November 26, 2022

Yellen’s Remarks to Senate Committee Constitute an All Out Buy Signal for Gold and Silver

money printingFed Chairman Yellen’s less than sparkling performance before the Senate Banking, Housing and Urban Affairs Committee on Thursday constitutes a complete affirmation for continued purchases of gold and silver.  The Chairman’s testimony was so disjointed that two major news organizations published completely contradictory headlines of her stuttering remarks.

Tapering – will she or won’t she was the question on everyone’s mind regarding future actions of the Fed and here’s the yes and no answer to the big question based on Yellen’s testimony.
The Wall Street Journal reported that Yellen Says Rethinking Bond Pullback is Possible.

Federal Reserve Chairwoman Janet Yellen said she isn’t sure how much of the recent deterioration in U.S. economic growth is due to weather, adding the central bank might consider a pause in its reduction of bond buying if the weakness persists.

“Asset purchases are not on a preset course, so if there’s a significant change in the outlook certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here,” Ms. Yellen told the Senate Banking Committee Thursday.

“A number of data releases have pointed to softer spending than analysts had expected,” Ms. Yellen said. “That may reflect in part adverse weather conditions, but at this point it is difficult to discern exactly how much.”

Since Feb. 13, U.S. economic data has shown signs of weakness. The softness has been broad-based, with retail sales falling 0.4% and industrial production sliding 0.3% in January. The recovery in housing, a crucial gauge for the success of Fed policies, has also shown signs of fraying. Some economists have blamed harsh winter weather for the slowdown.

Meanwhile, Yellen’s remarks were viewed in a different light by a Bloomberg headline stating that Yellen Repeats Fed Likely to Keep Trimming Asset Purchases.

Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.
Yellen repeated the Fed’s statements that the central bank intends to reduce asset purchases at a measured pace, and she said in response to a separate question that the bond-buying program was likely to end in the fall.

Does Yellen have a dissociative identity disorder (DID), commonly referred to as a multiple personality disorder? According to Wikepedia, DID is characterized by two identities or dissociated personalities that alternately control a person’s behavior. The disorder is a controversial subject in the field of psychiatry and there is no consensus regarding either diagnosis or treatment so we can give Yellen a pass of this one.
Here’s the facts we do know about Yellen and Fed policies and they all represent some of the best reasons for increased ownership of both gold and silver.

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The Fed stands ready to increase its $4 trillion balance sheet at the slightest sign of weakness in the stock market or the economy despite the lack of conclusive evidence that their money printing spree has helped the real economy.

The money surging out of the Fed has created multiple asset bubbles which will eventually pop, prompting further asset purchases with printed money to contain the damage and the cycle stays on auto repeat until the entire empire of debt and printed money completely collapse.

The Fed is firmly committed to an annual inflation target of at least two per cent to combat the threat of deflation.   The Fed is terrified of deflation since it increases the value of money and decreases  the ability of borrowers to service their debt burdens relative to income.   Deflation would make it difficult and eventually impossible for governments to continue borrowing to stay current on their mountains of debt and entitlement obligations.

Inflating away the debt is the Fed’s solution for keeping U.S.A. Inc. in business.  The Fed’s inflation targeting will help the U.S. government from being overwhelmed by debt but long term it guarantees that the future purchasing power of the dollar will continue its relentless decline and the downward spiral in real inflation adjusted wages will continue.

There will be a “next recession” and when it comes the Fed’s only option is money printing since short term rates are already at zero.

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Yellen has acknowledged that she has a soft spot in her heart for the unemployed. The Fed’s conflicting mission of ensuring a stable value of the dollar and promoting employment has morphed into a full blown effort to create economic wealth and jobs through higher inflation and printed money.

Courtesy: zerohedge

The monetarist fools at the Fed, lead by Yellen, seem fully committed to solving every economic problem with more monetary printing. This policy may keep the wheels from falling off in the short term but guarantee disastrous long term results.  Bernanke had his critics but Yellen seems like a novice by comparison – maybe she should grow a beard.

The Term “Easy Janet” Is About to Become Part of the American Lexicon

By: Axel Merk

courtesy: www.michaelianblack.net

courtesy: www.michaelianblack.netBy: Axel Merk

While Democrats and Republicans fight with water pistols, the President may be readying a bazooka by nominating Janet Yellen to succeed Ben Bernanke as Fed Chair. You may want to hold on to your wallet; let me explain.

Our reference to water pistols refers to our assessment that bickering over discretionary spending is distracting from the real issue, entitlement reform. For details as to what we believe will happen if we don’t get entitlement reform done, please read our recent Merk Insight “The Most Predictable Economic Crisis”.

