No Janet Yellen, The Economy Is NOT “Getting Better”

Janet YellenOn Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that “the economic recovery gained greater traction in the second half of last year” and that “substantial progress has been made in restoring the economy to health”.  This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: “Yellen: Economy is improving at moderate pace“.  Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them.  But it isn’t the truth.  As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.  And when the next great economic crisis does strike, most Americans will be completely and totally unprepared because they trusted our “leaders” when they told us that everything would be just fine.

It is amazing how deceived people can be.  Just consider the case of 56-year-old Brian Perry.  He is a former law clerk that has applied for nearly 1,500 jobs since 2008 without any success.  But he says that he is “optimistic” that he will get another job soon because he believes that the economy is recovering

By his own count, Brian Perry has applied for nearly 1,500 jobs since being let go as a law clerk in 2008. The 56-year old Perry lives in Rhode Island, where the 9.1 percent unemployment rate is 2.5 percentage points above the national average.

Perry remains optimistic that a job is forthcoming. He thinks a more robust economy would create better opportunities for the long-term unemployed like him.

Let us certainly hope that Perry does find a new job soon.  But if he does, it won’t be because we are experiencing an “economic recovery”.  Just consider the following facts…

-In January, we were told that the U.S. economy “created” 113,000 new jobs.  But that figure was arrived at only after adding a massive seasonal adjustment.  In reality, the U.S. economy actually lost 2.87 million jobs in January.  During the past decade, the only time the U.S. economy has lost more jobs in January was during 2009.  At that time, the U.S. economy was suffering through the peak of the worst economic downturn since the Great Depression.

-Prominent retailers are closing hundreds of stores all over the United States.  Things have gotten so bad that some are calling this a “retail apocalypse“…

  • JC Penney, which lost $586 million in three months in 2013, is planning to close 33 stores in 19 states and lay off 2,000 people. JC Penney’s stock has lost 84 percent of its value since February 2012.
  • Sears has decided to shut down its flagship store in Downtown Chicago, and it has closed 300 stores in the United States since 2010. Stock analyst Brian Sozzi noted that Sear’s inventory levels have fallen by 23.7 percent since 2006. He also noted that Sears had $4.4 billion in cash and equivalents in 2005 but $609 million in cash and equivalents in 2012. Sozzi, who calls himself a guerrilla analyst, has a blog full of disturbing pictures of empty Sears stores.
  • Macy’s, one of the few retail success stories, is planning to close five stores and eliminate 2,500 jobs.
  • Radio Shack is preparing to close 500 stores, according to The Wall Street Journal.
  • Best Buy recently closed 50 stores and eliminated 950 jobs at stores in Canada.
  • Target announced plans to eliminate 475 jobs and not fill 700 empty positions to reduce costs.
  • Aeropostale is planning to close 175 stores.
  • Blockbuster has closed down all of its stores.

-McDonald’s is reporting that sales at established U.S. locations were down 3.3 percent in January.

-In January, real disposable income in the U.S. experienced the largest year over year decline that we have seen since 1974.

-As I wrote about the other day, the number of “planned job cuts” in January was 12 percent higher than 12 months earlier, and it was actually 47 percent higher than in December.

-Only 35 percent of all Americans say that they are better off financially than they were a year ago.

-What is happening to the U.S. stock market right now very closely resembles what happened to the U.S. stock market just before the horrific stock market crash of 1929.  Just check out the chart in this article.

For dozens more statistics that show that the U.S. economy is not improving, please see this article and this article.

Meanwhile, things continue to unravel all around the rest of the globe as well.

In previous articles, I have detailed how the reckless money printing by the Federal Reserve has inflated massive financial bubbles in emerging markets all over the planet.  Now that the Fed is “tapering”, those bubbles are starting to burst and we are witnessing a tremendous amount of economic chaos.  Here are three more examples…

#1 Ghana:

Ghanaian Economist Dr. Theo Richardson says Ghana’s economy will crash by June this year if the Bank of Ghana continues with its kneejerk measures to rescue the cedi.

“The government is facing liquidity problems and if we don’t get the appropriate remedies to address the issues at hand the situation may worsen and by June the economy may crash,” Dr. Richardson said.

