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Debt Ceiling Drama, Yellen Begins Extraordinary Measures to Stave Off Default

Two years ago, the debt ceiling was lifted. Lifting the debt ceiling to make room for more government spending has been pretty routine since since 1917.

Until now…

While it’s quite likely that U.S. debt had already reached the point of no return around three years ago, amazingly the situation might have just gotten even worse. Why?

The debt ceiling extension that was granted back in 2019 has expired. Oops.

Janet Yellen is taking what are called “extraordinary measures” that hopefully will keep the U.S. economy from spiraling into a historic disaster of defaults on bond payments and government obligations, skyrocketing interest rates, and massive inflation.

The non-partisan Congressional Budget Office (CBO) predicts the Treasury will run out of cash in October or possibly November.

So as reported above, the U.S. risks default within 90 days if nothing is done.

Yellen wrote a strongly-worded letter to Speaker Nancy Pelosi, describing the potential for “irreparable harm” if no action is taken.

But it might already be too late…

A closer look at the official U.S. debt reveals an unbelievable increase over the last 20 years:

Data from St. Louis Fed

That’s a 4.6x rise in “public debt,” meaning money the U.S. government owes. It’s called “public” debt because all of America shares the responsibility for paying it back. It’s public debt because the public, you and me, are on the hook for it.

Amazing, isn’t it?

Even so, this isn’t the first time “extraordinary measures” have kept the government spending machine humming along in response to debt-ceiling politics. But this could be the first time the clock will run out before a solution is reached.

Surprisingly — or perhaps not — the White House appears to be simply avoiding the current problem.

…click on the above link to read the rest of the article…

Yellen Urges Development Banks To Stop Fossil Fuel Funding

July 14, 2021

Yellen Urges Development Banks To Stop Fossil Fuel Funding

U.S. Treasury Secretary Janet Yellen is prepared to gather together the heads of development banks to persuade them to stop fossil fuel project funding, according to Bloomberg.

The Treasury Secretary intends to “articulate our expectations that the MDBs align their portfolios with the Paris Agreement and net-zero goals as urgently as possible,” according to a written speech she is set to deliver at a climate conference in Italy.

The speech, soon to be delivered, follows just days behind a similar message that the financial community received at the G20, where financial leaders for the first time every acknowledged that carbon pricing was at least a potential tool in addressing climate change.

While Bloomberg notes that while development banks have never been responsible for the big bucks behind most fossil fuel projects, those funds are largely seen as a stepping stone for the projects to secure hefty commercial funding.

Since the pandemic began, development banks have thrown just $3 billion into oil and nat gas, with $0 going towards coal projects for the first time ever.

Meanwhile, development banks have funded $12 billion in clean energy projects.

But it is precisely these natural gas projects that will allow many countries to quickly and efficiently transition away from coal.

Prior to her appointment as Treasury Secretary, Yellen was criticized for her fossil fuel stock holdings. The Secretary vowed to divest her holdings in all fossil fuel companies as well as any companies that support fossil fuels.

Nevertheless, even before her time as Treasury Secretary and the chairman of the Financial Stability Oversight Council (FSOC), Yellen has been a staunch supporter of the environment and highly critical of the role fossil fuels have played in greenhouse gas emissions.

…click on the above link to read the rest of the article…

Grocery Stores Are Masking Price Hikes Via “Shrinkflation”

July 8, 2021

Grocery Stores Are Masking Price Hikes Via “Shrinkflation”

The continued decline in Treasury yields has prompted many short-sighted arm-chair analysts to declare that the Fed was right about inflationary pressures being “transitory”. Of course, as Treasury Secretary Janet Yellen herself admitted, a little inflation is necessary for the economy to function long term – because without “controlled inflation,” how else will policymakers inflate away the enormous debts of the US and other governments.

As policymakers prepare to explain to the investing public why inflation is a “good thing”, a report published this week by left-leaning NPR highlighted a phenomenon that is manifesting in grocery stores and other retailers across the US: economists including Pippa Malmgren call it “shrinkflation”. It happens when companies reduce the size or quantity of their products while charging the same price, or even more money.

