The Daily Reckoning Presents... April 1, 2015 Archives | Unsubscribe Janet Yellen Launches New Ladies Fragrance The scent of a (Federal Reserve chair)woman... Stocks and bonds rally to hit records… gold investors panic after toughest trading day since 2011... Then, David Stockman refutes central banking using Ben Bernanke's first blog post... The Vagabond's (FREE) Guide to Living Like a King Thousands of Americans fly anywhere in the world for FREE... Sleep for free... Eat for free... And get VIP treatment for free. One new (and FREE) guide reveals all their secrets. Grab your copy today. Baltimore, Maryland April 1, 2015 Dear Reader, If you thought printing $3 trillion out of thin air and buying government bonds was experimental, you ain't smelled nothin' yet. "They said it couldn't be done," announced a Chanel spokesperson this morning. And yet here it is… a fragrance that smells like low interest rates: "Zero Interest Rate Perfume" by Chanel. The pungent scent was inspired by none other than Janet Yellen, chair of the Federal Reserve. "With the female unemployment rate remaining persistently high," Yellen told reporters at this morning's Fed press conference, "the Federal Open Market Committee has unanimously voted to partner with industry leader Chanel to produce a parfum for ladies. "Our hope is twofold," she continued. "First, that women will feel more confident wearing ZIRP when they go to an interview, which should, all things held equal, help them get the job they want. "And second, that because of that confidence, consumer demand for the perfume, and therefore, spending, will be stimulated. We believe this is consistent with our dual mandate of stable prices… and maximum employment. "Besides," Yellen added, "you don't think I broke through the glass ceiling just by rocking my trademark pantsuits, did you? "No, sirs -- let me give you a little 'forward guidance,'" she snickered, leaning forward and shaking a bottle of ZIRP, "it was a spritz of this stuff on the wrists each morning. Let me tell you... every time I walked into the FOMC boardroom, all the governors' heads would turn…" Early reviews of the essence seem to contradict each other, with some saying ZIRP smells like "an old lady"... while others detect a hint of "dirty wrinkled $20 bill"... with some others sensing "nothing at all." "The problem is," explained an aroma industry veteran, "no one's ever smelled an interest rate before -- especially the low, low one's we're seeing today." "I was wondering when the Fed was going to do something about this serious issue..." Fortunately, in an attempt to extend an olive branch to her critics, Yellen sent pre-release bottles of ZIRP to her biggest hump-busters -- including your editors here at The Daily Reckoning. We took to Charm City's streets to get the workingman's perspective... "I was wondering when the Fed was going to do something about this serious issue," Elaine Johnson, tenured faculty member of the University of Baltimore's Gender Studies department, told us over the phone. "This is exactly why we need an audit of the Fed," said one 20-something-year-old who took a whiff. Presumably, he was a Rand Paul supporter. "We have no idea how much the Fed printed to create this experimental liquidity measure. The American people have a right to know!" "*sniff*...*sniff*... Smells like a bunch of bull$hit to me," grumbled another jaded middle-aged man we stopped on St. Paul Street. He was in a rush. ZIRP by Chanel will retail for $700 in all major department stores starting May 5, 2015. All profits from sales will be remitted back to the U.S. Treasury. Stocks and Treasuries rallied after being blindsided by the news. At writing, the S&P's giving onlooking investors neck cramps as the index soars past 2,351. A 10-year note yields 1%. Gold, on the other hand, was roiled. Just minutes after Yellen's announcement the yellow metal began a $100 free fall that shows no signs of stopping. More to come tomorrow... Regards, Peter Coyne The Daily Reckoning P.S. You can buy your loved one a bottle of ZIRP right here. CDs and Savings Account Could be COSTING You Thousands of Dollars If you have money sitting in a CD or a savings account that pays close to 0%, you could be leaving thousands of dollars on the table. We recently discovered a special type of account that pays 61 times MORE than the average U.S. savings account. Once you click here and see all the details, you'll probably want to take all your money from the bank and put into this account. The Daily Reckoning Presents... David Stockman follows up on yesterday's review of Ben Bernanke's first "civilian blog post" on interest rates... ****************************** Central Banking Debunked in One Blog by