A lesson in MOPE

US Fed Vice MOPEster Janet Yellen

Last night Federal Reserve Vice Chair Janet Yellen gave a talk at the National Association for Business Economics, or NABE, in Denver.  Yellen was recently appointed 2I.C to uncle Ben, which officially makes her the world’s second most influential money printer.  Once again the media clamoured around to hear Yellen’s pearls of wisdom, but all they got was a big healthy dose of MOPE.  No surprises there at all.  In fact it was such a great example of sheer unashamed MOPE that we thought we’d use it as a helpful lesson in MOPE, to help you spot it in the future.

We’ll take you through Luca Di Leo and Micheal Derby’s article in the online Wall Street Journal of Janet Yellen’s speech yesterday.  We’ll help you spot the MOPE and see through the bollocks.

By Luca Di Leo and Michael Derby

Federal Reserve Vice Chairman Janet Yellen

Ok, this is pretty early in the piece, but seriously, you have to always take into account who’s doing the talking, what incentives they have to tell the whole truth, and what is the likelihood of them actually giving a realistic balanced view.  In this case we are dealing with the Vice Chair of the Federal Reserve, the very entity that is responsible for the crisis in the first place, and the very entity that has lowered US rates to zero%.  Just bare that in mind constantly.

, one of the U.S. central bank’s key defenders of low interest rates to support a weak economy, warned on Monday there may be dangers to an overly easy monetary policy.

Even the journos jump on the MOPE band wagon here, juxtaposing her pro-low rates stance with her ’sensible’ view that the Fed needs to be aware of the dangers that lurk due to too much stimulus.

In her first remarks since becoming the Fed’s No. 2 official last week, Yellen said low interest rates can lead to excessive risk-taking in the economy, adding she couldn’t rule out using monetary policy to limit such risk.

“It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system,” Yellen said in prepared remarks to the annual meeting of the National Association for Business Economics, or NABE, in Denver.

They’re always “prepared remarks”.  Central bankers don’t ever speak off the cuff.  MOPE is far more believable when it’s scripted.  As for it being “conceivable” that monetary stimulus “could” provide the “tinder” for excessive risk-taking, see Euphemisms 101.  The growth of the Fed’s balance sheet is a powder keg ready for action.

Yellen has been one of the Fed’s key supporters of low interest rates to fight a stubbornly high unemployment rate.

Note the implicit journalistic assumption here that low interest rates create jobs.  Not if the past two years of data are anything to go by.

But she’s bristled at the widespread perception on Wall Street that she is one of the Fed’s most dovish members, supporting overly easy monetary policy amid few worries about the risk of unintended consequences, such as a new asset bubble or inflation. Yellen has countered that her outlook flows from her expectations of the economic outlook, and that if price pressures are ebbing and the jobless rate remains high, it is entirely appropriate to support an aggressive stance for monetary policy.

Yellen’s actions have been entirely appropriate, according to…Yellen.

As it seeks to achieve full employment and price stability, the Fed must be aware that its decisions may, in some circumstances, affect the development of risk in an economy, Yellen said.

In SOME circumstances?  The Fed is the single largest manipulator of risk and creator of moral hazard in history.  No monetary institution has been able to cause more financial havoc and mis-pricing of risk on such a large scale as the Fed.

For example, if Wall Street banks don’t have an adequate pay structure for their employees, low rates can become a problem.  “Low interest rates might heighten the ability and desire of financial market participants to reach for yield and take on risk,” Yellen warned.

Ah, the apex of MOPE – blame it on the bankers!  “You see folks, it’s the filthy, greedy, evil bankers on Wall St and their decadent pay structures that are to blame.  The Fed is trying to help you with 0% interest rates but these horrible men in suits are using these absolutely, totally, perfectly normal interest rates to take ‘excessive’ risk.  Wunch of…”

Though supervision and regulation must serve as the first and main line of defense in addressing risk, the former Federal Reserve Bank of San Francisco president said she couldn’t rule it out using the blunt tool of higher interest rates.

Why must “supervision and regulation” serve as the first line of defense against risk?  Don’t markets deal with risk?  You know, insurance and risk-cover and all that jazz.  All individuals are always and everyday taking steps to minimise their risks.  Supervision and regulation were invented by central bankers and governments.  Believe it or not, but supervision and regulation actually increased over the past decade and gave us the financial mess we are in today.  A less MOPEd-up Yellen may have said that “supervision and regulation serve as the first and main line of creation of risk”.

To fight the financial crisis and ensuing recession, the Fed slashed short-term rates close to zero and pledged to keep them there for a long time. Some economists — and one of a dozen Fed officials who vote on policy this year — worry low rates may be sowing the seeds of a new crisis.