As NPR points out, the preponderance of “shrinkflation” creates a problem for academics and purveyors of classical economic theory. “If consumers were the rational creatures depicted in classic economic theory, they would notice shrinkflation. They would keep their eyes on the price per Cocoa Puff and not fall for gimmicks in how companies package those Cocoa Puffs.”

However, research by behavioral economists has found that consumers are “much more gullible than classic theory predicts. They are more sensitive to changes in price than to changes in quantity.” It’s one of many well-documented ways that human reasoning differs from strict rationality (for a more comprehensive review of the limitations of human reasoning in the loosely defined world of behavioral economics, read Daniel Kahneman’s “Thinking Fast and Slow”).

Just a few months ago, we described shrinkflation as “the oldest trick in the retailer’s book” with an explanation of how Costco was masking a 14% price hike by instead reducing the sheet count in its rolls of paper towels and toilet paper.

…click on the above link to read the rest of the article…

Translating Yellen-Speak into Golden-Speak

June 15, 2021

Translating Yellen-Speak into Golden-Speak

Given the increasingly politicized interplay (cancer) of central bank policy and so-called free market price discovery, it’s becoming increasingly more important to track the actions of central bankers rather than just traditional market signals alone.

Like it or not, the Fed is the market.

Toward this end, we’ve had some substantive fun deciphering the past, current and future implications of “forward guidance” from our openly mis-guided crop of central bankers, most notably Greenspan, Bernanke and Powell.

But let’s not forget Janet Yellen.

As we see below, translating Yellen-speak into blunt speak tells us a heck of a lot about the future.

The Open and Obvious Debt Crisis

Back in 2018, Janet Yellen (former Fed Chairwoman and current Treasury Secretary, eh hmmm) along with Jason Furman (current Biden economic advisor) observed in a Washington Post Op-Ed that, “a U.S. debt crisis is coming, but don’t blame entitlements.”

As I like to say, “that’s rich.”

As in all things economic, the motives and thinking coming out of DC are largely political, which means they are self-serving, partisan and predominantly disastrous.

As for translating Yellen’s political-speak into honest English, the motives for this 2018 warning were two-fold: 1) Yellen and Furman were making a partisan attack on Trump’s then $1T budget proposal, and 2) Yellen actually believed what she said and that the US was indeed careening toward “a debt crisis.”

In fact, we were already in a debt crisis in 2018, a crisis which has simply risen to much higher orders of magnitude in the three short years since Yellen’s “warning” was made.

Stated otherwise, Yellen will get her debt crisis. It’s ticking right in front of her.

Tracking the Debt Trail

Ironically, the most obvious metrics of the current and ever-expanding debt crisis began just months after Yellen’s infamous Op-Ed.

…click on the above link to read the rest of the article…

Three reasons why inflation is rising. Two of them aren’t going away

May 6, 2021

Three reasons why inflation is rising. Two of them aren’t going away

A remarkable thing happened yesterday that tells you everything you need to know about inflation.

In the morning, US Treasury Secretary Janet Yellen stated bluntly that “interest rates will have to rise somewhat to make sure that our economy doesn’t overheat. . .”

For economists, an ‘overheating economy’ means inflation. So she was essentially saying that rates would have to rise to prevent inflation.

Yet hours later, she completely reversed herself, saying that interest rates would NOT have to rise because “I don’t think there’s going to be an inflationary problem.”

You don’t need a PhD in economics to smell the BS.

Inflation is not some potential issue down the road. Inflation is already here.

As Warren Buffett told investors only days ago, “We’re seeing very substantial inflation.”

Plenty of companies have already announced price increases to their consumers–

Proctor & Gamble, for instance, announced price hikes across the board on just about everything from diapers to beauty creams.

Hershey’s announced in February that it would be raising prices.

Food giant General Mills complained in February about a “higher inflationary environment” and “input cost pressures” due to rising commodity prices.

