Yellen Hands Off Stick of Dynamite to Jerome Powell

Janet Yellen sang her swan song this week.

As expected, the Federal Reserve left interest rates unchanged during the Federal Open Market Committee meeting. The next hike will come after Jerome Powell takes the reins.

As Peter Schiff put it, Yellen got out of dodge.

This is the second Fed chairman to be able to pull this off because Bernanke inherited a disaster and, you know, he got out of Dodge, and so did Janet Yellen. I don’t think Powell is going to be as fortunate as his two predecessors.”

Peter noted that Alan Greenspan did an interview with Bloomberg and talked about bubbles.

There are two bubbles: We have a stock market bubble, and we have a bond market bubble … At the end of the day, the bond market bubble will eventually be the critical issue but for the short term, it’s not too bad. But we’re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact, as you know, on the whole structure of the economy.”

Greenspan also sounded alarms about the ever-increasing national debt, saying, “We’re just not paying enough attention to that.”

Peter said Greenspan is kind of like the Frankenstein who created this monster.

Except neither Yellen, nor Bernanke, nor Powell even realizes that it is a monster. I don’t think any of them know enough about economics … [Greenspan] created this thing, yet the Fed chairman that succeeded him, they don’t understand it. These guys are clueless.”

Peter compared Fed policies to a stick of dynamite being handed from one Fed chair to the next.

They just keep expanding the policy. They’re just like putting more gunpowder in the dynamite because they believe this Keynesian nonsense. Greenspan doesn’t believe any of that. So, they have no idea what they’re dealing with.”

Peter doesn’t think Yellen realizes that she’s getting out of Dodge just in time. In fact, she keeps saying everything is great. The economy is great. The Fed is even anticipating hitting the mystical 2% inflation target this year. Peter raised an interesting question: What’s to stop it at 2%, given all the money that’s been created over the last decade?

If it gets to 2.5 or 3%, there’s no way the Fed can bring it back down, because it can’t get aggressive with monetary policy without completely blowing up the bubble. So, it’s all bark and no bite when it comes to talking about the future potential of restraining inflation.”

Meanwhile, the dollar continues to tank. In January, the greenback was at the weakest level against the Chinese yuan since 1994.

So, we’re having pronounced weakness in the dollar at a time where everybody is optimistic on the US economy. I mean, you can’t find a bear. Everybody thinks everything is great in the US, and everybody thinks the Fed is going to hike rates three or four times this year, and that they’re finally going to shrink their balance sheet even though … it still hasn’t shrunk at all in the last year. So they do a lot of talking, but there’s nothing actually shrinking.”

In effect, the Fed is trying to shrink the money supply. It’s withdrawing dollars from circulation. Based on basic supply and demand, the price of the dollar should be increasing. We should be seeing a stronger dollar. And during the State of the Union, Trump boasted that everybody wants to invest in the US. Again, shouldn’t this be increasing the value of the dollar?

So, you have all this good stuff that supposedly going for the dollar, yet the dollar is tanking. I mean, this should be worrying people.”

So, with Yellen’s exit, Powell will step in. Peter said he’s going to be the fall-guy, along with Trump.

Janet Yellen is gone, and now Trump’s man is going to come in and the stick of dynamite is going to be passed like a baton. And it’s going to blow up in this guy’s hand. I just do not think he’s going to be able to finish out a term and then give it to some other sucker.”

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