Yet during that same period, the consumer price level has risen by 1.75% per year. And that’s if you give credit to all of the BLS gimmicks, such as hedonic adjustments for quality change, homeowners “imputed” rents and product basket substitution, which cause inflation to be systematically understated.
On a basis that is close enough for government work, therefore, the real money market interest rate has been negative 2% for seven years. But that’s so crazy, unjustified, and unprecedented that even the Keynesian money printers who run the Fed have run out of excuses.
Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.
So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino——-the very outcome that has filled them with fear and dread all these years.
Indeed, Yellen and Bernanke before her have made a huge deal out of communications clarity and forward guidance. But how do you explain to even the credulous gamblers and day traders on Wall Street that the business cycle has not been outlawed and that free money can not last forever, world without end?
Likewise, after all these years of saying that the dollar’s exchange rate is the responsibility of the US Treasury— and that the Eccles Building only does domestic monetary policy—– how will the Fed heads explain that they have wrapped themselves around the axle of an unrelentingly strong dollar?
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