Former NY Fed Goldmanite Dudley Attacks President Trump on Bloomberg Platform

It doesn't get any more transparent than this.

For anyone who doesn't already know, the Federal Reserve System is a private banking operation that controls the currency of the United States of America. The "System" issues "notes" at interest. The long-standing assumption is that the Fed is objective, impartial, and apolitical. Here's a taste of that "objectivism" from former NY Fed president, William Dudley.

(Bloomberg Opinion) -- U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along?

If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.

Dudley states unequivocally that the President's trade policy is harmful and that the Fed should determine how to respond. Not exactly impartial, is it?

Here's more:

The Fed’s monetary policy makers typically take what happens outside their realm as a given, and then make the adjustments needed to pursue their goals of stable prices and maximum employment. They place little weight on how their actions will affect decisions in other areas, such as government spending or trade policy. The Fed, for example, wouldn’t hold back on interest-rate cuts to compel Congress to provide fiscal stimulus instead. Staying above the political fray helps the central bank maintain its independence.

So, according to conventional wisdom, if Trump’s trade war with China hurts the U.S. economic outlook, the Fed should respond by adjusting monetary policy accordingly — in this case by cutting interest rates. But what if the Fed’s accommodation encourages the president to escalate the trade war further, increasing the risk of a recession? The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse.

Fed Chairman Jerome Powell has hinted that he is aware of the problem. At the central bank’s annual conference in Jackson Hole last week, he noted that monetary policy cannot “provide a settled rulebook for international trade.” I see this as a veiled reference to the trade war, and a warning that the Fed’s tools are not well suited to mitigate the damage.

Yet the Fed could go much further. Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions.

Again, Dudley appears to favor the Federal Reserve acting in a manner that runs contrary to the policy of the president. While that may be objective, it is hardly impartial...

...and it gets worse:

Such a harder line could benefit the Fed and the economy in three ways. First, it would discourage further escalation of the trade war, by increasing the costs to the Trump administration. Second, it would reassert the Fed’s independence by distancing it from the administration’s policies. Third, it would conserve much-needed ammunition, allowing the Fed to avoid further interest-rate cuts at a time when rates are already very low by historical standards.

I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable. Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.

There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

To Dudley's globalized mind, Trump's trade policies are "disastrous" and imperil his chances at "re-election." Since when are the unelected members of the Federal Reserve experts on election politics? Dudley's remarks reek of political partisanship.

The author and editor's emails are provided here as a public service. In a sane world, Dudley's email in-box would be flooded with contrarian opinions. The world of 2019 does not seem to be particularly sane, however.

To contact the author of this story: Bill Dudley at wcdudley53@gmail.com

To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Bill Dudley is a senior research scholar at Princeton University’s Center for Economic Policy Studies. He served as president of the Federal Reserve Bank of New York from 2009 to 2018, and as vice chairman of the Federal Open Market Committee. He was previously chief U.S. economist at Goldman Sachs.

Other than the yield curve re-inverting and stocks reversing course midday, nothing much happened in the world of investing on Tuesday.

At the Close, Tuesday, August 27, 2019:
Dow Jones Industrial Average: 25,777.90, -120.93 (-0.47%)
NASDAQ: 7,826.95, -26.79 (-0.34%)
S&P 500: 2,869.16, -9.22 (-0.32%)
NYSE Composite: 12,474.05, -45.57 (-0.36%)

Amid Turmoil, Stocks Jump to Open Week

Despite Friday's stock slide and confused rhetoric from the G7, investors appeared unconcerned as trading opened the week, with all the major averages up sharply on the day.

Bounces such as the one witnessed on Monday are normal in times of high volatility and anxiety. They can be generally disregarded as more noise than anything meaningful. The gains only half erased Friday's losses, leaving the Dow, NASDAQ, S&P, and Composite all hanging between their 50 and 200-day moving averages, a sign of indecision among market makers.

Gold and silver held onto gains, bonds continued to rally, with the two-year and 10-year notes even, with yields of 2.54% at the end of the day.

With trade talks stalled, traders may be seeking more information on the economy. The Conference Board's gauge of consumer sentiment is due out shortly after the markets open at 10:00 am ET.

At the Close, Monday, August 26, 2019:
Dow Jones Industrial Average: 25,898.83, +269.93 (+1.05%)
NASDAQ: 7,853.74, +101.97 (+1.32%)
S&P 500: 2,878.38, +31.27 (+1.10%)
NYSE Composite: 12,519.62, +103.17 (+0.83%)

Weekend Wrap: Trade, Recession, Currency Fears Stoke Week-Ending Sell-Off

These days, it doesn't take much to spook markets.

