Madame Yellen, the Economic Seer

A new threshold has been hit in the series of turpitudes of Madame Yellen.

Last Thursday, indeed, she finally appeared for what she really is, that is, a simpleton.

Some discovered it last Thursday. I have been pointing it out since she arrived at the Fed, substantiating my point on what she herself said, since she admitted not having foreseen the 2008 meltdown and having completely underestimated the severity.

The markets have nevertheless turned her into a kind of seer: With her, the markets were in good hands, there was only one way, the way up. Commenters (journalists, CEOs, strategists, economists) scrutinized Madame’s body language, since they were deprived of a better solution.

Soon after her coronation, Madame Yellen warned us that she would normalize the monetary policies and progressively raise the interest rates. That was 21 months ago. Back then, I claimed that it was a communication stunt and that she would instead implement a QE4.* I could see my Monday counterparts ** looking at me with a patronizing smirk and explaining to me, like a teacher lecturing his worst student, how she was about to raise interest rates by the end of 2014, then beginning 2015, then the second quarter, then the third … Next Monday, the increase will be postponed to December. The arguments presented by these brilliant high finance representatives were that the U.S. economy was strong, the unemployment rate was decreasing considerably, the oil price plummeting was a great thing, the emerging countries’ growth would drag us out of our moribund economy, a weak euro would help Europe start afresh, and that Mister Abe’s epiphanies would drag Japan out of recession. An idyllic world somehow!!

Regarding the likelihood of a QE4, it used to trigger wild laughter which recently turned into chuckles, and finally into embarrassed throat-clearing noises.

The same chuckles we used to hear, Pierre Sabatier and I, when we were explaining what was really going on in China, what would become of the BRICS and that Japan was bankrupt.

Why were we right against the rest of the mainstream world view?

The QE and 0 [percent] interest rates, that is to say, money printing and profligate debt, are two means of transportation on a one-way trip, a kind of bad trip [from which] no one comes back!!

Economists do not want to admit it, but we have empirical proof with the third largest economy in the world (Japan), QE after QE, running toward its demise without the possibility of turning back.

Nonetheless, thanks to people such as P. Krugman, who imposed on the world his economic model, we all have taken the road leading to our demise. In lieu of the Nobel Prize in economic science, they should have given him the “Nobel Prize in harmful science.”

We are in a deflationary world for multiple reasons: demographic, globalization which squeezes wages, technological progress, precise management of margins by business, and, most importantly, central banks implementing monetary policies ubiquitously, which generate deflation despite the fact that they claim they are fighting it … how ironic, it is the doctor who kills the patient.

Historically, we have reached unprecedented debt levels in the entire world (USA, China, Europe, Japan), extremely high unemployment rates or a completely reversed age pyramid, which amounts to the same thing, while growth potential decreased to a new low between 0 and 1 percent, which is not enough, on the one hand, to repay the debt and, on the other, to earn a decent leaving.

The repercussions of these crazy policies could range from social unrest to open transnational wars.

In the coming weeks, economists will realize that all the alleged global growth drivers have stopped, which should lead to a brutal plummeting in the overvalued equity markets. This downward phase will be halted immediately by central bankers who are obsessed solely by the markets pricing facade and who are totally disconnected from economic fundamentals. They will draw, in chorus, their financial weapon of mass destruction: money printing. At this level, two likely reactions:

• Either all the lobotomized financial actors who only have a single investment driver (i.e. free money), will throw themselves on the markets [leading to a] historical high followed by a descent into hell.

• Or lucidity takes over, investors understand that central banks have completely lost control and are pushing us further down the rabbit hole [in which case] the market will therefore adjust [by means of] a massive loss of its assets, or even worse, a massive currency crash in which said assets are issued.

•

Madame Yellen’s last idea: negative interest rates. As Albert Einstein righteously said, only two things are infinite: the universe and human stupidity.

Jovial perspectives, but unfortunately I do not know how we could eschew either ending. The market bubble burst will lead to the ruin of economies and everyone will be taken aback since reality will be cautiously covered up by rigged statistics and bookkeeping and communication stunts.

Unfortunately, the ones who will pay the price are not the ones responsible for these suicidal policies.

That’s the way of the world.

*Translator’s Note: Fourth QE = quantitative easing

**Translator’s Note: The author is the host of a weekly TV economic program.