Clorox, Shake Shack, Kimberly-Clark, Whirlpool, Hormel, and Woka Kola Coca Cola are among the many companies that have also announced price increases.

And according to Bank of America Global Research, the number of mentions of “inflation” on corporate earnings calls has increased 800% compared to last year.

Inflation is clearly a concern of the largest companies in the world. Investors are worried. Consumers can see it.

And in a rare moment of truth yesterday morning, a politician almost admitted that she was concerned about inflation too.

This is not some wild conspiracy. Inflation is real. It’s happening. Let’s look at three key drivers:

…click on the above link to read the rest of the article…

Peter Schiff: The Box That the Federal Reserve Is In

March 29, 2021

Peter Schiff: The Box That the Federal Reserve Is In

Jerome Powell and Janet Yellen testified jointly before the US Senate last week. Inflation was a big topic of conversation. The Fed chair continued to insist that the central can fight inflation if necessary, but that it really isn’t a problem we need to worry about right now. In his podcast, Peter Schiff said the truth is inflation is a problem. And when it comes to dealing with that problem, the Fed is in a box. It will never pick a fight that it can’t win.

The Federal Reserve balance sheet has swelled to a new record of over $7.72 trillion. It was up another $26.1 billion on the week last week. Peter said he expects this number to continue increasing at an even faster rate in the near future.

I would not be surprised to see the balance sheet hit $10 trillion by the end of 2021 because we have a lot of deficit spending in the pipeline and there is no way to pay for it other than the Federal Reserve.”

One of the questions directed toward Powell was about the Federal Reserve’s independence. Powell talked about how important it is. But Peter said the actions of the Fed chair show there’s really no independence at all.

There’s independence in form only, but not in substance. We pretend we have an independent Fed, but in reality, the Fed acts as if it’s just a branch of the US Treasury Department. The fact that both the secretary of the Treasury and the Fed chairman are testifying together shows a degree of cooperation. They’re working together and it seems that they are trying to coordinate their policies.”

The reason the Fed is keeping interest rates so low and expanding its balance sheet is to accommodate the US government as it spends more and more money.

…click on the above link to read the rest of the article…

peter schiff, schiff gold, jerome powell, janet yellen, fed, us federal reserve, us treasury department, us senate, inflation, balance sheet

There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme

March 28, 2021

There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme

If you’re a wage earner, retiree, or a lowly saver, your wealth is in imminent danger.

A lifetime of schlepping and saving could be rapidly vaporized over the next several years. In fact, the forces towards this end have already been set in motion.

Indeed, there are many forces at work. But at the moment, the force above all forces is the extreme levels of money printing being jointly carried out by the Federal Reserve and the U.S. Treasury.

Fed Chairman Jay Powell and Treasury Secretary Janet Yellen have linked arms to crank up the printing presses in tandem.

This is what’s driving markets to price things – from copper to digital NFT art – in strange and shocking ways. But what’s behind the money printing?

Surely it’s more than progressive politics – under the guise of virus recovery – run amok.

Where to begin?

The U.S. national debt is a good place to start. And the U.S. national debt is now over $28 trillion. Is that a big number?

As far as we can tell, $28 trillion is a really big number…even in the year 2021. How do we know it’s a big number, aside from counting the twelve zeros that fall after the 28?

We know $28 trillion is a big number based on our everyday experience using dollars to buy goods and services. You can still buy a lot of stuff with $28 trillion. In truth, $28 trillion is so big it’s hard to comprehend.

Nonetheless, $28 trillion is not as big a number today as it was in 1950. Back then, the relative bigness of $28 trillion was much larger. It was unfathomable.

Crime of the Century

…click on the above link to read the rest of the article…

economic prism, mn gordon, janet yellen, inflation, jerome powell, fed, us federal reserve, central bank, stimulus, government stimulus, united states

Yellen Challenges Powell’s Unlimited Control of the Markets

February 21, 2021

Yellen Challenges Powell’s Unlimited Control of the Markets

Yellen Challenges Powell's Unlimited Control of the Markets

Source: Federal Reserve

The Fed attempts to maintain control of various rates (including inflation, unemployment and long-term interest rates) through its monetary policy decisions. In the past, poor choices arguably led to both the dot-com bubble and the Great Recession. But that’s old news.

