She's A Yellen and He's Insana To Listen To Her

There is sooooo much debate lately on whether the Fed will move off ZIRP (a Mork term if I ever heard one).  Is the economy where it needs to be?  Is unemployment close enough to the target?  Are dogs now sleeping with cats?  The Fed removed that magical "patient" word recently and there is a whole market on guessing when the rate increase will come.  All eyes are on the Fed.  Or perhaps I should say all ears, as they are not exactly Yellen what they intend to do.

http://www.mineweb.com/news/gold/will-she-wont-she-yellen-interest-rates-and-gold/

Some think that the Fed should stand pat as the economy is in a tough patch at the moment and exchange rates are doing the same work as a rate hike.  While I do think the Fed will stand pat and not hike rates at all this year or next because the economy will worsen before they get to that point, I nonetheless am not saying that is what they should be doing.  Others, like Mr. Insana at CNBC,  think the Fed is just fine staying where it is with ZIRP and should do so as that is the right thing to do:

http://www.cnbc.com/id/102511918

In what language does Insana mean insane? 

While I think they will stay with ZIRP and perhaps have another QE or two next year, the Fed should not be maintaining their current stance or any stance and stop with the QEs already.  They should abandon all stances (and hope) and stop their meddling.  They of course won't do so, so I am not going to waste my time arguing why they should.  Unfortunately, they will prove why on their own in due course.

I recently linked a post by David Stockman - Reagan's Director of the OMB - who makes a very elegant case against the Fed actions for like the past few decades.  I agree with him on it but know he is wasting his breath, and rumor has it more people listen to him than me.  Note I said rumor - it has yet to be confirmed.   Nothing short of an epic bubble bursting that people finally attribute to Fed policies will get us there, and that will have to be sooo extreme it is a scary thing to ponder.  Perhaps some smart politician will be able to tie the next bubble bursting to the Fed and include in his or her platform the promise to appoint to the Fed appointees that see the role more conservatively.  Now there is little one President can do as only one Fed President gets appointed every other year and they serve 14 year terms, but if we have to wait that long to clean house it is best to get started.  And even if the Fed were magically replaced or decided to change and stop its monetary games, there is presently at least a real question on whether it would have any impact.

Let's assume Janet were to wake up tomorrow morning and lean over to her multi-millionaire husband and say, "Honey do you know where in the world I put the Depends?"  Oops, scratch that, I meant she would say "Honey, you know the world depends on us to do the right thing.  I think I will stop the Fed from meddling in things and let the economy achieve a natural balance."  If she did that, would we be alright?  No, not at all because other central banks have to stop too.  We are at ZIPR but the EU is at NIRP (which unfortunately is Negative IRP and not No IRP).  Indeed, the financial shenanigans banks and corporations use to generate financial bubbles are now increasingly taking place in Europe where credit is even cheaper.  So even if Janet and all the other Feds wake up with a dose of common sense, the bubble still cometh. 

So time to prepare yourself - if you have not already - for the storm that looms folks.  It is coming.  I do not know what Lehman Brothers pin is out there this time to pop it, but it is there.  The market knows it and has been trading sideways for four months.  Perhaps its time to move to Iceland.  Or maybe its time to move to Russia - I kid you not:

http://globaleconomicanalysis.blogspot.com/2015/04/russia-forced-to-do-right-thing-buy.html

It would appear that Russia is actually allowing free market forces to dictate for a change and it may be working.  Wouldn't that be precious - Russia mastering capitalism better than the U.S.  Put that in your трубка and smoke it Bernanke.