Out of the Box: Powelling Around
It seems to me that there are several areas where people and institutions, alike, are not taking a broad enough view. One area is the Fed. The Fed is not some off-shore institution that operates independently from the government of the United States. “Independence” does not mean that it is not accountable for its actions. In fact, the four-year term of office for the Chairman, and the fourteen-year terms for the Presidents and the Governors, are not some God given right. The Fed was instituted by Congress, and their mandates can be changed by Congress, as has happened several times, and the Fed can even be revoked by Congress.
The Fed was created by the Federal Reserve Act of 1913 and signed into law by President Woodrow Wilson. Congress created the Federal Reserve Bank, and Congress has the power, and the authority, to direct its actions. Also, it is not the “world’s central bank,” as it has been so often termed in the Press.
The Federal Reserve Bank was created to protect the interests of the United States. While it is true that they are “Independent,” as I said, that they can make their own decisions, they are not above the wishes of the government, the people. It is my opinion, therefore, that the President, a Senator, a Congressman, has the right, if not the obligation, to ask just what the Fed is doing, when they do not seem to be operating in the best interests of the country.
While there is often a reference to the mandates of the Fed, I think that the first consideration is the “purpose” of the Fed. I quote, below, from the Federal Reserve Act of 1913. The very first statement is the purpose, and function, of the Federal Reserve:
“The Federal Reserve System is the central bank of the United States.”
The Federal Reserve Act declares:
“The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy; promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;
promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;
fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.”
Now we are faced with Chairman Powell’s comments at Jackson Hole, today. Is it going to be another December, moment to remember, and a disaster for the markets or will his speech underpin the correct course of action, which is to lower rates, when the country is under threat from the other global central banks? Make note that the other central banks have no independence from the governments that created them. They act at the beck and call of those governments so when you see the Swiss National Bank, or the ECB, acting, it is because they are told exactly what to do by the government of Switzerland or by the governments of the European Union.
The world is currently awash in negatively yielding debt, about $17 trillion of it. We have never seen anything like this before, for thousands of years. The cause of it is one thing, and one thing only, and that is the actions of the other central banks, which are being manipulated by their governments to pay for their budgets, and social programs, that cannot be economically or politically afforded, by raising taxes or by selling off assets.
It is all a ruse, where “Pixie Dust” money is created from imagination and then used to buy bonds, to fund various sovereign and corporate entities. The United States now has the highest yields of any major country in the world and, over time, with the Fed’s assistance, or without it, American yields will be driven down further as Europe and Asia buys our bonds as the only positive yielding bonds left.
These few people, that vote at the Fed, not elected by anyone, now have the power, and the authority, to decide the future of the economy of the United States. The decisions are now in their hands and one can only hope that they make those decisions wisely.
The Fed was once part of the “Game.” They now are “The Game.” It is absolutely impossible for any financial institution, or money manager, to compete with the people that make the “Coins of the Realm.” All anyone can do, anymore, is try to get in front of them, before they announce their next move.
We will all see what happens today. I am hoping for “Powelling Around.” If not, the reactions in the markets may be “A Powelling” and both equities and debt could get hit. We are living, and investing, upon the precipice. Hang on.
“Ah well, we all have to bear the slings and arrows of outrageous fortune.”
-William Shakespeare, Hamlet
Mark J. Grant
Chief Global Strategist, Fixed Income
B. Riley FBR Inc.
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