#2 Kazakhstan:

With only $24.5 billion left in FX reserves after valiantly defending major capital outflows since the Fed’s Taper announcement, the Kazakhstan central bank has devalued the currency (Tenge) by 19% – its largest adjustment since 2009. At 185 KZT to the USD, this is the weakest the currency has ever been as the central bank cites weakness in the Russian Ruble and “speculation” against its currency as drivers of the outflows (which will be “exhausted” by this devaluation according to the bank). The new level will improve the country’s competitiveness (they are potassium heavy) but one wonders whether, unless Yellen folds whether it will help the outflows at all.

#3 India:

In the wake of a global stock market sell-off driven by worries over slower growth in emerging markets, the head of India’s central bank, Raghuram Rajan, criticized the U.S. Federal Reserve as it pressed on with plans to dial back its monthly bond purchases: “International monetary co-operation has broken down,” said Rajan, who added that “the U.S. should worry about the effects of its polices on the rest of the world.”

We have reached a “turning point” for the global financial system.  Things are beginning to fall apart both in the United States and all around the world.

But at least the dogs at the White House are eating well.  Just consider the following photo that was recently tweeted by Michelle Obama

Dogs In The White House

The Federal Reserve Is Monetizing A Staggering Amount Of U.S. Government Debt

Federal Reserve Balance SheetThe Federal Reserve is creating hundreds of billions of dollars out of thin air and using that money to buy U.S. government debt and mortgage-backed securities and take them out of circulation.  Since the middle of 2008, these purchases have caused the Fed’s balance sheet to balloon from under a trillion dollars to nearly four trillion dollars.  This represents the greatest central bank intervention in the history of the planet, and Janet Yellen says that she does not anticipate that it will end any time soon because “the recovery is still fragile”.  Of course, as I showed the other day, the truth is that quantitative easing has done essentially nothing for the average person on the street.  But what QE has done is that it has sent stocks soaring to record highs.  Unfortunately, this stock market bubble is completely and totally divorced from economic reality, and when the easy money is taken away the bubble will collapse.  Just look at what happened a few months ago when Ben Bernanke suggested that the Fed may begin to “taper” the amount of quantitative easing that it was doing.  The mere suggestion that the flow of easy money would start to slow down a little bit was enough to send the market into deep convulsions.  This is why the Federal Reserve cannot stop monetizing debt.  The moment the Fed stops, it could throw our financial markets into a crisis even worse than what we saw back in 2008.

The problems that plagued our financial system back in 2008 have never been fixed.  They have just been papered over temporarily by trillions of easy dollars from the Federal Reserve.  All of this easy money is keeping stocks artificially high and interest rates artificially low.

Right now, the Federal Reserve is buying approximately 85 billion dollars worth of U.S. government debt and mortgage-backed securities each month.  We are told that the portion going to buy U.S. government debt each month is approximately 45 billion dollars, but who knows what the Fed is actually doing behind the scenes.  In any event, by creating money out of thin air and using it to remove U.S. Treasury securities out of circulation, the Federal Reserve is essentially monetizing U.S. government debt at a staggering rate.

But Federal Reserve officials continue to repeatedly deny that what they are doing is monetizing debt.   For instance, Federal Reserve Bank of Atlanta President Dennis Lockhart strongly denied this back in April: “I object to the view that the Fed is monetizing the debt”.

How in the world can Fed officials possibly deny that they are monetizing the debt?

Well, because the Fed is promising that it is going to eventually sell back all of the securities that it is currently buying.

Since the Fed does not plan to keep all of this government debt on its balance sheet indefinitely, that means that they are not actually monetizing it according to their twisted logic.

Try not to laugh.

And of course that will never, ever happen.  There is no possible way that the Fed will ever be able to stop recklessly creating money and then turn around and sell off 3 trillion dollars worth of government debt and mortgage-backed securities that it has accumulated since 2008.  Just look at the chart posted below.  Does this look like something that the Federal Reserve will ever be able to “unwind”?…

Federal Reserve Balance Sheet

Remember, just the suggestion that the Fed would begin to slow down the pace of this buying spree a little bit was enough to send the financial markets into panic mode a few months ago.

If the Fed does decide to permanently stop quantitative easing at some point, stocks will drop dramatically and interest rates will skyrocket because there will be a lot less demand for U.S. Treasuries.  In fact, interest rates have already risen substantially over the past few months even though quantitative easing is still running.

Right now, the Fed is supplying a tremendous amount of the demand for U.S. debt securities in the marketplace.  According to Zero Hedge, Drew Brick of RBS recently made the following statement about the staggering amount of government debt that is currently being monetized by the Fed…

“On a rolling six-month average, in fact, the Fed is now responsible for monetizing a record 70% of all net supply measured in 10y equivalents. This represents a reliance on the Fed that is greater than ever before in history!

