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The central banks have gone so far off the deep-end with financial price manipulation that it is only a matter of time before some astute politician comes after them with all barrels blasting. As a matter of fact, that appears to be exactly what Donald Trump unloaded on bubble vision this morning:
By keeping interest rates low, the Fed has created a “false stock market,” Donald Trump argued in a wide-ranging CNBC interview, exclaiming that Fed Chair Janet Yellen and central bank policymakers are very political, and should be “ashamed”of what they’re doing to the country…
He’s completely correct. After all, they are crushing real wages with their 2% inflation targeting; destroying savers with NIRP and sub-zero rates, and burying unborn taxpayers in monumental debts that today’s politicians are pleased to issue with reckless abandon because the short-run carry cost is nil.
Interest on the Uncle Sam’s $19.4 trillion of debt, for example, is easily $500 billion lower than its true economic cost based on a normal yield after inflation and taxes and elimination of the phony $100 billion per year in so-called Fed “profits” that are booked by the treasury as negative interest expense.
Alas, when interest rates eventually normalize, the Treasury’s debt service costs will soar by hundreds of billions. At the same time, the entirety of the Fed’s “profits”, which are conjured from thin air because it buys interest-yielding government and GSE debt with printing press liabilities which cost virtually nothing, will disappear. That’s because it will be forced to take reserve charges for giant principal losses on the falling prices of its $4.5 billion portfolios of government and GSE bonds.
At that moment, the long-abused citizens of Flyover America, who have already been clobbered as savers and wage earners, will get hit with the triple whammy of soaring Federal tax bills. And this is not a matter of if or even when; it’s really just a question of how soon.
(Full text at link below)
There is all the evidence you need that the world’s financial markets are totally and completely rigged. And that’s why Donald Trump was exactly on target this morning when he uncorked another politically incorrect observation about the rigged nature of the Wall Street casino.
To wit, Yellen is still sitting on interest rates at the zero bound after 93 months for one simple reason. Even in the context of an economic recovery that is now allegedly so complete that we are actually on the cusp of full employment, according to Vice-Chairman Stanley Fischer, she is deathly fearful of a hissy fit on Wall Street, as was foreshadowed by last Friday’s sharp sell-off.
Opined the Donald:
“She’s obviously political and she is doing what [President Barack] Obama wants her to do,” Trump said in an interview on CNBC. Trump predicted that the market is going to “go way down” as soon as interest rates go up.
“I believe it is a false market because money is essentially free,” Trump said.
He got that right but needs to take it a step further. At the same time that the Fed continues placating Wall Street gamblers with an unending stint of free carry trade funding that has self-evidently not generated real breadwinners jobs or higher real incomes in Flyover America, savers and retirees continue to be pounded.
In fact, our unelected monetary politburo is causing upwards of $300 billion per year to be transferred from savers to the banks and the financial system owing to its senseless pursuit of 2.00% inflation via pegging the money market interest rate on the zero-bound.
Even then, however, the true impact goes far beyond retirees and the modest share of the population that actually attempts to save. To wit, 2% inflation targeting is absolutely the stupidest thing any central bank could pursue in the context of a global economy is which goods and services are freely traded, and in which the US, Europe, and Japan have the highest nominal wage rates on the planet.
What inflation targeting does is cause the domestic price level to rise, rather than fall, in DM economies. It thereby also causes the nominal wage gap with China and its EM supply chain to widen. So the Donald is right on that one, too.
Indeed, the most potent agency of off-shoring American jobs is not the USTR or bad trade deals, but the central banks. And in the middle and lower ranks of the wage market—-where the China price on goods and the India price on services bears down most heavily—-the Fed’s inflation folly is especially perverse.
As we have demonstrated with our more accurate “Flyover CPI”, the cost of living faced by main street America—especially for the four horsemen of food, energy, medical and housing prices—has risen by 3.1% annually since the late 1980s. And that is well more than hourly wage gains for production workers.
So the Fed has delivered to working class Americans the worst of both worlds. Namely, rising nominal wages which have priced them out of the world market, but even higher domestic inflation that has caused their real wages and living standards to shrink.
Here is the smoking gun. Notwithstanding a near tripling of the nominal wage rate from $9 per hour in 1987 to about $22 per hour today, real wages are lower than they were three decades ago.
(More charts and details at link below)
In short, the “something for nothing” money printing policies inflicted on Flyover America by our unelected rulers at the central banks, and with the full support of their facilitators and supporters among the Wall Street/ Washington ruling elites, are not only bad economics; they are perverse and unjust beyond measure.
Indeed, the Fed is waging an insensible and outrageous war on savers, workers, and future taxpayers—even as it pleasures the 1% with fantastic financial windfalls from the Wall Street casino.
Now that is a rigged system. And that is a beltway evil that merits Donald’s unrelenting attack on behalf of the citizens of Flyover America who have been left behind in their tens of millions.
Full text and charts at: https://www.lewrockwell.com/2016/09/david-stockman/homerun-donald/