Today, Fed Chairman Jerome Powell is trying to get the U.S. economy moving. A combination of near-zero interest rates and “quantitative easing,” which means buying bonds directly. Both these interventions increase the amount of money in circulation. Ultimately, this would lead to inflation, as you’d expect.

And of course, inflation is closely tied to market rates. In response to the pandemic, the Fed rate policy that Powell currently advocates is keeping money market rates close to zero for an extended period of time. The Fed also seem to intervene quite a bit, attempting to maintain tight control on those rates.

Powell has to balance economic recovery and employment against market bubbles and excessive inflation. That’s a lot of balls in the air… What if one drops?

Unleashing a “tsunami” of cash

Enter Treasury Secretary Janet Yellen, who just threw a big monkey wrench in Powell’s plans to maintain any semblance of tight control over rates. What did she say? As Newsmax reported:

Already low short-term interest rates are set to sink further, potentially below zero, after the Treasury announced plans earlier this month to reduce the stockpile of cash it amassed at the Fed over the last year to fight the pandemic and the deep recession it caused.

That sounds sensible, right? There’s just one problem: the Treasury is planning to “unleash what Credit Suisse Group AG analyst Zoltan Pozsar calls a ‘tsunami’ of reserves into the financial system and on to the Fed’s balance sheet.”

…click on the above link to read the rest of the article…

Yellen’s LaLa Land Prediction Of Full Employment

February 10, 2021

Yellen’s LaLa Land Prediction Of Full Employment

Biden And Yellen Serve Destructive Recursion

While the trend of automating jobs is moving along full speed U.S. Treasury Secretary, Janet Yellen recently said that the U.S. could achieve full employment recovery if President Joe Biden’s COVID-19 stimulus package is passed. “I would expect that if this package is passed, we would get back to full employment next year,” Yellen told host Jake Tapper on CNN‘s State of the Union. This is a clear signal Biden’s need to urgently pass a COVID-19 relief package is being ramped higher. Yellen said, “We will get people back to work much sooner with this package.” She went on to claim, “There’s absolutely no reason we should suffer through a long slow recovery.” According to the Treasury Secretary, the President’s $1.9 trillion COVID-19 relief package could help the U.S. employment numbers recover at a faster pace. Yellen cited a report from the Congressional Budget Office (CBO), which found that the unemployment rate would reach pre-pandemic levels in 2025 without the level stimulus proposed in Biden’s American Rescue Plan.

Some economists have voiced fear this relief plan will spur inflation. Even former Treasury Secretary Larry Summers has raised concern Biden’s package would “flood the economy” and lead to high inflation. Yellen, however, as the former Federal Reserve chair brushed aside this issue saying she spent many years “worrying” about inflation and, “I can tell you we have the tools to deal with that risk” if it were to occur. Yellen pointed to the huge economic challenge and tremendous suffering facing the country, then indicated, “That’s the biggest risk.” Yellen’s words indicate we have clearly entered the area of “Destructive Recursion,” a term coined to refer to a system that keeps feeding power back into itself and is controlled by those who are destroying it.

…click on the above link to read the rest of the article…

Yellen Blames “Enormous Debt And Buybacks” For Coming Default Wave; Morgan Stanley Says It’s All The Fed’s Fault

April 6, 2020

Yellen Blames “Enormous Debt And Buybacks” For Coming Default Wave; Morgan Stanley Says It’s All The Fed’s Fault

In June 2017, Janet Yellen decided to wave a red flag before the bulls of fate, and responding to a question on financial system stability, the then-Fed chair said post-crisis regulations had made financial institutions much “safer and sounder”, and as a result she went on to predict that there would never again be a financial crisis “in our lifetimes” to wit:

“Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

While the bulls cheered this idiotic prediction, some were quick to compare this statement by Yellen to Neville Chamberlain’s infamous – and very, very wrong – “peace in our time” speech. In retrospect the some were right because less than three years later, the world is going through the biggest financial crisis in every living person’s lifetime, which has resulted in the most aggressive central bank market stabilization and intervention in history.

