It's Fed silly season again
It is Fed silly season. Again! It rolls around quarterly or more frequently for those that follow their publications.
Pre-event pundits jabber endlessly. A common thread to every Fed meeting is that this one, this very one, is the most important ever.
That is a constant. As an aside, it is also a constant regarding a Presidential speech ("the most important of his Presidency"), a debate, an interview, etc. How fortunate that we live in such truly amazing times! Or, perhaps we have pundits that manufacture news rather than report it. Or, perhaps these pundits are remunerated by the number of words.
The Fed ritual, however, is the topic. The presumed Fed wizards all gather behind closed doors, supposedly peruse enormous amounts of data and determine what it means for the economy. The brain power is so great and the focus so intense, that special air-conditioning equipment is rumored to be necessary to keep craniums from melting.
Outside the usual suspects gather, wait and speculate. CNBC does its best to promote the event as always economy-changing and generally life-changing. Other outlets try to make the event seem even more important.
The entire spectacle is not unlike a changing of the highest post at the Vatican other than this one repeats more frequently. The pundits speculate while the world waits. The future of the world is dependent upon the words and actions of the wizards. Eventually, puffs of smoke are emitted in the form of a Fed statement. Pundits then parse it, puff by puff. Deconstructions, reconstructions and discussions of economic implications follow ad nauseum.
The entire process is offensive. Why do intelligent people demean themselves by participating in this repeating charade? The repeating scene is like a pre-historic religion. It is pre-science, pre-reason and irrational. It is the modern-day equivalent to sacrificing animals or virgins to placate the Gods.
The following quote from Bertrand Russell seems appropriate to understand the Fed and the reverence it is shown:
Many orthodox people speak as though it were the business of sceptics to disprove received dogmas rather than of dogmatists to prove them. This is, of course, a mistake. If I were to suggest that between the Earth and Mars there is a china teapot revolving about the sun in an elliptical orbit, nobody would be able to disprove my assertion provided I were careful to add that the teapot is too small to be revealed even by our most powerful telescopes. But if I were to go on to say that, since my assertion cannot be disproved, it is intolerable presumption on the part of human reason to doubt it, I should rightly be thought to be talking nonsense. If, however, the existence of such a teapot were affirmed in ancient books, taught as the sacred truth every Sunday, and instilled into the minds of children at school, hesitation to believe in its existence would become a mark of eccentricity and entitle the doubter to the attentions of the psychiatrist in an enlightened age or of the Inquisitor in an earlier time.
(From "Is There a God?" in The Collected Papers of Bertrand Russell, Volume 11: Last Philosophical Testament.)
Pundits in general are not our so-called "best and brightest." They do a job as a means to feed their families. Questioning myths important to the power elite is not something they have been trained to do; nor is it conducive to the welfare of their families. Hence the myth that is the Federal Reserve is supported with the same pomp and circumstances that accompanies an ancient religion.
The Fed is little more than the government's chief agent of plunder. Its principal purpose is to enable the government to spend beyond its means, conduct unpopular wars and transfer wealth to government via the hidden taxation of inflation.
Some of the thunder of the Fed meeting has been stolen by the National Bureau of Economic Research who announced a couple of days ago that the recession ended over a year ago (June, 2009). If you have interest in a certain bridge in Brooklyn, you might be able to sell it to the NBER.
The pomp and circumstance circus has already begun as I watch CNBC pre-market. That was certain. Less certain is the wording that the Fed will issue in their statement. No matter, it is all part of a game. The reality is that we are going to have quantitative easing regardless of what is stated. Period! End of discussion.
If the economy were healthy (it is in dismal condition and will get worse), QE would still occur. The Federal Government is spending close to 50% more than it collects in revenues. That is about $1.5 Trillion per year. They cannot finance these deficits. Foreign demand for Treasuries is shrinking. China has bought less for the past two years. Japan has its own crisis as does most of the rest of the world.
So, who is going to buy all this paper? Not you or me, although some of us will buy some of it. That leaves the Federal Reserve. Either they buy it or the government stops paying its bills. Do you believe that the government will not send out social security checks next month? Of course not.
The Fed will ride to the rescue whether it wants to or not. If not, Congress will change their charter and force them to. Welcome to QE big time and as far as the proverbial eye can see. Even if you believe the Administration's 10-year forecast, there will be no end to QE. These forecasts, by the way, are based upon unrealistic GDP growth numbers. The deficits will be substantially larger than the forecast.
Monty Pelerin @ www.economicnoise.com