On Sept. 14, addled Janet Yellen, the former chair of America’s central bank who last June said she doesn’t believe that “we will see another crisis in our lifetime,” urged the Federal Reserve to commit to a new approach to forward guidance — one that would let economic booms run long enough to fully offset crashes, like the global financial crisis and recommended the Fed make “lower-for-longer” its official motto for interest rates following serious downturns.
Translation: Permanent bubble blowing.
Ten days later, addled Yellen suddenly says she sees dangerous excesses in “non-bank loans.” Passing the buck on to “Congress and the public,” Addled gave her two cents worth: “Regulators should sound the alarm,” she said in an interview. “They should make it clear to the public and the Congress there are things they are concerned about and they don’t have the tools to fix it.’’
For those who may have forgotten, “non-bank loans” were a large part of the last financial crisis a decade ago. Back then, “non banks” (aka international banksters) were creating all sorts of derivatives and gambling vehicles. One type was covenant light loans, shown on the next chart. Under Yellen, such wildcat finance leveraged loans came to totally dominate. What addled Yellen doesn’t mention is that the “banks,” as she calls them, also utilize off-balance-sheet and offshore entities and partnerships. But she doesn’t speak about those.
Addled Yellen also knows full well that the Crime Syndicate just end-runs to wildcat finance new scamming vehicles. Does she think the syndicate doesn’t have armies of “creative” boyz working on circumventing scrutiny? Most likely, she’s fully on board the program.
Here are the “non-bank” firms that have lead the charge into the creation of over $2 trillion in unregulated leveraged loans. They have been given the attention, but notice something revealing: These four firms fingered only make up about 10% of the generation of leveraged zombie loans. And these loans could have never have been created without access to Yellen’s nearly free money. The second chart shows the underwriting cycle of this leveraged garbage and “next crisis.”
The next chart is from Bianco Research. It shows the percentage of companies in the S&P 500 that would fall into Hyman Minsky’s “Ponzi unit” category. Specifically, it defines these “zombies” as companies with interest expenses that are greater than their three-year average EBITA (earnings before interest, taxes and amortization). And that’s in an ultra-low interest rate environment.
The current situation makes 1998-2001 and 2006-2009 look like piker eras! Read ’em and weep. In hindsight, the Ponzi units of the 2008 crash were more concentrated with certain notorious financial wild men and criminals, who nearly brought the system down. Now, Hyman Minsky would be having a moment, rolling over in his grave. Thus, rather than cooling off speculative Ponzi excess, the central banks have doubled down and amplified it.
Minsky defined it thusly: “The greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system.”
Separate from the massive issue of Ponzi units is the issue of inflation. Bonds fare poorly in inflationary climates. And you don’t need an empty-suit like Yellen to see what’s developing.
Of late, U.S. retailers have spent a great deal of time on investor conference calls warning about imminent price hikes during the upcoming holiday season, which could send shock waves through the wallets of American consumers. The chief executives from Walmart, Target, Gap, Inc. and Best Buy, among others, have been some of the most vocal companies warning about “unavoidable” price hikes. There are also concerns about sources of goods as Chinese exporters are shifting away from the U.S.
Tariffs on some $200 billion worth of Chinese imports took effect on Sept. 24. There are several hundred items on the list, including electronics, kitchenware, tools and food. The taxes are set around 10 percent but will jump to 25 percent at the beginning of 2019.
Who is Addled Yellen? What Rock Did She Crawl Out From Under?
Nobody really wants to ask this question: Who is addled Yellen? The truth is that she only pretends to be addled. Allow me to provide clues.
Janet Louise Yellen (born Aug. 13, 946) is a made woman. She served as the Chair of the Board of Governors of the Federal Reserve System from 2014 to 2018 and as vice chair from 2010 to 2014.
Yellen was born to a Polish-Jewish family in New York City’s Brooklyn borough. She received her Ph.D. in economics from Yale University in 1971. Her dissertation was titled “Employment, Output and Capital Accumulation in an Open Economy: A Disequilibrium Approach” and was crafted under the supervision of Nobel laureates James Tobin and Joseph Stiglitz. Translation: She was a Keynesian, which has been strangely morphed into runaway neo-Keynesism. The real Keynes would be rolling over in his grave to see what addled Yellen has done.
Because Addled was considered such a brilliant egghead, she was give all the plum academic jobs, especially those that have a track record of getting the world in deep trouble. She was an assistant professor at Harvard from 1971 to ’76 and a lecturer at the London School of Economics and Political Science from 1978 to ’80. Beginning in 1980, she conducted research at the Haas School and taught macroeconomics to full-time and part-time MBA and undergraduate students. She is now a professor emerita at the University of California Berkeley Haas School of Business.
From 2004, until 2010, Yellen was the president and CEO of the Federal Reserve Bank of San Francisco. She was a voting member of the Federal Open Market Committee (FOMC) in 2009.
Addled Does What She Always Did: Spot Excesses Too Late and Then Just Talk
Following her appointment to the Federal Reserve board in 2004, she spoke publicly and in meetings of the Fed’s monetary policy committee and about her concern for the potential consequences of the boom in housing prices. However, Yellen did not lead the San Francisco Fed to “move to check the increasingly reckless lending” of Countrywide Financial, the largest lender in the U.S.
In a 2005 speech in San Francisco, addled Yellen argued against deflating the housing bubble because “arguments against trying to deflate a bubble outweigh those in favor of it” and predicted that the housing bubble “could be large enough to feel like a good-sized bump in the road, but the economy would likely be able to absorb the shock.
For her “tremendous insight,” Yellen was promoted to vice chair of the Fed in 2010; and, in 2013, Obama selected her as chief mucky muck. During her nomination hearings held on Nov. 14, 2013, she defended the more than $3 trillion in stimulus funds that the Fed had been injecting into the U.S. economy. Additionally, she testified that U.S. monetary policy is to revert toward more traditional monetary policy once the economy is back to normal.
It was a lie. By the time Yellen left her post at the end of 2017, the Fed’s balance sheet had exploded to $4.5 trillion and rates were rock bottom. It has been left to her successor to baby-step back to more “traditional monetary policy.” Addled can now Monday-morning armchair quarterback and collect speaking fees.