That stands to reason, with all of the US major indices near all-time highs conjoined with a divisive political environment, global trade tensions, and a corrupted financial system run by central bankers bent on the globalization of currencies and nations.

Thus, on Friday, after Fed Chairman, Jay Powell, spoke to the assembled cognoscenti at Jackson Hole, Wyoming, and President Trump doubled down on his tariff mandate towards China, the runners, scalpers, and money-changers on Wall Street were so spooked that one might have assumed they'd seen the ghost of legendary China short-seller, Jim Chanos, stalking the trading floor, even though - as far as is known - Mr. Chanos is still alive and kicking the shorts out of the Chinese market.

Stocks had opened only marginally in the red on Friday and were improving into the eleven o'clock hour before suddenly reversing course, heading into the abyss, the Dow shedding more than 400 points in a matter of minutes.

With Wall Street struggling to regain some semblance of balance and propriety, stocks drifted lower, cratering in the final hour with the Dow Industrials down nearly 750 points before gaining back another hundred into the closing bell.

It was ugly. It was impressive. At the end of the day, it seemed completely appropriate.

The fuel for growth was fading fast and has been since well before Friday's melt-down. All of the fancy tricks the Fed and their central banking buddies had employed to goose equities skyward over the past decade were being exposed as fraudulent, artificial, unnecessary, and eventually harmful to the operation of what previously had been free markets.

Wall Street has lost confidence in the Fed's forward guidance, which, according to Mr. Powell, is decidedly negative. The Trump tariffs are a sideshow to the already-failing economies of the developed nations, slowing precipitously and taking down the emerging giants of China and India with them.

Over the weekend, while the leaders of the G7 powerhouse nations debate and will likely confirm that globalization is a crumbling edifice of one-percenter greed and that the world needs to be adjusted toward something that serves people other than just the mega-corporate interests and the skimming habits of the ultra-wealthy.

As has been of considerable mention here the past few days, negative interest-bearing sovereign debt instruments - those wildly popular $19 trillion worth of bonds - are ringing the death-knell of fiat currencies and central bank interference with the normal operation of capitalist design.

For now, the shock waves of fading confidence in the global Ponzi and counterfeit schemes of stock buybacks, quantitative easing, and negative interest rates is contained largely to the Wall Street crowd, but, it is spreading and the uproar will increase as stocks fall, ordinary people worry about their jobs and their futures, and the central bankers moan and cajole and mumble and stumble and fall.

Remnants of the global economic structure previously known as Bretton Woods are being shredded on a daily basis. A new world order is on the way, but any transition - like the one which dashed national currencies into one euro a few decades past - is going to be painful and consequential.

Sadly, when all the smoke is blown away and the dust settled, the planet will still largely be governed by the same morons and their predecessors who brought all of this upon us and their economic agents of destruction. The new currency regiment will be talked about as more fair, more balanced, more equitable, but those in the know will have already understood that it will be more of the same, damaging to the middle classes while barely scraping off a scintilla of the assets held by the rich and powerful.

Americans, Europeans, Japanese and all citizens are being shafted, and it's going to hurt.

The long-delayed reckoning from the global crisis of 2008 is about to be unleashed. Unless one holds hard assets such as precious metals, real estate, and/or income-producing assets like a productive business or needed service, one is likely to feel more pain than would otherwise be prescribed by the lords of finance.

At the Close, Friday, August 23, 2019:
Dow Jones Industrial Average: 25,628.90, -623.34 (-2.37%)
NASDAQ: 7,751.77, -239.62 (-3.00%)
S&P 500: 2,847.11, -75.84 (-2.59%)
NYSE Composite: 12,416.45, -272.01 (-2.14%)

For the Week:
Dow: -257.11 (-0.99%)
NASDAQ: -144.23 (-1.83%)
S&P 500: -41.57 (-1.44%)
NYSE Composite: -163.96 (-1.30%)
Dow Transports: -227.58 (-2.28%)

Hawkish Harker, George Bundesbank Comments, Fed Minutes Spill Stocks

Coincidence?

Just about the same time Germany's Bundesbank put the kibosh on stimulus, Philadelphia Fed President, Patrick Harker, and later, KC President, Esther George, indicated they would not be supportive of future rate cuts.

Notably, though Harker is not a voting FOMC member, there was a supposed "gag order" on Fed officials issued recently by Fed Chairman, Jay Powell. Apparently, not everybody got the memo, or, with Powell's Friday morning Jackson Hole speech in focus, it's open season on interest rate jawboning.

The hawkish commentary sent the two-year note soaring, plunging in yield below the 10-year. Inversion, again.

