The FEDs 2% Inflation Illusion
NQ or Fed Balance sheet no inflation there right???
Jerome Powell will speak tomorrow morning and the word on the street is he may speak of something called “Average Inflation Targeting or AIT” basically this would entail a framework for normalizing rates only when inflation over a specific time period averages 2%.
We love the central bank word “normalize” as much as the infamous “transitory” or “mid-cycle adjustment”. These are words that seem to only be confined to the hallowed halls of the Eccles building. These aren’t words that exist in the real world, yet adjectives designed for the commoner to think the egg heads know more than we do, which obviously in one regard, that is logic, they most certainly do not.
However, in the other regard, the one by which they manipulate and pull all the monetary strings to enrich a very select few, well, hell yeah, they are very damn successful at that!
Anyway let’s dig a bit into this farce known as the 2% inflation rate. Why 2%? There isn’t a good reason or explanation, just pulled out of a hat, much like their $1Trillion in TARP in 2008 and and the more recent nearly $4Trillion in on going FED balance sheet expansion.
Let’s remember the FEDs dual mandate shall we:
Maintaining maximum employment
Maintaining stable prices and moderate long-term interest rates
-Once again notice the adjective esotericism “maximum, stable & moderate”
So where are we now with those mandates?
Unemployment rate right now =10.2%
Stable Prices? Let’s see how we have fared since 2010:
Nasdaq +553% - Food Prices +21.1% - Housing Prices +25.1% - Healthcare +33.1%, meanwhile wages +27.0% ***(data from: www.in2013dollars.com)
Moderate Long Term Interest Rates, well let’s just post a 30Y Breakeven chart and you let us know if this seems “Moderate” to you, good for mortgages and debt terrible for long term liability matching and savers, but who gives a hoot about those guys!
With the Nasdaq up some 931% since 2009 in fact, we know what the real mandate is, so let’s not kid ourselves. In fact this Goldman Sachs chart makes things crystal clear. (By the way we added the Nasdaq to their chart since they were so ashamed at the outright blatant QE targeting, God forbid they include it, so we took the liberty)
Which after seeing this chart, its no wonder debt has to rise just to meet obligations, we aren’t even talking about growth, just merely the desperation by the commoner to remain in status quo:
Also remember the Federal Reserve Balance sheet has gone from $880 Billion to over $7 Trillion in 12 years or by a Factor of 8x now if that’s not “Inflation” what the hell are we talking about here?
So the big question is, Does the Fed really have any control over unemployment rate via the inflation channel?
The Phillips curve - DEAD and as the disconnect between employment and inflation has become a chronic problem not only for the Fed but for central bankers around the world. (Reuters) Yea, Gee, yah think? So this is why when you have the QE hammer, everything becomes a nail!
So the FED wants us to believe that more of the same QE will generate inflation, but isn’t that the pure definition of insanity, thinking doing the same thing over and over again, will produce a different result?
"There is a growing realization that a 2% inflation target as originally put in place in the U.S. and around the world is not quite enough," St. Louis Fed President James Bullard
So dear Magnelibra readers, we hope all of this evidence against the QE printing pressing Central Bankers has become abundantly clear as to their real mandate. So let’s boldly announce that we know what the central banks true one and only objective is:
TOO CONCENTRATE WEALTH AND DRIVE ASSET PRICES CONSISTENTLY HIGHER IRRESPECTIVE OF AVERAGE WAGES, UNEMPLOYMENT OR REAL INFLATION RATE
There we said it. we hope you got something out of the lesson today and we leave you with one final chart, we know the Nasdaq is the wealth driver of choice and it has hit the top of this 5 month long trend channel once again!
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