Just remember - it's not a lie, if you believe it.

You must not follow the crowd in doing wrong.

"Staff economists at the Federal Reserve predict...a measured inflation rate of slightly less than 2% in 2022, according to minutes of the September Federal Open Market Committee meeting released last Wednesday." - @GrantsPub, October 2021

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“We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.”

- Alan Greenspan, March 16, 2004 FOMC meeting transcript (note that the FOMC transcripts are released at least 5 years later, so the rest of us can’t stop them in time)

As Greenspan pointed out to the FOMC, us serfs are far too stupid to question the Fed’s wisdom.

Here’s a very telling passage that shows too clearly how the econ PhD’s think of us:

[Richard] Fisher said that he had recently spoken with the chief financial officer of Texas Instruments, who explained how the company was managing money in the age of ZIRP. The company had just borrowed $1.5 billion in cheap debt, but it didn’t plan to use the cash to build a factory, invest in research, or hire workers. Instead, the company used the money to buy back shares of its own stock. This made sense because the stocks paid a dividend of 2.5 percent, while the debt only cost between 0.45 percent and 1.6 percent to borrow. It was a finely played maneuver of financial engineering that increased the company’s debt, drove up its stock price, and gave a handsome reward to shareholders. Fisher drove home the point by relating his conversation with the CFO. “He said—and I have his permission to quote—‘I’m not going to use it to create a single job,’ ” Fisher reported. “And I think this is the issue. We work under the assumption that lowering the cost of capital and providing cheap money encourage businesses to lever up and to use that levering up to expand [capital investment] and job creation, which is part of our mandate. I don’t believe that’s happening.”

Fisher was describing, specifically, how ZIRP was already building up systemic risk in the economy without creating a single job. Bernanke rarely responded directly to such statements, but in this case he made an exception.

“Thank you,” Bernanke said. “President Fisher, I know we put a lot of value on anecdotal reports around this table, and often to great credit. But I do want to urge you not to overweight the macroeconomic opinions of private-sector people who are not trained in economics.”

With this comment, Bernanke seemed to have inflicted upon Fisher the most humiliating wound possible in the culture of the FOMC. He had exposed Richard Fisher as being unsophisticated. Neither Fisher nor, presumably, the CFO of Texas Instruments had earned a PhD in economics. This put them at a supposed disadvantage when it came to comprehending the effect of programs like quantitative easing. The Fed’s leadership sometimes acted as if only the army of trained economists at the Fed, up to and including its chairman, could understand the design and the effects of the Fed’s actions. The implied superiority of economists was a very real force at the Fed, on display at every FOMC meeting, when PhD-trained staff gave long and minutely detailed presentations about the policy choices at hand. The Fed historian Peter Conti-Brown showed how this dynamic helped consolidate power into the hands of trained economists at the Fed like Bernanke and his staff: “Without a PhD in economics, according to one former governor, ‘the Fed’s staff will run technical rings around you,’ ” Conti-Brown wrote in his 2017 book, The Power and the Independence of the Federal Reserve.

- Christopher Leonard, The Lords of Easy Money: How the Federal Reserve Broke the American Economy.

(Note the difference between this book title, and the title of another new book, by the WSJ’s “chief economics correspondent” and Fed publicist, Nick Timiraos: Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic---and Prevented Economic Disaster. Our Fed reporters are overwhelmingly obsequious shills and stenographers.)

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Anyway, here’s former Fed economist Alan Boyce, on Realvision in 2016:

The current Federal Reserve is an echo chamber with no biodiversity. Senior staff there is 100% PhD Economists. And they got their jobs, they maintain their positions, and they get promoted by producing research that backs up what the Chairman and the FOMC have already decided. And I believe that is a big change from back in the ‘80’s when, to start with, the FOMC and the Board of Governors was a mix of people, not all PhD economists. And the staff itself wasn’t a bunch of PhD economists…

But it's worse than that, because they've wrapped it in some pretty complex computer models. Dynamics stochastic general equilibrium model in particular which ignores the financial sector. DSGE didn't see the last financial crisis coming because they ignore the financial sector…

Over the last 30-something years, the Fed has become like the rest of the economic organizations in Washington DC, where they're given an answer, and they justify it.