Later in the trading day, the Fed minutes from the July meeting were released, with a number of officials calling the 25 basis point rate cut a "mid-cycle adjustment," a laughable notion in the face of an expansion that has exceeded all others in US history, at 10 years, five months, and counting.

Since central bank commentary and interest rate movement in the bond market is just about the only thing Wall Street currently cares about, stocks sold off in afternoon trading.

We have entered bizarro-world.

At the Close, Thursday, August 22, 2019:
Dow Jones Industrial Average: 26,252.24, +49.51 (+0.19%)
NASDAQ: 7,991.39, -28.82 (-0.36%)
S&P 500: 2,922.95, -1.48 (-0.05%)
NYSE Composite: 12,688.46, -8.55 (-0.07%)

Stocks Bounce As Germany Sells First Negative-Yielding 30-Year Bond

The "scary" thing - mentioned here yesterday - that sent traders rushing for the exits on Tuesday in major markets from Germany, to France, to the United States, was probably anxiety and anticipation of Germany pricing the first 30-year bond at a negative interest rate.

Germany was looking to sell $2 billion of the bonds, but managed to only sell $965 million of the debt, which eventually priced out at a yield of -0.11%. So, essentially, it was a failed auction, with the Bundesbank scooping up the rest, allegedly to be sold later on to other suckers, er, investors.

Now, that may not sound like a big deal at the outset, but losing a little more than a tenth of one percent on your money over 30 years can add right up. On $1 million, in the first year, it would be $1,100 that you'd just let go. Each year, the amount you'd lose would be lower, but it would still be 0.11%.

Just rounding it off, you'd lose about $30,000 of your money, leaving $970,000. If there was inflation during that period of time, the money would be worth much less in buying power at maturity in 2050.

There are some very bad implications surrounding negative interest rates. First, they are money destroyers. In the fiat money, fractional reserve banking system now in play worldwide, all money is debt. The Fed or other central banks create money (more accurately, "currency") by floating bonds, selling them to interested parties, at interest, creating a debt. The primary dealers, who are the principal buyers of the Fed's bonds (treasuries), create more debt by reselling the bonds or loaning money to companies or individuals.

However, bonds with negative interest rates cause negative debt, or, rather, a surplus, to the Fed, but this money extinguishes debt rather than creating it. If the supply of negative interest-bearing bonds becomes too large, it will cause a contraction in the money supply, which is what is happening in Germany and most of Europe presently. All of Germany's sovereign bonds are yielding negative returns, as are most of Europe's.

The continuation of such a program, especially if it catches on and sends yields further into the red, like one, two, or even three percent, would have the effect of choking off the money supply completely, destroying, once and for all, that currency.

The math is straightforward. If you have a million dollar bond with a -3.00% yield, you lose $30,000 the first year, and smaller amounts each consecutive year, since your principal is getting smaller year-over-year.

If that bond is for 10 years, it's going to lose somewhere in the neighborhood of 25% of its value, leaving you with $750,000 of your original million dollars. At three percent for 30 years, the result is the loss of up to 90% of your original investment, if the bond (at par), continues to pay -3% on one million dollars.

I may not have that exactly right, but the principle is correct and the money supply will be shrunk by negative yielding bonds. This is a very dangerous situation which bears close scrutiny because it very well may be the signal that global central banks are on the verge of forcing all sovereigns into default, destroying the money supply of many nations, and replacing national currencies with a worldwide unit of exchange.

It is, as the conspiracy theorists contend, what the globalists have had in mind for many years. With negative interest rates, they can slowly kill off the yen first, then the euro, then the US dollar. What will happen with the Chinese yuan or Russian ruble and other not-so-mainstream currencies remains to be seen, but a calamity of this proportion is likely to leave most other countries begging for some kind of solution, which the central banks will gladly supply.

At the Close, Wednesday, August 21, 2019:
Dow Jones Industrial Average: 26,202.73, +240.29 (+0.93%)
NASDAQ: 8,020.21, +71.65 (+0.90%)
S&P 500: 2,924.43, +23.92 (+0.82%)
NYSE Composite: 12,697.01, +97.61 (+0.77%)


Just for fun, somebody posted this on Zero Hedge the other day:
Nostradamus: (Cent. 8 Quat. 28)

Les simulacres d'or & argent enflez,
Qu'apres le rapt au lac furent gettez
Au desouvert estaincts tous & troublez.
Au marbre script prescript intergetez.

Translates as:

The copies of gold and silver inflated,
which after the theft were thrown into the lake,
at the discovery that all is exhausted and dissipated by the debt.
All scripts and bonds will be wiped out.

or,

The simulacra of gold and silver swell,
After the lake rapture were gone
At the open all are overcome & trouble.
At the marble script prescript intergetez.