut off long-term unemployment benefits (good for them), and history shows that quite a few of these people will drop out of the work force instead of continuing to look. The latest jobs report showed 800,000 people dropping out of the workforce, and the lowest participation rate since 1978.
So here you have Yellen’s difficult situation. Prices are up on things that working folks buy. The employment situation is not great, with people dropping out of the workforce or working bad jobs to make ends meet. But, the justification for more printing (e.g. unemployment above 6.5%) is fading (unemployment is now at 6.3% … and Kyle Bass suggests it will get as low as 5.5% by this summer – see video here).
She faces a tough choice – well, a tough choice for a central banker anyway. Does she find a cover story to print more, which she wants to do (either because she believes it will help the economy or because she wants to stuff more money into the pockets of the banking cabal)? Or does she deliver the tough news that the party is over, the Quantitative Easing (QE) taper will continue, and rates will eventually rise?
We’ll look for clues in her testimony to congress today. Needless to say things are on a razor’s edge. Continue down the QE taper road (which I prefer, as a Christian who doesn’t want to see the working people destroyed by greater central banking graft) and the stock market could throw a tantrum. Threaten reintroduce full-force and the bond market could throw a tantrum … after it front-runs the trade, of course. And that doesn’t even bring into account the fit that Congress will pitch if they cannot borrow money on the cheap to continue their massive deficits.
One thing we can count on though: the common man does not enter the calculus here. What’s “best” is what’s best for the system.
Ball’s in your court, Ms. Yellen … good luck.