Why central bankers deserve society’s loathing

Wednesday, 22 September 2021 — Queensland

[9 min read]

My disdain for central bankers has reached a new high…or should I say a new low?

Having followed this grossly inept group for many years and seen the full cycle (upside and downside) results of their blatantly stupid policy settings, the only logical conclusion to be drawn is, as a cohort, they are lazy, clearly incompetent, and arrogant beyond belief.

Why these academic blowhards even bother to turn up to the office is beyond me. They perform two basic functions.

Suppress interest rates — well below the rate of inflation — and vow and declare they’ll stay there until inflation is sustainably in the 2–3% range. Achieving their stated objective could take years. Therefore, between now and then, what do they do…twiddle their thumbs?

And should the artificially inflated markets they’ve created come off the boil, a missive is issued to crank up the printing presses. Wow, how long does it take to send this well-used templated communique off? I reckon all of 60 seconds.

That’s it…it takes you longer to brush your teeth than it does for these overpaid bureaucrats to execute their primary duties.

Yes, they produce fancy graphs and pretty pictures and get invited to speak at a fawning investment industry conference or two, but in a nutshell, ALL they do is keep their foot firmly on the throat of interest rates and keep the presses running.

Why do they want sustainably higher inflation? To create an upward wage spiral.

Why would they want wages to rise? To give employed households the capacity to borrow more.

Why would they want EVEN MORE debt on the nation’s balance sheet? Because that’s how they boost GDP numbers…which then creates the impression of economic growth.

Society puts an even thicker debt noose around its neck and pays higher prices for goods and services so these pompous and pampered PhDs get to keep their cushy gig going. Pure self-interest.

They have been getting away with this economic growth con for decades. Yet no one calls them out.

Imagine a breadwinner on $100k comes home and says ‘Honey, I’ve increased our household GDP by 50%.’

To which the response is ‘Oh darling, that’s fantastic, how did you do it?’

‘Easy. By borrowing $50k.’

If someone told us that with a straight face at a BBQ, you’d struggle to contain our laughter.

Yet, each quarter, central banks tell us the same thing and (almost) everyone accepts this economic claptrap as gospel.

Years ago, this chart was published to show the effect withdrawals from US home equity loans had on creating an artificially-high US GDP growth.

That episode of central banker illusion ended with the GFC.

Central bankers are bone-lazy.

They lack the intestinal fortitude to make the hard decisions…balancing the interests of all society.

In telegraphing the intention of keeping rates low for years to come, in essence they are saying to savers ‘SCREW YOU, LOSER!’.

The appropriate interest rate policy would have been an inflation plus real rate of return of say 1% or 2%.

Yes, borrowing costs would have been higher, but is that a bad thing?

Look what’s happened with ultra-low loan rates…property prices have gone through the roof. Households have been forced to take on significant debt to get into the market.

Surely, borrowing $500k at 5% is a far better option than taking on $1 million at 2.5%? Same net interest cost, but far less principal to repay.

Yes, property prices would be lower, but so what?

As long as they appreciated with CPI, that’s OK.

Central bankers don’t have to live in the world they created

Guaranteed taxpayer-funded pensions — with annual CPI adjustments — await upon retirement.

They have no skin in the game.

If I had power for the day, these pensions would be the first thing to go and replaced with a lump sum.

Then we’ll see how these bozos go trying to eke out a retirement income in a 0.1% world and/or the threat of losing half or more of their capital if/when the bubble they’ve blown bursts.

Their incompetence is writ large in this chart of the Dow Jones.

The Fed keeps doing the same thing over and over again and expecting a different outcome.

What’s that they say about insanity?

The 31 August 2021 edition of The Rum Rebellion was titled ‘33 Million Reasons for Jerome Powell to Act Out of Self-Interest’.

Based on Fed Chair Jay Powell’s 278E disclosure, we know around 60% of his estimate US$55 million net worth is invested in shares.

Which gives Jay 33 million reasons to act out of self-interest.

Here’s an edited extract from the 31 August 2021 Rum Rebellion:

‘The coronavirus meltdown hit hard and Jay’s 33 million reasons suddenly shrank by one-third.

