Janet Yellen’s Housing Bubble Blunder

Stocks are still acting as though they think Janet Yellen will be good for the US economy…or at least good for stock prices.

Gold must think so too.

But will she?

Ms Yellen has never had any business experience. Her whole career has been spent in academia and related public policy institutions. She has never started a business or held a real job. Does she have any idea how an economy actually functions? Not on the evidence…

In 2005, she described the developing housing bubble as a ‘good-sized bump in the road.’ Was she worried about it? Apparently not…  ‘The economy ought to be able to absorb the shock,‘ she reassured listeners. But how would she know?

And when the economy hit the ‘bump,’ two years later, it turned out she didn’t know anything. The economy wasn’t able to absorb the shock at all. Instead, the wheels flew off and the economy went into a ditch.

Ms Yellen will soon be running the biggest, most powerful banking cartel the world has ever seen. Good luck to us all!

The days are crisping up in Maryland. Here in Florida, it’s still summer.

We’ve come back to Florida to give a speech about writing. What can we say about it? Only that writing is easy…it’s thinking that’s hard.

We sat in the terminal in Baltimore. One man was reading a novel. Another was watching TV. Still another sat down beside us and began playing a game on his iPhone. A woman was reading Women’s Day magazine. Others talked on the phone.

Are we the only ones here who are thinking about Fed interest policy? Yes? We’re clearly the dumbbells in this group. Most people have better things to do.

But now we’re going to go back to thinking about how the Fed and the dollar fit into the general scheme of things…the big picture, looking back 10,000 years and beyond.

The critical change came around 5,000 years ago. Little by little, man became ‘civilised’. We use the word cautiously. It is like a hand-grenade without a pin. It could blow up on us at any moment. 

What is civilisation, anyway? Is it a good thing? A bad thing? Who’s really civilised and who’s not? No matter what you say, you are bound to offend someone with deep prejudices on the subject…

But what the heck? Damn the torpedoes…full speed ahead!

Civilisation is different from barbarism. Most anthropologists, archeologists and philosophers focus on the wrong things – art, culture, and technology, for example. They miss the key differences – in money, matrimony and the mandates that people follow.

People did not suddenly awake to a civilised dawn. Instead, the progress from barbarism to civilisation came in fits and starts, with much backing up and many detours.

Don’t bother to tell us that the Germans were supposed to be civilised…yet they exterminated millions at Auschwitz…or that Americans are sending drones to kill people they’ve never met. Even the most civilised peoples do uncivilised things…and most peoples, no matter how civilised they have become, still maintain some archaic, barbaric habits and institutions.

As civilisation became more complex, the rules grew simpler. Typically, people became monogamous, monotheist, and monetarists. You can see this progress on exhibit in the Bible.

The Old Testament is full of war…and many rules for how people are to get along with one another. In the New Testament, Jesus proposes only one rule, which leaves little place for making war: do unto others as you would have them do unto you.

In pre-civilised days, a man might have as many wives and concubines as he could manage. Civilised, modern men typically have only one; that is more than enough for many men.

In pre-civilised days, commercial transactions were difficult and complex – usually involving a ‘credit-based money’ which left obligations stretching forward into the future, often unresolved over many generations. Civilised man developed modern money, typically gold, which made it much easier to settle up and move on.

But the most profound difference was that barbaric people used force and violence to get what they wanted; civilised transactions are based upon mutual consent and cooperation.

But wait. Where does that leave the dollar and the Fed? Does the Fed allow willing buyers and sellers to set interest rates as they choose? Or does it force the issue…pushing interest rates around as if they were travellers in the airport security line?

Does the Fed permit investors to ‘discover’ asset prices without interference? Or does it try to fix prices itself…claiming that it knows better than the rest of the world put together?

We know that the economy of the Soviet Union, driven by brute force, was a disaster. How about the economy of the US, heavily persuaded by the padded force of the Janet Yellen Fed? Is today’s Fed a modern, civilised institution?

Or an archaic throw-back to the past? And what about the dollar itself? Is it a form of modern money…or a barbarous relic, depending on the police power of the state to give it value?

More to come…


Bill Bonner
for Markets and Money

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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