Overall, the Federal Reserve now holds 32.47 percent of all 10 year equivalents, and that percentage is rising by about 0.3 percent each week.

If the Federal Reserve does not keep doing this, the financial markets are going to crash because they are being propped up artificially by all of this funny money.

But if the Federal Reserve keeps doing this, it is going to become increasingly obvious to the rest of the world that the Fed is simply monetizing debt and is starting to behave like the Weimar Republic.

The remainder of the planet is watching what the Federal Reserve is doing very carefully, and they are starting to ask themselves some very hard questions.

Why should they continue to use our dollars to trade with one another when the Fed is wildly creating money out of thin air and rapidly devaluing the existing dollars that they are holding?

And why should they continue to lend us trillions of dollars at ultra-low interest rates that are way below the real rate of inflation when the U.S. government is already drowning in debt and the money that will be used to pay those debts back will be steadily losing value with each passing day?

The Federal Reserve is in very dangerous territory.  If the Fed wants the current system to continue, it is going to have to stop this reckless money printing at some point or else the rest of the world will eventually decide to stop participating in it.

If the Fed wants to go ahead and make quantitative easing a permanent part of our system, then eventually it will need to go all the way and start monetizing all of our debt.

Right now, the Fed is stuck in the middle of a “no man’s land” where it is monetizing a significant amount of U.S. government debt but it is trying to sell everyone else on the idea that it is not really monetizing debt.  This is a state of affairs that cannot go on indefinitely.

At some point, the Fed is going to have to make a decision.  And for now the Fed seems to be married to the idea that eventually things will get back to “normal” and they will stop monetizing debt.

Even Janet Yellen is admitting that quantitative easing “cannot continue forever”.

However, she also said on Thursday that it is important not to end quantitative easing too rapidly, “especially when the recovery is still fragile“.

Well, at this point quantitative easing has been going on in one form or another for about five years now.

Will it ever end?

And when it does, how bad will the financial crash be?

Meanwhile, with each passing day the faith that the rest of the world has in our dollar and in our financial system continues to erode.

If the Fed continues to behave this recklessly, it is inevitable that the rest of the globe will begin to move even more rapidly away from the U.S. dollar and will become much more hesitant to lend us money.

Ultimately, the Federal Reserve is faced with only bad choices.  The status quo is not sustainable, ending quantitative easing will cause the financial markets to crash, and going “all the way” with quantitative easing will just turn us into the Weimar Republic.

But anyone with half a brain should have been able to see that this debt-based financial system that the Federal Reserve is at the heart of was going to end tragically anyway.  The 100 year anniversary of the Federal Reserve is coming up, and the truth is that it should have been abolished long ago.

The consequences of decades of very foolish decisions are catching up with us, and this is all going to end very, very badly.

I hope that you are getting ready.

Janet Yellen: What A Horrifying Choice For Fed Chairman She Would Be

Janet YellenAre you ready for Janet Yellen?  Wall Street wants her, the mainstream media wants her and it appears that her confirmation would be a slam dunk.  She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is actually good for an economy.  She was reportedly the architect for many of the unprecedented monetary decisions that Ben Bernanke made during his tenure, and that has many on Wall Street and in the media very excited.  Noting that we “already know that Yellen is on board with Bernanke’s easy money policies”, CNN recently even went so far as to publish a rabidly pro-Yellen article with this stunning headline: “Dear Mr. President: Name Yellen now!”  But after watching what a disaster Bernanke has been, do we really want more of the same?  It doesn’t really matter whether she is a woman, a man, a giant lizard or a robot, the question is whether or not she is going to continue to take us down the path to ruin that Bernanke has taken us.  As I have written about so many times, the Federal Reserve is at the very heart of our economic problems, and under Bernanke the Fed has created a mammoth financial bubble unlike anything that we have ever seen before.  If Yellen keeps us going down that road, financial disaster is inevitable.

Sadly, Yellen is not a woman that believes in free markets.  She had the following to say back in 1999

“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not.”

Yellen believes that without the “routine intervention” of the central planners at the Fed, our economy will not produce satisfactory results.

