Poor Joe Biden. Democrats in control of both Houses of Congress. Janet Yellen at the Treasury Department. Jerome Powell at the head of the Federal Reserve.
Biden has a retinue of “doom-loopers”. And he doesn’t even know it.
Doom-looper Yellen testified at her confirmation hearing this week (1/19) that low-interest rates make Biden’s big spending plans affordable. Along the way, Yellen made a perfunctory comment about the need for federal debt to be put on a “sustainable” path – eventually. They all say that: “Eventually.” But of course, like “someday,” “eventually,” never comes.
More needs to be said about this. Those low-interest rates that Yellen says excuse Poor Joe’s astonishing spending plans, come at the expense of more money printing, which, as a former Fed head herself, Yellen knows so well. As the doom-loopers use low rates as an excuse for more debt, the debt level swells to the point that it becomes completely unmanageable when interest rates do rise.
In other words, the doom-loopers will eventually discover that interest rates cannot be allowed to rise. Their doom-loop is a trap of their own making. They must try to keep a lid on rates in perpetuity, else the government will crack up on the reefs of bankruptcy when rates do normalize.
But keeping a lid on rates requires ever-new levels of money-printing. Which in turn erodes the future value of the dollar. This means lenders will require a premium on interest rates to offset the ongoing devaluation caused by money printing.
And of course, to complete our description of the doom-loop, servicing that premium will require still more money printing. Which further devalues… well, you get it. There is no way out.
That’s why Yellen should be the iconic face of the doom-loopers.
David Stockman describes the tenure that earned Yellen $2.3 million in speaking fees from places like Citibank:
“Yellen’s turn at the helm of the Fed between January 2014 and January 2018 resulted in an especially egregious descent into negative real money market rates and therefore a bonanza for Wall Street speculators and carry-traders. That’s because her four-year term occurred during month #55 through month # 103 of the longest business expansion in history.”
“That interval is by all reckoning the sweet spot of the business cycle, meaning that if there was ever a time to dispense with heavy-handed monetary “stimulus” and allow honest price discovery to operate on Wall Street and interest rates to normalize, that was the time.”
Yet what did Yellen do given that opportunity of prolonged growth? Did she take steps to tame the money-printing impulse?
“She did not. Unaccountably, the Yellen Fed marched in just the opposite direction. Upon taking office in January 2014, the Fed’s balance sheet stood at $4.071 trillion, but Yellen kept the printing presses running red hot, driving the Fed’s balance sheet to $4.5 trillion by June 2015….
“That’s right. By month #103 of the longest business expansion in American history, this Keynesian deus ex Machina had expanded the Fed’s balance sheet by another 9% from massively bloated level Bernanke had left behind.”
Somebody once said that gold is capital on strike. This is the moment to choose not to be victimized by the doom-loopers in charge of our economic future. All we can say is get out of the way of their destructive policies!