Also in retrospect, it is clear that Yellen didn’t have any bloody idea what she was talking about (then, or any other time when she was boring traders and analysts to death with her droning, narcoleptic monotone) even as we – among others- were warning that it was her monetary policy decisions that guaranteed the next crisis would put 2008 to shame. And sure enough, while the current crisis was sparked by the coronavirus pandemic, it is what comes next that the financial crisis will truly strike home as thousands of companies that loaded up on cheap, cheap debt during the Bernanke, Yellen and Powell Feds, default.

…click on the above link to read the rest of the article…

Fourth Turning Economics

August 5, 2019

Fourth Turning Economics

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – The Fourth Turning – Strauss & Howe

The quote above captures the current Fourth Turning perfectly, even though it was written more than a decade before the 2008 financial tsunami struck. With global debt now exceeding $250 trillion, up 60% since the Crisis began, and $13 trillion of sovereign debt with negative yields, it is clear to all rational thinking individuals the next financial crisis will make 2008 look like a walk in the park. We are approaching the eleventh anniversary of this crisis period, with possibly a decade to go before a resolution.

As I was thinking about what confluence of economic factors might ignite the next bloody phase of this Fourth Turning, I realized economic factors have been the underlying cause of all four Crisis periods in American history.

Debt levels in eurozone, G7, US and Germany

The specific details of each crisis change, but economic catalysts have initiated all previous Fourth Turnings and led ultimately to bloody conflict. There is nothing in the current dynamic of this Fourth Turning which argues against a similar outcome. The immense debt, stock and real estate bubbles, created by feckless central bankers, corrupt politicians, and spineless government apparatchiks, have set the stage for the greatest financial calamity in world history.

…click on the above link to read the rest of the article…

Brace Yourself: The Next Epic Collapse Could Be Weeks Away

April 29, 2019

Brace Yourself: The Next Epic Collapse Could Be Weeks Away

There wasn’t a group of people more wrong about the 2008 financial crisis than those at the Federal Reserve.

Mere months before the disaster hit in earnest, the nation’s highest economic and financial officials were vocal that there was nothing to worry about.

Most memorable of these are perhaps two comments from former Fed Chairman Ben Bernanke…

In January 2008, he said, “The Federal Reserve is not currently forecasting a recession.”

And later that year, in July, he said Fannie Mae and Freddie Mac – the two government-sponsored enterprises that kicked off the credit crisis a few months later – were “in no danger of failing.”

And it wasn’t just Bernanke. The same delusional sentiment was echoed by almost all the top Fed and Treasury officials… as well as those in the mainstream financial media and academia.

Of course, we all know how things played out…

When the housing bubble burst in 2008, the effects rippled throughout the economy, kicking off the largest financial and economic crisis since the Great Depression.

And the S&P 500 – a good proxy for the U.S. stock market – went on to fall by over 56%.

The reason I’m telling you this today is to remind you that people exhibit laughable sentiments near the peak of bull markets.

And today, we’re hearing much of the same sentiment that was displayed before the 2008 crisis.

But as you’ll see below, it’s not the only sign I’m seeing of a coming crisis…

A Contrarian Indicator

I’ve written before about why I believe we’re near the peak of the largest bubble in human history.

And as I’m about to show you, there are clear indicators of a coming crisis… in the auto sector… the housing sector… and in the economy as a whole.

