Party While You Can – Central Bank Ready To Pop The ‘Everything’ Bubble

Party While You Can – Central Bank Ready To Pop The ‘Everything’ Bubble, by Brandon Smith.

Many people do not realize that America is not only entering a new year, but within the next month we will also be entering a new economic era. In early February, Janet Yellen is set to leave the Federal Reserve and be replaced by the new Fed chair nominee, Jerome Powell.

Now, to be clear, the Fed chair along with the bank governors do not set central bank policy. Policy for most central banks around the world is dictated in Switzerland by the Bank for International Settlements. Fed chairmen like Janet Yellen are mere mascots implementing policy initiatives as ordered. This is why we are now seeing supposedly separate central banking institutions around the world acting in unison, first with stimulus, then with fiscal tightening.

However, it is important to note that each new Fed chair does tend to signal a new shift in action for the central bank. For example, Alan Greenspan oversaw the low interest rate easy money phase of the Fed, which created the conditions for the derivatives and credit bubble and subsequent crash in 2008. Ben Bernanke oversaw the stimulus and bailout phase, flooding the markets with massive amounts of fiat and engineering an even larger bubble in stocks, bonds and just about every other asset except perhaps some select commodities. Janet Yellen managed the tapering phase, in which stimulus has been carefully and systematically diminished while still maintaining delusional stock market euphoria.

Now comes the era of Jerome Powell, who will oversee the last stages of fiscal tightening, the reduction of the Fed balance sheet, faster rate increases and the final implosion of the ‘everything’ bubble. …

It is important to note that the mainstream media is consistently referring to Jerome Powell as “Trump’s candidate” for the Fed, or “Trump’s pick” (as if the president really has much of a choice in the roster of candidates for the Fed chair). The public is being subtly conditioned to view Powell as if he is an extension of the Trump administration.

This could not be further from the truth. Powell and the Fed are autonomous from government. As Alan Greenspan openly admitted years ago, the Fed does not answer to the government and can act independently without oversight. So, why is the media insisting on misrepresenting Powell as some kind of Trump agent? Because Trump, and by extension all the conservatives that support him, are meant to take the blame when the ‘everything’ bubble vaporizes our financial structure. Jerome Powell is “Trump’s guy” at the Fed; so any actions Powell takes to crush the recovery narrative will also be blamed on the Trump administration.

But, is it a certainty that Powell will put the final nail in the coffin of “economic recovery?” Yes. Last Friday the Fed finally released the transcripts of its monetary policy meetings in 2012, and in those transcripts are some interesting admissions from Powell himself. After reading these transcripts I am fully convinced that Powell is the man who will stand as the figurehead of the central bank during the final phase of U.S. decline.

The mention here of a “US decline” is in a financial context. World markets, but especially US markets, have been buoyed by central banks over the last 10 years since the GFC — by money injections soon to be reversed, and by the large reduction of downside risk by central banks that step in to prop up the markets when they falter.

A 10 to 20 percent fall in stock markets globally is on the cards for mid to late 2018, to judge by the recent actions of the central banks in reducing money supply growth. This will be blamed on Trump.

Bureaucrats largely run the economy because they set interest rates and manage the money supply. Yes, just like in the Soviet Union bureaucrats set the most important price — the price of money — in our “capitalist” economies. No, having bureaucrats dictate prices didn’t work for the Soviets either. After the “recovery” from the GFC under Obama (cheer), the bureaucrats are now going to “allow” the asset markets to “correct” and blame Trump (boo hiss).