Janet Yellen is now the most powerful women in the world without an army.

She heads the under defined “shadow” branch of the United States government.  Under her control is the cost of money and thus the valuation of assets.  From stocks and gold to real estate and currency, her control and power sets the mark. She possesses the ability to take from some at the expense of others, yet such robbery never seems to make the rap sheets.

Disguised as a free market “finger” on the tiller, her predecessor placed both hands on the wheel, white knuckled at the 10 and 2 positions, to save the system from the excesses of irresponsible over leveraging from her constituents. Too big to fail and too big to jail. 

Books have been written (The Creature From Jekyll Island) about this “shadow” branch detailing the history of bailouts and special treatments for some.  The regional boards are a collection of banking and brokerage insiders enjoying prompt awareness of any policy changes.  Loan guarantees issued by the United States, the IMF, or the World Bank are nothing more than defacto bailouts for US banks who find themselves with a precious body part in the wringer. (to wit, Ukraine’s $1 Billion dollar guarantee.)

In the 1970’s a revised mission statement was struck providing some vague guidances for the Federal Reserve. Strangely absent is language regarding the defense of the currency and promoting of savings.

Included is the following….

“..conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.”

Some questions arise.

What, today, is “maximum” employment?  In the past, figures such as 5.5% unemployment was considered “full” due to slippages, people waiting for a specific job, etc.. But in today’s world with generous governmental programs to assuage those who find themselves unemployed, what rate applies?  Do loose money policies actually affect unemployment?

Regarding stable prices, we hear much regarding a 2% inflation target.  Yet, nowhere in the mission statement, nor in the powers so vaguely defined, do we see any mention of the Federal Reserve promoting ANY inflation.  2% seems a benign rate, yet with compounding, prices will double every 36 years.  Price stability?  Just the opposite.

Does the Federal Reserve now guarantee a consistent and constant rise in the stock market? Macromanaging has now become micromanaging.  Day to day fine tuning “policy” hangs on every economic number.  The market is not allowed to adjust as a free market would, but held hostage and denied free market machinations by Federal Reserve rhetoric and tweaking. (Some might describe as twerking.)

Finally, suppressing the currency to beautify the financial landscape is a dangerous ruse.

Steve Forbes once said, “strong countries have strong currencies.”  Yet there seems a theory bound drive by the Federal Reserve to crush the value of the dollar to promote a desired outcome. 

Combining a  2% inflation, a declining currency, and ZIRP (zero interest rate policy) while seeming to guarantee ever increasing stock values, manufactures a situation that takes from some and gives to others. 

This is not a free market but rather a centrally controlled one.  Hayek noted that central planners may believe they know all, but that notion is folly.  The free market participants collectively will always know more than a person or a board.  Allowed to act in the market, unfettered by the threat of central planning interventions, the market efficiencies come to the fore.

The Federal Reserve has created rather than curtailed excesses, all initiated under the guise of  systemic emergency and now perpetuated under new assumed and unilaterally acquired powers. For example, for the first 100 years of the Fed, they never bought a mortgage backed security.  Now they buy $75 Billion a month, down from $85 billion.

That’s new.

Just like the smiling and curtsying grandmother guarding the crossing gate in the movie Goldfinger, Yellen has that “machine gun” authority at the ready.  And as in the movie, her imagery does not suggest such power nor reveals her allegiances.

James Longstreet