Yellen to Dems: “Here I Come to Save the Day!”
“Yes, Janet Yellen is a bit worried about her meeting with Joe Biden today” announced one Twitter onlooker this morning. The attached image spoke for itself…
Everything seems just peachy this morning. Stocks, gold and oil are all in the green.
The S&P 500 is at 2,054, just about where it was 18 months ago. There’s been some fun dips and outbursts along the way. Meanwhile, the real economy’s continued to deteriorate.
“Earnings have been falling sharply and macroeconomic headwinds have been intensifying dramatically,” explains our colleague David Stockman. He has more details at his ContraCorner if you’re interested.
But it’s that deteriorating backdrop… yet improving narrative about the economy from Yellen and Obama that led us to wonder last week:
Do the insiders in the “oculus rift economy” know how absurd the system they push is, but keep quiet? Or, are they that oblivious?
News out today suggests it’s the former…
For context, two events will have taken place by the time this reaches you:
- The Federal Reserve will have held an unscheduled FOMC meeting under what’s called “expediting procedures”. And right after, as we told you at the outset…
- Yellen will scurry to the oval office and meet with President Obama and Joe Biden “to discuss economic issues.”
The first is much ado about nothing.
“They won’t raise rates this month” said Jim this morning during our live intelligence briefing for paid readers. (All paid-up Strategic Intelligence readers get free access to monthly live conference calls with Jim. It’s one of many sweet perks. You can access them, and get a free copy of Jim’s new book The New Case for Gold, right here.)
“Could it happen? It’s possible… but not likely. The last time the Fed changed rates up or down at a meeting that was not a scheduled FOMC meeting, like this morning’s, was almost 20 years ago. In the first week of October, 1998.”
Soon after, Jim would spend his fair share of time at the Fed’s New York boardroom, negotiating the terms of the bailout that sixteen Wall Street banks coordinated to keep Long Term Capital Management afloat. Greenspan & Co. acted as facilitators. The Fed cut rates twice in a week’s time — first at a scheduled meeting on Sept. 29th. And then again around Oct. 5th at an unscheduled meeting.
“But that was extremely rare” explained Jim. “There’s no urgency to act like that today. Sometimes these meetings are technical in nature. But as far as I can tell, there’s no connection between the unscheduled Fed meeting today… and Obama summoning Yellen to the White House right after.
The implications of Yellen going to the White House are important, though. We’re about to find out just how independent the Fed really is as the election approaches. Jim has more on that, below.
It’s well documented that the Fed’s been leaned on by President’s for political purposes.
For example, it’s known that Nixon placed intense pressure on Federal Reserve Chairman, Arthur Burns, in 1971. Nixon wanted him to loosen monetary policy in advance of the 1972 presidential election. Here’s “Tricky Dick,” as recorded in the famous White House tapes:
“I’ve never seen anybody beaten on inflation in the United States. I’ve seen many people beaten on unemployment… We’ve got to think of goosing [the money supply] . . . late summer and fall of this year and next year. As you know, there’s a hell of a lag.”
But Burns tried to warn Nixon against the idea:
“If interest rates go down further through my actions… the probability as I see it is, they will go up later on in the year and in 1972. Housing, which is recovering very nicely, will go into a tailspin in 1972. Where will we be, as a country, and as a party and me personally?”
The tapes further reveal that Nixon threatened Burns’ with: leaking negative news about him to the public, appointing easy-money doves to the Fed board; and threats to not reappointed Burns at the end of his term.
Ultimately, he caved, reducing the discount rate and accelerating the expansion of the money supply in late 1971 and early 1972.
Will Yellen crack the same way? Click here for Jim Rickards’ take…
P.S. Even though the stock market’s more than recovered its losses since the beginning of the year, trouble is afoot. On average, stock returns are terrible in the year before a presidential election. Data going back to 1896 show the four quarters before an election are below average, with the third quarter going negative:
“This is the most uncertain election since Teddy Roosevelt formed the Bull Moose Party in 1912,” Jim told us a while ago. Beware…