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Why Yellen Should Leave Us Scream’en
David Stockman
April 19, 2014
In a speech to the Economic Club of New York today, Dr. Yellen delivered a serving of pie-in-the-sky that would have made Greenspan look circumspect and Bernanke appear at least partially sober. She actually espied two years down the road a point at which the battered and ruined US economy would enter the promised land of inflationless full employment forever, world without end:

Yellen noted that the central bankers and many economists see a return to full employment and stable prices by the end of 2016. This would be the strongest economy in a decade: "I find this baseline outlook quite plausible," she said.

That's hideous. The US economy has not remotely entered a sustainable full employment zone since Greenspan took the American economy permanently into bubble land at the turn of the century. And the two year forward economic forecasts of the Fed Chair persons and their merry bands of money printers have been ridiculously wrong.

This time was not different in 1998-2000--it was just a giant speculative bubble called dotcom. There was no Fed fostered "goldilocks" economy in 2005-2007--just the worst recession in a half century waiting to happen.

Nothing about the sub-prime housing calamity was "contained" in the spring of 2007 when Bernanke claimed to espy it in front of his nose. Nor was the US economy regaining steam in the summer of 2008 when most of the FOMC are on transcript record spotting just that.

Likewise, as to the matter of Big Picture proclamations did Yellen not note the utter repudiation of her predecessor on the matter of the Great Moderation. Heralded with much fanfare in February 2004, Bernanke essentially proclaimed that the business cycle had been vanquished owing to the astute macroeconomic management skills that had been accumulated in the Eccles Building over the previous several decades. Then, within months, he saw the Great Depression 2.0 hurtling down the tracks!

And we don't have to delve into what passes for the "distant past" as now viewed by our 24/7 monetary central planners, either. Once Bernanke had unshackled the printing presses under the guise of his phony anti-depression hysteria in the fall of 2008, and had taken the Fed's balance sheet of $900 billion accumulation over 94 years to $2.3 trillion in just 13 weeks, nearly the entire monetary politburo, including Dr. Yellen, called the "all clear."

Year-after-year since 2009 the Fed's consensus forecast has called for the US economy to come leaping out of its doldrums, and to accelerate to a 3-3.5% growth rate for years to come. Its not happened--not even remotely. As indicated yesterday, take out the quarter-to-quarter inventory stocking/destocking and the underlying growth of real final sales has been stuck in the 2% channel---where it is heading now into its 5th year there.

And it doesn't take $3.5 trillion of QE to accomplish that. The underlying regenerative forces of our $17 trillion capitalist economy managed that on their own. The tepid recovery that we have had is owing to the end of the last Fed enabled bubble crash and the accompanying one-time liquidation of excess business inventories, real estate investments and bubble jobs in construction and credit-driven service activities that were never real in the first place.

So instead of essentially forecasting the second coming of the Great Moderation, Yellen might have pondered the fate of the Main Street economy during the last 14 years. Real median family income is down 7%, while virtually all of the $25 trillion in household net worth gains since the have gone to the top 5%.

The reason is that you can not get real wealth gains for the masses out of a failed economy---and that is exactly what the Fed has produced. Over the past 13 years, real GDP growth has averaged 1.7% per year---the lowest rate of gain for a comparable period since pre-civil war America, the Great Depression era included. Real investment in fixed plant and equipment has averaged less than 1%/year----a rate that does not for permanent full-employment make in the misty future beyond 2016.

And then there are "jobs." During the 159 months of this century the average number of net new NFP jobs has been just 35,000 per month in an economy that needs 150,000-200,000. Worse still, on a net basis every single one of these net new jobs were in the fiscally-dependent HES Complex (health, education and social services). The number of net jobs in the Breadwinner sector of the economy--manufacturing, mining/energy/construction and business and distribution services--- has actually dropped from 72 million to 68 million .

So fantastically and unaccountably, Dr. Yellen forecasts the Keynesian nirvana of full employment just around the corner--when all of the job growth this century has depended upon what is now a bankrupting public sector. The foolishness of it is mind-boggling.

And perhaps one day soon, Dr.Yellen will learn that the Fed's patented "bubble finance"--of which she has been a principal architect from the beginning--has now been exported to the rest of the world. From Japan to China to Indonesia, India, Russia, South Africa, Brazil and countless places in-between, the massive central bank enabled flows of mis-priced capital and risk have created financial time bombs everywhere on planet earth. It does not take too much acuity to see them unwinding in the coal pits of China and white elephant investments strewn everywhere in bubble provinces like Turkey and Brazil.

In other words, the Keynesian central bankers have sown a financial calamity of historic proportions. And yet Janet Yellen spots full employment just around the corner. It should leave sober people scream'en!

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.

This article was originally featured in David Stockman's Contra Corner. Refer to original article for related links and important documentation.








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