David Stockman Blogger Ben's work is already done. In his very first substantive post as a civilian yesterday he gave away all the secrets of the monetary temple. "The Bernank" actually refuted the case for modern central banking in one blog. In fact, he did it in one paragraph. This one: "A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates 'artificially low.' "Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by 'the markets.' The Fed's actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere." Those forgotten times before the Greenspan ascent do not need to be gussied-up as a "golden era" to make the point. The numbers speak for themselves. Between 1954-1972, real GDP growth averaged about 4% per year. Since the turn of the century when the US economy became fully loaded with central bank enabled dishonest credit, the GDP trend growth rate has fallen to 1.7%; and it has averaged only 1.1% since the housing bubble peak in 2007. The even more relevant numbers for real median family income also speak for themselves. Just as the national debt-to-income ratio was beginning its heady climb in the late 1980s, main street living standards peaked. They remain below that peak 1989 level even today. That is, real living standards have fallen materially even as the balance sheet of the Federal Reserve soared from $200 billion (1987) to $4.5 trillion today. Between 1954-1972, real GDP growth averaged about 4% per year. The massive accretion of dishonest debt enabled by the Fed's monumental balance sheet expansion and crushing financial repression in the last three decades has not improved the nation's financial performance or well-being. Not by a long shot. There is no affirmative case that control of interest rates spurs a magic elixir called more debt and higher leverage ratios which, in turn, generate improved economic performance and greater societal welfare and wealth. Accordingly, the Keynesian central banking remit, perforce, rests on the default case of prevention of business cycle instability and warding off the alleged suicidal tendency of capitalism toward depressionary swoons. Well, thanks to Bernanke himself we don't have to deal with economic underperformance and business cycle instability. The blinding empirical reality is that since the arrival of Keynesian central banking under Greenspan and his successors we have had the "Great Immoderation", not the nirvana of stable, endless growth and a recession-free world. Indeed, as could be readily demonstrated on another occasion, the notion that central banking can prevent business cycle instability has been refuted by the entire US experience since 1950. Thanks to Bernanke himself we don't have to deal with economic underperformance and business cycle instability. All of the earlier recession cycles were caused either by the wind-down of over-heated wartime economies as in 1953-1954 and 1969-1970; or occurred owing to excessive monetary stimulus by the Fed, which had to be corrected by an abrupt resort to the brakes. Clearly that was the case in 1974-1975. It is even more evidently the reason why the Volcker's triumph over double digit commodity and consumer inflation during the early 1980s required a deep slump to cleanse the inflationary excesses of the 1970s. It is also the reason why the Greenspan money printing panic after the 1987 stock market meltdown was followed by the recession of 1990-1991. We can leave the myths of the 1930s Great Depression for another day, but the short of it is summarized in my book The Great Deformation. The Great Depression was a leftover consequence of the massive debts and currency inflation created during the Great War and the failed efforts to restore a sound money gold standard and liberal international trade and financial order during the 1920s. But it was not due to a suicidal depression wish in the bosom of capitalism. Nor was it Hoover's failure to embrace fiscal deficits after 1929. And most especially, it was not due to the Fed's failure to go on a bond-buying QE style campaign in 1930-1932 as Milton Friedman and his academic subaltern, Ben Bernanke, argued first in the backwaters of academia; and then memorialized through a sweeping real world experiment after 2008. Have You Seen What Could Become America's Spooky New "Money"? It has nothing to do with bitcoins, gold, euros, Chinese yuan or anything you may have heard from the mainstream media. It's unlike anything we've ever seen before. But according to the financial threat adviser to the Pentagon and the director of national intelligence, this new kind of currency could replace the dollar as soon as Spring 2015. Will you be able to use this money? And how will this impact your retirement? Click here to