Janet Yellen And The Weak Money Parade (Money Multiplier And Velocity At All-time Lows)

Poor Larry Summers. He withdrew his candidacy as the Federal Reserve Board Chairman over fears of a brutal Senate confirmation hearing. Now we are left with former University of California labor economist Janet Yellen as the leading candidate.

Yellen was (allegedly) the architect of the quantitative easing programs to reduce unemployment (better known as the weak money rally). And Yellen is the darling of the labor unions because of her activist policies on labor.

“The philosophy of Janet Yellen is activism of government policy to achieve objectives,” said Allen Sinai, president of Decision Economics Inc.

Oh great. We have activist Supreme Court and Federal judges. Now we will likely have an activist Federal Reserve Chairman.

But the US employment problem is mostly structural and cannot be undone by “easy money.” Moving labor intensive jobs off shore and putting Americans on food stamps and other forms of welfare has not worked out too well. Throw in the disastrous Obamacare that creates the environment for part-time labor, and Houston .. we have a problem.

We have had “easy money” or “cheap money” since 2008. Yet labor force participation continues to fall. Along with M2 Money Velocity.

And the M1 Money Multiplier has fallen to below 1 for the first time since 1984.

True, unemployment rates are falling (here is the U6 Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons). We are at 13.7%, still the highest since U6 began.

The Federal Reserve keeps buying Treasuries and Agency MBS securities, swelling its balance sheet.

So, the Federal government and The Fed have thrown everything at the employment problem … and the results are meager. Even the Washington Post noticed that real median household incomes are below levels last seen in 1989.

Of course, the big “what if?” is … what would have happened if The Fed hadn’t done quantitative easing? Who knows?

But what we do know is that weak money has certainly benefit investors in the stock market.\

Will Yellen keep on with weak money policies? Time will tell, but don’t bet against it.

Sorry. That was the prosecutor from the Star Trek episode “All Our Yesterdays.”

And here is a photo of the 1896 Sound Money Parade in New York City. My ow times have changed.

“Isn’t that what’s holding back hyper-inflation?”

There’s not nearly enough money chasing goods to cause anything approaching hyperinflation. The economy has excess capacity, which is a deflationary influence. There have been more assets destroyed and devalued than there has been money created since 2007.

Some of the inflow of money into the banks is staying in the banks since loan demand is not high, and lending standards have stiffened. Money that is not out in the system can’t cause inflation.

We are still walking the tightrope. It’s lousy for jobs and savers but it beats a deflationary depression.

At least that’s the FED’s take. It doesn’t matter if they are right or wrong, what matters is how one reacts to what they do.

Call the FED wrong all day, they will still be there tomorrow doing what they do.

While WWII destroyed most economies of the world, the United States prospered. The only way to restart international economic activity was for the U.S. to take the lead, which it did with the Bretton Woods Agreement. Every currency had a fixed value in relation to the dollar, and the U.S. kept everything functioning by buying and selling gold at $35 an ounce. Therefore, once again there was a U.S. (and worldwide) gold standard and the dollar became the world’s reserve currency.

The U.S. unilaterally abrogated the agreement in August 1971, allowed the dollar to float in relation to the trading whims involving all paper currencies. When the Treasury in 1964 began producing dimes through dollars without silver, silver coins disappeared from circulation. Until about 1968 people could still trade their Federal Reserve notes for Silver Certificates and trade those for packets of silver from a Federal Reserve Bank. At this time the working careers of a single generation comprise the totality of comprehension for how the international community was to function economically without major currencies emerging from things people can touch and see.

The problem at the present moment is that the dollar is backed by the full faith and credit of the government. When much of the world looses faith in the U.S. as a reliable engine driving the world economy because of its incredible behavior, then the dollar’s status as a reserve currency is jeopardized. The memory of the United States as “The Arsenal of Democracy” would then fade to be replaced by the realization of the United States as “A Gulag of Dependency”. If you buy into the argument that humans are inherently flawed and driven by their appetites, then something as trivial as Cyprus having Qatar hold its financial reserves could start a cascade of anxiety overcoming arrogance.

However typical of all central bankers, Ben Bernanke believes he can overcome these international fears by applying his intellect to macro-economic models providing dubious information to achieve precisely timed money supply changes, which allow timely adjustments for identification and reaction to increases in money velocity. Supposedly he would sell bonds and reduce the money supply with a precision that prevents inflation from taking hold or a recession from occurring. He would proceed in such a manner as to concurrently allay any fears of a Congress and an Administration in an election year. This result has probably not been achieved since the seven years of plenty and famine in Egypt when Joseph obeyed the word of God from his dreams.

I imagine something like the final scene in “The Good The Bad and The Ugly”. The members of the G-20 are standing in a circle with open graves behind them. They are all contemplating how they are going to successfully outdraw the other nineteen members and survive the resulting mayhem, which Lee Van Cleef’s character did not. The only thing needed now is an of human frailty as I mentioned above to commence the cascade to catastrophe.

Finally got back to the computer. Nice. Here is one from the beginning of a movie with Lee Van Cleef. This was his first appearance. I watched an interview where he explained the role. He knew that with his face he would never make it as a leading man and this was his best and possibly only chance at a movie career. Therefore he was aggressive towards the director about how he would appear on camera.

To me this scene says I represent evil in this movie. When the other guys show up, they seem to say I’m just as bad as he is. Here is the clip.

http://www.bing.com/videos/search?q=you+tube+lee+van+cleef+high+noon&qpvt=you+tube+lee+van+cleef+high+noon&FORM=VQFRML#view=detail&mid=7BCFB73D8872A10746AE7BCFB73D8872A10746AE

Pretty cool. 1952. Wow. It’s been awhile since I watched ‘High Noon’ in its entirety. I forgot Lee was even in it.
I noticed Lon Chaney (Jr.) was in the movie, as well. If you have never read about Lon Chaney (Sr.) I recommend his Wiki bio. He is, hands down, one of the top 3 actors of all time. Unfortunately, his stardom came in the silent era, and too much time, and all his contemporaries are long gone. He was a very private and humble family man. He once told a Hollywood reporter, “Between movies, there is no Lon Chaney.”

If you ever want to watch a classic silent, check out ‘Tell It To The Marines’. It was one of Chaney’s favorite roles, (and one of the very few he performed without his pioneering make-up) and he was made the first “Honorary Marine” from the film world. You may have read here that Gry Sinise just received the same honor a week or two ago.

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