Bernanke Fed

Central banks in developed countries are generally considered independent, even if their members are appointed by politicians. In the U.S., however, there’s an added element: aside from a mandate for price stability, the Federal Reserve is tasked with promoting maximum sustainable employment. This simple concept might have been put in place with the best of intentions – who wouldn’t want to have maximum employment? Central banks that have a single focus on price stability, such as the European Central Bank, point out that the best way to foster sustainable growth is by keeping inflation low. The U.S., even with an employment mandate, had pursued the same practice.

That is, until Ben Bernanke appeared to run out of options to lower borrowing costs. Bernanke’s frame of reference had been the Great Depression; he had frequently cautioned that the biggest mistake during the Great Depression was to raise interest rates too early. After a credit bust, as central banks push against deflationary market forces, premature tightening might undo the progress to reflate the economy. In today’s world, it’s not just short term, but also longer-term interest rates that Bernanke has been concerned about – partially because Bernanke has always considered it important to keep mortgage rates low. To achieve his goal, the Bernanke Fed:

  • Talked down interest rates;
  • Lowered interest rates;
  • Purchased Treasury and Mortgage-Backed Securities
  • Engaged in Operation Twist
  • Introduced an employment target

Introducing an employment target was nothing but an extension of existing policies, as it signals the Fed might keep rates low independent of where inflation might be.

Yellen Fed

With Janet Yellen coming in, the concept of promoting employment is raised to a new level. Long gone is the Great Depression, but what remains may be a conviction that monetary policy should make up for the shortfalls of fiscal policy. That’s problematic for a couple of reasons:

  • When the Fed meddles with fiscal policy, Congress will want to meddle with monetary policy. For example, when the Fed buys mortgage-backed securities it allocates money to a specific sector of the economy (favoring the housing market); that’s not what the Fed ought to do – it’s the role of Congress to channel money through tax and regulatory policy. One can disagree whether even Congress should be picking winners and losers in an economy, but that’s a political determination to be made by elected officials.
  • When the Fed keeps rates low to promote employment, there’s a fair risk that important cues are removed from the market that would encourage Congress to show fiscal restraint. Congress has always loved to have a printing press in the back yard, but an employment target suggests that this printing press is going to be moved into the kitchen. The Eurozone may be proof that policy makers only make the tough decisions when forced to do so by the bond market; if, however, the Fed works hard to prevent this “dialogue” between the bond market and politicians, the most effective incentive to show fiscal restraint might be gone.
  • Inflation is a clear risk when the Fed emphasizes employment. In our assessment, inflation may well be the goal rather than the risk in the eyes of some policy makers, as inflation lowers the value of outstanding government debt.

Hold on to your wallet

In a democracy, it’s all too tempting to introduce ever more entitlements. As obligations mount, however, servicing these obligations might become ever more challenging. It’s nothing new that governments tax their citizens. But when deficits are no longer sustainable, governments may be tempted to engage in trickery. Structural reform, that is taking away entitlements, to lower expenditures would be the most prudent path to regain fiscal sustainability. Raising taxes is all too often the preferred alternative; while politically difficult, raising taxes is a strategy that’s all too often politically viable. Yet the path of least resistance may well be to inflate the debt away. Central banks ought to be independent to take this option away from policy makers. We have seen in the Eurozone that it can be most painful when the printing press is not at the disposal of politicians.

In our assessment, a central bank pursing an employment target is a central bank that has given up its independence. It’s only ironic that outgoing Fed Chair Bernanke recently praised Mexico’s central bank for gaining “independence.”

Whatever happened to the government being the representative of the people? Interests of the government and its citizens are no longer aligned when a government has too much debt. The government’s incentive will be to debase the value of the debt. The U.S. may have an easier time debasing the value of its debt than some other countries, as much U.S. debt is held by foreigners who can’t vote in the U.S. Differently said, promoting a weaker dollar is another potential avenue for U.S. policy makers to kick the can down the road. But fear not, whatever policy is coming to a neighborhood near you shall be done in the name of fostering maximum employment.

Axel Merk
Axel Merk is President and Chief Investment Officer, Merk Investments, Manager of the Merk Funds.

More on this topic:

After getting rid of their crazed central bankers, Zimbabwe Achieves Economic Growth by Destroying Ability of Government to Print Money.

obama_zimbabwe

So the good news is that once the economic collapse kicks in and the dollar becomes worthless preventing Hillary Chelsea Clinton Obama III, our 79th President from just printing more money, we too can have an actual economic recovery. Just like Zimbabwe.

“Having a multi-currency economy with no Zimbabwe dollars is primarily good news for Zimbabwe because government can’t print its way out of a deficit,” said John Robertson, an independent economist, in an interview from Harare. “They can’t just print more if they need it, as was happening in 2008.”

So there’s hope for America yet. Our current dictator could learn some lessons from the plight of Zimbabwe, but I suppose destroying the economy is a better means of wealth redistribution, than actually repairing the economy. Until then we’ll go on printing imaginary money.