Fed Statement: Not Dovish, Not Hawkish—-Just Gibberish

David Stockman   By David Stockman – Re-Blogged From http://davidstockmanscontracorner.com

Call it 529 words of gibberish and be done!

All of the FOMC’s platitudes about the economy “expanding at a solid pace”, labor market conditions which have “improved further”, household spending which is “rising moderately” and business fixed investment which is “expanding” are not simply untruthful nonsense; they are a smokescreen for the Fed’s actual intention. Namely, to keep the Wall Street gamblers in free money in the delusional hope that ever rising stock prices will generate a trickle down of “wealth effects” in the main street economy.

But in equivocating still another time about when they intend to get the Fed’s big fat ZIRP thumb off the money  market, the denizens of the Eccles Building have shown their true colors. The FOMC is not really comprised of economists or central bankers. It is simply a groupthink posse of spineless cowards who are petrified of a Wall Street hissy fit—–and are therefore willing to dispense whatever spurious word clouds they judge may be necessary to keep the gamblers hitting the “bid” until the next meeting.

After all, how can it possibly be true that notwithstanding all the “solid” economic advances it crowed about in the opening paragraph, the Fed still intends to maintain zero interest rates through mid-year—or for what will be an out-of-this-world 80 months running? As recently as 10 years ago that incredulous juxtaposition—-a solid economy coupled with desperate policy measures—-would have been laughed out of court by even the Fed’s own economists.

In fact, we don’t have a solid economy at all, and the halting advances of recent years have absolutely nothing to do with Fed policy. Instead, the utterly trite macroeconomic commentary contained in its meeting statements is a form of Keynesian ritual incantation based on a delusional conceit. Namely, that left to its own devices the US economy would chronically sink into a recessionary stupor, and that it is only the deft interventions of the central bank which nudge the $18 trillion US economy back onto the path toward full employment and the realization of “potential GDP”.

The very opposite is true. The Fed has become a serial bubble machine. Its fantastic bouts of money printing and the resulting destruction of honest price discovery in the financial markets lead to violent boom and bust cycles in the Wall Street casino—-of which we have had three since the mid-1990s.

These violent financial swings, in turn, send the main street economy into a corresponding cycle of advance and relapse. These real economy undulations are driven by the artificial stocking and de-stocking of inventory and labor and the artificial bicycling of consumer and business confidence triggered by the Wall Street crashes and reflations.

But here’s the thing. The intervals of GDP and jobs “advance” between periodic financial market busts reflect the resilience and regenerative powers of the capitalist market, not the interest rate manipulations and balance sheet machinations of the Fed.

So what the Fed’s post-meeting statements describe as policy driven economic “advances” and “improvements” are actually the halting gains that main street workers, businesses and entrepreneurs are able to realize from their own economic efforts. Indeed, the false correlation of natural capitalist recovery with central bank policy intervention has gotten so ritualized and trivialized that yesterday’s crowing about economic recovery is nearly identical to the word clouds the FOMC emitted in 2007 and 1999.

Stated differently, there is no natural business cycle that the Fed is improving upon. There is only a destructive and artificial boom-and-bust cycle owing to central bank policy intervention that pumps the main street economy up and down over and over again. Accordingly, the only relevant measure of economic conditions is not the short-run changes which materialize in the recovery rebound after each financial bust, but the trend rate of change over time——something that can best be measured on a peak-to-peak basis.

Forget reported GDP oscillations from quarter-quarter. They measure “spending”, not production; and it is the latter which is the true source of sustainable economic growth and rising wealth—–to say nothing of the seasonally maladjusted and everlastingly revised noise that afflicts the quarterly and monthly reports.

By the same token, wage and salary income is the  true marker of national production of goods and services, and is free of the circular logic in the GDP accounts in which “spending”, such as personal consumption expenditures


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s