The seeds are already sown and ready to germinate my friends.

Some top global regulators have also warned about the risk of low rates. European central banker Mario Draghi, who is chairman of an international body of regulators, said Sunday they can hide the deterioration in bank credit quality and lead banks to make riskier loans to offset low margins on rates.

Funny how no central bankers are taking responsibility for the previous bubble but clearly explain how loose monetary policy can lead banks to make “riskier loans”.  Mmmm, riskier loans.  Sound familiar?

Most of Yellen’s speech was dedicated to the challenges for supervision following the severe financial crisis. She said regulators must strike the right balance between being prudent without adopting an overly strict approach that would stifle capital formation.

In reality they will stab around in the dark, make arbitrary rules, and mess it up all over again.  There is no such thing as regulatory balance.

In her brief remarks about the economy, Yellen underlined how the U.S. recovery has been “agonizingly slow” and how the economy was still reeling from an “epic financial disaster.”

Yes, an epic financial disaster created by her organisation.

Despite her comments about the dangers of low rates, there was nothing in Yellen’s speech to indicate the Fed would stop its easy money policy. Investors are expecting the Fed to ease further following a disappointing jobs report released last week.

Of course they will.  This much was never in doubt.  It’s QE to infinity.

In response to audience questions following the speech, Yellen said the nation’s financial authorities are now much better
equipped to deal with the failure of a large financial institution.

Yip, print money and bail it out.

“I am very hopeful about the resolution regime” that was created as part of the Dodd-Frank financial regulation overall legislation, she said.

The resolution regime.  Funny.  The Donk Bill created about as much regulatory clarity as a Wisconsin snow blizzard.

“I believe the new tools

Pure MOPE.  There are no ‘new’ tools, only more and more money printing and asset accumulation in ever-craftier ways.

will permit an orderly wind down” of a failing firm,

Pure MOPE.  There is no orderly wind-down only a very assured bailout which avoids all the panic of 2008 but retains all of the fake stabilityness.

although it will be a challenge to create a resolution mechanism in the face of the complexity of the nation’s largest financial firms, she said.

A challenge.  Make that, “impossible”.

Yellen added that the nation’s largest and most critical financial institutions need to be held to higher standards, given the risk a collapse could pose to the broader economy.

Higher standards could start with a realistic interest rate.

So there you have it, MOPE from start to finish and not worth paying any attention to.  In summary, Janet Yellen’s real speech behind the MOPEiness went something like this.

I am Janet Yellen,Vice Chair of the Federal Reserve, the very entity that is responsible for the crisis in the first place, and the very entity that has lowered US rates to zero% by printing vast wads of dollars.  Please remember I don’t ever speak off the cuff as I am more believable when I’m scripted. 

The growth of the Fed’s balance sheet is a powder keg, and to make it worse, low interest rates don’t really create jobs.  Just look at the past two years for goodness sake!  This interest rate policy is appropriate to reflate the economy, but it won’t create real, lasting prosperity.  Please remember, the Fed is the single largest manipulator of risk and creator of moral hazard in history.  No monetary institution has been able to cause more financial havoc and mis-pricing of risk on such a large scale as the Fed.

People blame the bankers, but they are just pawns in a larger fraudulent monetary system controlled by the Fed and fuelled by a cozy Washington-Wall St money pipe.  US Feds say that we need more ”supervision and regulation”, but in reality that’s just a ruse to exert ever more control on the financial and monetary system.  In reality markets deal with risk as we see in the private insurance and risk-cover industries.  All individuals are always and everyday taking steps to minimise their risks.  Supervision and regulation were invented by central bankers and governments!  I should know, I one of them!  Supervision and regulation actually increased over the past decade and gave us the financial mess we are in today. 

The seeds are already sown for our next financial crisis and ready to germinate.  Central banks create bubbles and this time will be no different.  We’ll just keep pretending it wasn’t out fault and then stab around in the dark, make arbitrary rules, and mess it up all over again.  But we’ll tell the public it wasn’t our fault, of course.

Make no mistake, the Fed created this epic financial disaster we find ourselves in, and we’ll make it worse because we are committed to QE to infinity and endless bailouts!

Look, let’s be honest here, the 1,900 page Dodd-Frank bill created about as much regulatory clarity as a Wisconsin snow blizzard.  In reality there are no ’new’ tools, only more and more money printing and asset accumulation in ever-craftier ways.  There is no orderly wind-down of failing companies, only a very assured bailout which avoids all the panic of 2008 but retains all of the fake stability.  Any economy that needs 0% interest rates is sick to the core and the system is completely broken.

That’s the truth.

Thank you