…click on the above link to read the rest of the article…

Janet Yellen Suggests Strengthening The ‘Fed Put’

March 27, 2019

Janet Yellen Suggests Strengthening The ‘Fed Put’

In a speech in Hong Kong this week, former Fed chair Janet Yellen stated that “global central banks don’t have adequate crisis tools.” According to that logic, she believes that launching additional multi-trillion dollar rounds of quantitative easing and cutting interest rates into negative territory – two aggressive and controversial monetary tools that are currently available – are simply not enough. Yellen’s comments this week echo comments that she made in September 2016 when she was still Fed chair:

The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday.
Speaking via video conference with bankers in Kansas City, Yellen said the issue was not a pressing one right now and pointed out the U.S. central bank is currently barred by law from buying corporate assets.
But the Fed’s current toolkit might be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.”
“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” she said, adding that buying equities and corporate bonds could have costs and benefits.

If the Federal Reserve is ever allowed to buy stocks and corporate bonds, it will create an extremely dangerous situation in which investors, speculators, and business leaders will feel that they can take virtually unlimited risk and will still be backed by the Fed. This phenomenon is known as a moral hazard or the Fed Put.

…click on the above link to read the rest of the article…

Federal Reserve Confesses Sole Responsibility for All Recessions

January 18, 2019

Federal Reserve Confesses Sole Responsibility for All Recessions

Federal Reserve balance sheet reduction not happening yet even as the Fed applauds its own success

In a surprisingly candid admission, two former Federal Reserve chairs have stated that the Federal Reserve alone is responsible for creating all recessions in the United States.

Former Federal Reserve chief Ben Bernanke Federal Reserve creates all recessions

First, former Fed Chair Ben Bernanke said that

Expansions don’t die of old age. They get murdered.

MarketWatch

To clarify this statement, former Chair Janet Yellen placed the murder weapon in the Fed’s hands:

Two things usually end them…. One is financial imbalances, and the other is the Fed.

Think that through, and you quickly realize that both of those things are the Fed. Is there anyone left standing who would not say the Fed’s quantitative easing in the past decade was the biggest cause of financial imbalances all over the world in history? Moreover, whose profligate monetary policies led to the Great Financial Crisis that gave us the Great Recession?

So, the Fed loads the gun with financial causes and then pulls the trigger. In fact, I think it would be hard to find a major financial imbalance in the US that the Fed did not have a hand in creating or, at least, enabling. Therefore, if those are the only two causes, then it is always the Federal Reserve that causes recessions by its own admission.

And, yet, those Fed dons look so pleased with themselves.

Yellen went on to say that when the Fed is the culprit, it is generally because the central bank is forced to tighten policy to curtail inflation and ends up overplaying its hand. (She didn’t mention that the Fed’s monetary policy may have a hand in creating financial imbalances.)

Exactly, nor did she mention that the inflation they were “forced” to curtail always happens because of financial imbalances the Fed created or enabled. That is why I call our expansion-recession cycles, rinse-and-repeat cycles.

…click on the above link to read the rest of the article…

Party On: Fed Chairman Powell Capitulates to the Market

January 17, 2019

Party On: Fed Chairman Powell Capitulates to the Market

FED Chairman Powell, who for a time was appearing to go rogue and stray off the beaten path of loose monetary policy paved by so many of his predecessors, has collapsed his resistance and utterly given in to the demands of the market.

At a forum hosted by the American Economic Association in Atlanta last Friday, FED Chairman Powell was a “good boy” and did exactly what Wall Street demanded.

He stuck to a well-written script of carefully selected words, focusing time and again on a few in particular, but most notably the word “patient”.

The context in which this word was used was in reference to raising interest rates.

As we have noted in previous articles, the hawkish approach adopted by FED Chairman Powell was ill received by both the markets and President Trump, who has been in an open feud with the FED.

This insistence on raising interest rates has caused the markets to gyrate wildly, causing sporadic, sharp dips lower in the broad stock market. This struck deep fear into investors, as they began to worry that the end of the “easy money” era was over.

Like his predecessor Janet Yellen, who also carefully chose the word “patient”, Powell intentionally selected this word to signal to the markets that (also like Yellen) he was willing to put on the velvet gloves when it came to handling the markets.

FED Chairman Powell stated the following:

“We’re listening carefully with … sensitivity to the message that the markets are sending and we’ll be taking those downside risks into account as we make policy going forward.”

…click on the above link to read the rest of the article…

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