‘Rather than accept this as “markets doing what markets do” and correcting an imbalance between value and price, Jay abandoned public interest for self-interest.

‘If he didn’t do something quickly, the remaining two-thirds of his family’s equity exposure might wither away to a much lower number.

‘When your portfolio is overweight shares and underweight cash AND you control the financial levers, what do you do?

‘Powell’s self-interest won the day.

‘Crank up the presses and expand the Fed’s balance sheet.

‘And in doing so, Powell opened the Fed’s “jaw” (even wider than Bernanke did in 2008/09) and breathed life into the market.

‘Public interest be damned. The long-term damage from this reckless strategy will be for the next Fed chair to worry about.

‘His family’s 60% equity stake is now worth a whole lot more than it was BEFORE the March 2020 collapse. Well done, Jay.

‘This is not a good look for someone who is meant to be managing the world’s largest economy in a balanced and prudent fashion.

‘But when you live in a central bank bubble, the public are mere plebs and therefore, their perception of you counts for nought.

‘The accolades and ego stroking of the Davos crowd is what you really crave.’

At the time, I copped a little flack for this ‘attack’ on Powell.

Well, it only took a week or so to be vindicated.

On 9 September 2021, The Wall Street Journal published this article ‘Two regional Fed chiefs to sell stocks to avoid appearance of conflict of interest’, here’s an extract (emphasis added):

‘The leaders of the Boston and Dallas Federal Reserve Banks said they would sell off individual stocks they own, invest the proceeds in diversified indexed funds or cash savings and cease trading in individual securities.

‘The Thursday announcement comes after the Federal Reserve Bank of Dallas this week disclosed that its president, Robert Kaplan, bought and sold millions of dollars in stocks and other investments in 2020. A disclosure from the Boston Fed showed that its president, Eric Rosengren, also was an active trader last year, albeit at a smaller scale.

‘Both men defended their actions as consistent with their respective bank’s code of conduct policies, but said they didn’t wish to create any perception that their trading of securities and investments would conflict with their role in setting monetary policy.”’

Create the perception of a conflict of interest?

This statement just shows you how out of touch and arrogant these people are.

You’re sitting in the room deciding on a policy setting that can positively or negatively impact your personal financial (and/or trading) position. Gee…what do you do?

When the next crisis hits, I sincerely hope society joins the dots and central bankers get the long-overdue loathing they deserve.

One last point, it would appear Kaplan and Rosengren’s timing is perfect…after orchestrating the artificial pricing of markets, they’re now going to cash.

Regards,

Vern Gowdie,
Editor, The Rum Rebellion

Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

‘The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.’

Tenth Amendment, US Constitution

Today, we allow ourselves to get sidetracked…shunted off on a rail that goes nowhere.

We were at a cocktail party on Saturday. Naturally, the conversation turned to COVID, masks, lockdowns, and shots.

And while we were thus engaged, a little girl nearly drowned in the pool.

Overheard poolside

‘I’m just fed up,’ said an older man.

‘I had the COVID. They put me in the hospital. And now, statistically, I’m 27 times less likely to get the disease again or pass it along than the person with the vaccine.

‘Or, to put it another way…if I hadn’t already gotten the disease, a fully vaccinated person would be 27 times more dangerous to me than a person who had recovered from it.

‘If they want to protect other people, they should give people the disease, not the vaccination. Let them build up a natural resistance. A few old geezers like me will die, but the rest of the population will be really protected.’

An important note to dear readers: This was the comment of someone at a cocktail party. It is the kind of message that might be blocked or censured by the mainstream media in order to avoid any ‘misinformation’ circulating.

Is it true that he is 27 times less of a threat than a vaccinated person? We have no way of knowing.

Like all the many studies, findings, tests, arguments, ‘facts’, and figures used in the COVID discussion, it is probably partly true, partly false, and widely misinterpreted.

But here at the Diary, we mistrust all statistics, even those we make up ourselves.

Close call

Three little children had stripped down to their underwear and were playing in the pool. They were all under six, with the eldest of them able to dog paddle around…and the two little ones sticking to the shallow area.