So if you thought that Bernanke was an “interventionist”, you haven’t seen anything yet.  In fact, according to Time Magazine, Yellen was continually urging Bernanke to do even more “to help stimulate the economy”…

But as the most recent financial crisis proved, a good Fed chief needs to be willing to think outside the box to achieve its goals of low, steady inflation and full employment. This is exactly what Bernanke did — using the powers of his office to launch a massive bond-buying program aimed at lowering interest rates further down the yield curve and promising to keep short-term interest rates at near zero for years. Bernanke, however, didn’t launch these programs immediately. Behind the scenes, it was reportedly Yellen who was the most forceful advocate for the Fed doing more to help stimulate the economy.

It is truly frightening to think that Yellen might turn out to be “Bernanke on steroids”.

Let’s hope that she is not the choice.

But the media is endlessly hyping her.  They keep proclaiming that she has a “good track record” when it comes to forecasting future economic conditions.

Oh really?

Back in February 2007, before the housing crash and the last financial crisis, she made the following statement…

“The bottom line for housing is that the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—while not fully allayed have diminished. Moreover, while the future for housing activity remains uncertain, I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward.”

And during a speech in December 2007 she offered up this gem…

“To sum up the story on the outlook for real GDP growth, my own view is that, under appropriate monetary policy, the economy is still likely to achieve a relatively smooth adjustment path, with real GDP growth gradually returning to its roughly 2½ percent trend over the next year or so, and the unemployment rate rising only very gradually to just above its 4¾ percent sustainable level.”

And in front of the Financial Crisis Inquiry Commission in 2010 she openly admitted that she did not see the last financial crisis coming…

“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”

So if she didn’t see the last crisis coming, will she see the next one coming?

Right now, she insists that everything is going to be just fine in our immediate future.

Do you believe her?

Meanwhile, economic warning flags are popping up all over the place.  As Zero Hedge recently noted, perhaps this is why a lot of high profile candidates don’t want the Fed job.  Perhaps they don’t want to be blamed for the giant economic mess that is about to happen…

With so many candidates dropping out of the race, one has to wonder why the attraction of the ‘most-powerful’ job in the world is fading. Perhaps it is not wanting to stuck between the rock of the ‘broken-market-diminishing-returns’ of moar QE and the hard place of an economy/market that is sputtering and needs moar. As Bloomberg’s Rich Yamarone notes, There’s a little known rule of thumb in the economics world: when the annual growth rate of key U.S. indicators falls below 2 percent, the economy slides into recession in the next 12 months… and more than one of them is flashing red.

But we have far bigger worries on our hands than just another recession.

Over the past several years, Fed intervention has been systematically destroying confidence in the U.S. dollar and has been making U.S. government debt less desirable.  Foreigners are already starting to dump U.S. debt, and it is only a matter of time before the U.S. dollar loses its status as the de facto reserve currency of the world.

By “kicking the can down the road”, the Fed has created tremendous structural problems which are going to come back to bite us big time in the long run.

Recklessly printing money, monetizing debt and driving interest rates down to ridiculously low levels may have had some benefits in the short-term, but in the end this giant Ponzi scheme is going to collapse in spectacular fashion.  The following is how James Howard Kunstler puts it…

The Fed can only pretend to try to get out of this self-created hell-hole. The stock market is a proxy for the economy and a handful of giant banks are proxies for the American public, and all they’ve really got going is a hideous high-frequency churn of trades in conjectural debentures that pretend to represent something hidden in the caboose of a choo-choo train of wished-for value — and hardly anyone in the nation, including those with multiple graduate degrees in abstruse crypto-sciences, can even pretend to understand it all.

When reality crosses the finish line ahead of poor, exhausted Mr. Bernanke, havoc must ensue. All the artificial props fall away and the so-called American economy is revealed for what it is: a surreal landscape of ruin with nothing left but salvage value. Very few people will get a living off of the salvage operations, and there will be fights and skirmishes everywhere by one gang or another for control of the pickings. The utility of money itself may be bygone, along with the legitimacy of anyone or anything claiming institutional authority. This is what comes of all attempts to get something for nothing.

The American people deserve to know the truth.

The Fed is not our “savior”.  The truth is that the Fed is the primary cause of many of our biggest economic problems.  For much more on this, please see my previous article entitled “25 Fast Facts About The Federal Reserve – Please Share With Everyone You Know“.

Unfortunately, Wall Street and the mainstream media love the Fed and they appear to very much love Janet Yellen.

Yellen would be an absolutely horrifying choice for Fed Chairman, but so would any of the other names that have been floated.

America has embraced the foolishness of the financial central planners at the Federal Reserve, and in the end we will all pay a great price for that.

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