Janet Yellen’s Bluff Keeps the Media Fooled (Audio)
The financial media latched onto Janet Yellen’s latest statements as further proof that a rate hike will happen this year. Peter Schiff debunks this analysis in his latest podcast, pointing out that Yellen’s phrasing remains as ambiguous as ever. Peter also addresses the latest news out of Greece, where he expects the Greek government to reach a deal to stay in the eurozone. He wraps up with a quick summary of the drama in the Chinese markets.
In her talk, [Yellen] said that the labor market is continuing to improve. No it’s not. Didn’t she see the jobs report that came out on Friday? Didn’t she see all those downward revisions to prior months? Didn’t she see the plunge in the labor-force participation rate to 62.6 – a new low since 1977?”
Highlights from the podcast:
“I want to start with Janet Yellen’s talk today in front of the City Club of Cleveland, where she actually received a standing ovation… The way the newspapers reported it – ‘Janet Yellen says rates to go up by the end of the year’. Of course, I knew she didn’t say that. She would never commit to raising interest rates later this year. So here’s the quote. This is what she actually said… ‘Based on my outlook’ – And there’s your hint. It’s based on her outlook, which could obviously be wrong and probably is. ‘Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the Federal Funds rate and thus begin normalizing monetary policy.’ That’s it. She also said, ‘I want to emphasize that the course of the economy and inflation remains highly uncertain. Unanticipated developments could delay or accelerate the first step.’ Meaning that based on her rosy outlook, if she ends up being right, that it might be appropriate to raise rates later this year. Not a particular time and not that it will be appropriate, but that she expects it to be appropriate…
“Rates have been at zero for seven years. It’s been nine years since the Fed has raised rates. That’s probably some kind of a record… The market is not prepared for that given the enormity of the debt. A lot of talk about Greece and Puerto Rico in the last week – this is all about too much debt. But we’ve got more debt than anybody. The United States owes more money than all the other debtor nations combined. We are not able to pay it. We can only pretend we’re solvent, and zero-percent interest rates are a big part of that pretense…
“In her talk, she said that the labor market is continuing to improve. No it’s not. Didn’t she see the jobs report that came out on Friday? Didn’t she see all those downward revisions to prior months? Didn’t she see the plunge in the labor-force participation rate to 62.6 – a new low since 1977? … Didn’t she see the jobless claims that came out just yesterday? The weekly jobless claims last week surged to 297,000. That is the highest weekly level of job claims since mid-February…
“Also in the news is more turmoil in Greece. I reported that they voted “no” on accepting the austerity terms that were the conditions on the European bailout… [They want a better deal.] Well, as I said, there is no better deal. Germany cannot afford to cave here, because the moral hazard is too great. Some people think this is a game of chicken. It’s not, because Germany is not going to budge… [Greece has] now basically agreed to abide by a bailout with conditions that are pretty much identical to the ones the voters just rejected…
“Given how bad things are going to get in the short-run if they actually leave the eurozone – even though, in the long run, it may be a much better thing. Because I don’t see who the Greek economy is going to survive without the debt intact… If they leave, their socialist government is not going to lead them in the right direction… There’s going to be chaos, but that could be the catalyst for an independent Greece to hopefully adopt the free market reforms needed to regrow that economy…
“I also want to comment on what is going on with the Chinese stock market. There has been a lot of coverage of the collapse in the Chinese stock market, as if it’s this big bubble that’s bursting and that’s it, it’s all imploding, the Chinese market is going to take the global market down…
“You’ve got to put this decline into perspective. Even though the market is down 30 percent in a short period of time, the Chinese market is still positive on the calendar year. The US market is down, the Chinese market is up. Beginning in April of this year, Chinese stocks took off. They went up in a spectacular rally in a very short period of time…
“All we did was retrace those gains. In fact, the market now, the Shanghai, closed the week about 2,800. That’s still well above the 2,500 where it was in April when this big rally started… This is not a crash. I think the fundamentals that drove the market higher for those first two months – those are still solid fundamentals and they’re still in place… I think the media is blowing this out of proportion with respect to how big a disaster this is for China, or that it shows there is something inherently wrong with that market or economy. The only thing that was wrong is so many retail investors, new to market, made the same mistake at the same time, which was just buying. They didn’t use limits, they bought at the market, they competed with one another to bid up prices…”
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