We were listening to the COVID complaints when we glanced down and noticed that one of the little ones was under water. A young man stood between us and the pool, so we simply pointed to the water…

‘I think she needs help…’ we said.

The young man, a professional fisherman, deftly reached into the water and pulled her out, as if he were bringing in an Atlantic salmon. He gave her a slap on the back.

As she began to gurgle and cry…her father came running over with a towel…and she was soon as good as new.

Curious facts

Last week came news that one in 500 Americans have died of COVID-19. That, too, may sound like a ‘fact’. But there are few real facts in life…and fewer still in the COVID-19 story.

It may seem indisputable that someone ‘died’. The corpse may be in the coffin…the smell of lilies in the air…and the cheque in the mail.

But unless they get shot down in West Baltimore, we don’t always know what they died ‘of’. The medical industry has its own fads and fashions. And its own motivations.

All we know for sure about these corpses is that they were reported to have had a COVID-19 infection when the spark of life went out of them.

Curiously, the average age of someone dying from COVID-19 in the US is about the same as someone dying from something else — around 78.

Of course, we’re all going to die. The real question is when.

But if there were little difference between the age you die from COVID-19 and the age you die from other causes…how does this rank as a major Plague-like emergency?

Also, if the average person dies at 78, you’d expect that out of a group of 500 (assuming an even age spread), 6.4 (500 divided by 78) should be ready to pop off in any given year.

If only one of them is taken out by COVID-19, what’s the big deal?

Also, exceedingly odd for a plague year, the US population actually rose by nearly one million people. There were 331 million people living in the US in January 2020. By the end of the year, there were 332 million.

Freedom works

Let’s ask a simple question: Would the world be better off…or worse off…if governments completely ignored COVID-19?

Of course, no one knows the answer. The question itself could only be posed, sensibly, to God himself. Who else would know what ‘better’ means?

So, instead of worrying about it, the busybodies resort to numbers. The press is full of them — the number of new ‘cases’, the number of ‘exhausted’ nurses, the number of those who resist vaxxing.

(Another favourite of the mainstream press is the self-satisfied morality tale: ‘Anti-Vaxxer Dies of COVID,’ along with a story that tells us how the person had been misled by ‘false information’ and misguided by an irresponsible attachment to ‘freedom’.)

The ‘numbers’ substitute quantity for quality. We don’t know what is ‘better’…but we can count! The higher the number, the bigger the emergency…and the more the powers that be need to ‘do something’.

And yet, there are plenty of other numbers. How many lives have been distorted or stunted by COVID-19 restrictions? How many people living on US$2 a day will now die early, after being forced (by a locked-down world economy) to live on US$1.90 a day? How much human happiness will be sacrificed?

Nobody knows those numbers either.

Which is why you can’t really depend on numbers. And why we have principles to guide us.

We can’t predict the future…control the future…or even prepare for it. And we can’t count the bodies that haven’t died yet.

So we each do the best we can.

Elite overreach

In the US, this freedom to do what you want is supposed to be protected by the US Constitution. The Tenth Amendment clearly limits the power of the government to things it is expressly allowed to do in the Constitution itself.

This weekend, we found three major articles explaining why President Biden’s vaccine mandate is perfectly constitutional.

Out of curiosity, we searched the founding document. We found no ‘COVID clause’ giving the president such extraordinary power.

Then again, the Supreme Court — along with the press, the military, big business, universities, and government itself — is part of the elite. Rarely has it shown much inclination to limit the power of the governing group.

Today, the president goes to war without an act of Congress — expressly forbidden by the Constitution.

The feds print paper money, though the Constitution insists on only gold and silver.

And the government has proclaimed so many laws and regulations that it can send forth a swarm of agents, harass you, fine you, or put you in prison at almost any time…regardless of the many ‘constitutional’ protections you are meant to enjoy.

How do they get away with it, you might ask? What happened to the Tenth Amendment? How can they now insist on vaccinations?

Oh, you silly goose…

Back to business, tomorrow…

Regards,

Bill Bonner,
For The Rum Rebellion