find out. So the sum of it is this: The Fed does not need to manage interest rates, and therefore does not need to embrace Bernanke's spurious answer to the question of "what rate": "The Fed's actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate." And what might that "equilibrium" rate be? Why, it's the Wicksellian solution -- more than 100 years old and counting. Here are Bernanke's comments on the "equilibrium real interest rate." They amount to pure gibberish -- academic jargon for unbounded, plenary power to manage the entire pricing machinery of the world's $300 trillion financial system. Indeed, lurking in the intellectual mush below is the true rationale for the greatest exercise in mission creep during the entire history of the modern state: "…it helps to introduce the concept of the equilibrium real interest rate (sometimes called the Wicksellian interest rate, after the late-19th- and early 20th-century Swedish economist Knut Wicksell). The equilibrium interest rate is the real interest rate consistent with full employment of labor and capital resources, perhaps after some period of adjustment. Many factors affect the equilibrium rate, which can and does change over time. "In a rapidly growing, dynamic economy, we would expect the equilibrium interest rate to be high, all else equal, reflecting the high prospective return on capital investments. In a slowly growing or recessionary economy, the equilibrium real rate is likely to be low, since investment opportunities are limited and relatively unprofitable." There is nothing in that paragraph that can be objectively measured or tangibly pegged. It is evident that even the Fed no longer knows what the "full employment" unemployment rate is. Bernanke himself postulated a few years ago that it was in the range of 6.0-6.5%. Now Yellen says it's in the range of 5.0-5.2%. Besides that, the potential labor pool as measured currently by the Bureau of Labor Statistics omits upwards of 50 million adults who are not employed or on Old-Age and Survivors Insurance retirement; and it ignores entirely the real labor pool, which is the world market. The fact is in an open world market, "full employment" of labor resources is a function of the price of labor, not arbitrary utilization rates within an imaginary US economy that resembles a bathtub. As to full utilization of "capital resources," does that include Sears stores and Borders big boxes that have been obsoleted by Amazon and UPS? Or just the one-twelfth of the footage used for pop-up stores in these empty facilities around Halloween? And does it include furniture factories and cold rolled sheet mills that have moved to China? Or fracking sand mines and crude oil tank cars idled by the Saudi decision to maintain production even at $45 per barrel? The monetary politburo sitting in the Eccles Building cannot possibly know. The monetary politburo sitting in the Eccles Building cannot possibly know. Likewise, how can you measure the real interest rate when there is no obvious basis for utilizing one over another of the multitude of inflation indices now available. Over the period of Keynesian central banking since Greenspan's arrival in 1987, there has been a persistent 60 basis points annual difference between the CPI and the PCE deflator less food and energy. That difference amounts to fully one-third of the raging 2% argument between Janet Yellen and her right-wing kissing Keynesian cousin, Professor John Taylor, as to the appropriate real equilibrium interest rate under present conditions. The truth is the real world of capitalism is far, far too complex and dynamic to be measured and assessed with the exactitude implied by Bernanke's gobbledygook. In fact, what his purported necessity for choosing a rate "somewhere" actually involves is the age old problem of socialist calculation. It can't be done -- and most especially not in the most fluid, complex and fastest moving markets known to man. That is, the global financial markets for debt, equity, loans, commodities and all their derivatives. So thanks for the blog, Ben. Now we know the real answer. It's called the free market. Regards, David Stockman for The Daily Reckoning David Stockman was a two-term Congressman from Michigan. He was also the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. He's the author of two books, The Triumph of Politics and The Great Deformation. He also is founder of David Stockman's Contra Corner. BE SURE TO ADD dr@dailyreckoning.com to your address book. Additional Articles & Commentary: Join the conversation! Follow us on social media: The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, feel free to click here. 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