As Ben Hunt wrote:

“Every FOMC member desperately wants to be a member of the club that would have him or her as a member, because it means that you’ve been recognized as one of the smart kids.”

Federal Reserve Senior Staff Economist Homer Simpson.

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So the Federal Reserve actually added $14 Billion of MBS last week (and sold $7.3B of Treasuries). I guess this is the fabled "Quantitative Tightening."

Probably nothing. I slightly edited below.

Why is the Fed's MBS position still going up?

It takes mortgage-backed securities up to 180 days to settle. Increases in the MBS position are most likely old purchases settling. The Fed is says they are letting $17bn of mortgages amortize off the balance sheet per month. The MBS position will allegedly shrink, but on a week-to-week basis, it will fluctuate.

Whatever. The Fed’s balance sheet is still growing. For the ramifications of this check back to my Nick Halaris piece from the other day.

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• I was waiting for this: “Starwood Capital Group is exploring the sale of two portfolios of single-family rental homes, seeking to unload roughly 3,000 properties as the once-frenzied US housing market cools.” Since we’ve now financialized everything on Earth (thanks Ben!), these homes will be sold to a couple of institutional landlords, not 3,000 young families.

• When he wasn’t hanging out with the Russian president's relatives, Eduard Gomberg says he made $1.5 million last year running a network of 66 Airbnbs from Tucson to Tel Aviv…Gomberg's story illustrates how Airbnb, the popular online booking site that began as a way for homeowners to rent spare rooms, has become a magnet for far-flung wealth-seekers who are turning entire Tucson housing complexes into vacation rentals…"It's one thing if you rent out a room in your house. But when you rent out the whole house you've removed it from the residential market and transferred it to the hotel market."

• “There are neighborhood streets where people used to hang out on their porches and talk. And now you see them replaced with these McMansions that people come into on the weekends and use to throw large parties and then take off,” he explains. The McMansions and large parties are possible because houses that used to be rented for a year by people who live in Austin are now rented for a weekend by people who just visit Austin.

• The Chronicle found almost 5,000 San Francisco homes, apartments, and private or shared rooms for rent via Airbnb. Two-thirds were entire houses or apartments, showing how far Airbnb has come from its couch-surfer origins, and contradicting its portrayal as a service for people who rent out a spare room and interact with guests.

• Interesting analysis. “Yes, there is currently a fundamental shortage of housing, but the US population is growing at .4% (1.3 million people per year) while the housing supply is expanding by 1.8 million houses per year, so if that were the main driver then housing prices should have been cooling off these last 5 years as home building ramps back up and population growth declines to record lows. Instead, housing prices have obviously only been accelerating.”

• More Than 8 Million Americans Are Late on Rent as Prices Increase “About 15%”

• New Orleans AirBnb’s

Via Minack Advisors.

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The 1.2 million-square-foot AT&T Tower in St. Louis “sold for $4.1 million, equal to $3 a square foot, in May 2022 after spending approximately five years in special servicing. The real estate-owned asset was liquidated with a 100 percent loss severity on its $107.1 million in outstanding debt prior to disposition. “ Wow.

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“…none of the leading strategists is forecasting a recession…”

- Barron’s, December 17, 2007

“The Federal Reserve is not currently forecasting a recession.”

- Citadel Ben Bernanke, January 2008

“Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson both acknowledged problems in the U.S. economy Thursday, but both said they believe the nation will avoid falling into recession.”

- CNN, February 14, 2008

Clearly 99% of what anyone at the Fed says publicly is propaganda, but my point is that - other than maybe Warren Buffett - the Fed has access to more real-time economic data than any other entity on Earth, and they still cannot see a recession until it hits them in the face.

When you look at the mistakes of the 1920s and 1930s, they were clearly amateurish… It is hard to imagine that happening again—we understand the business cycle better. - N. Gregory Mankiw, Professor of economics at Harvard, adviser to Presidents Bush and Obama, December 23, 2007

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Derek Stevens, who owns three Las Vegas properties, talks about the state of the casino industry. He says people are cutting back on discretionary purchases.

“About two thirds of Americans now live paycheck to paycheck, a June LendingClub survey found. That number jumps to 82% among workers earning less than $50,000.” [About 65% of American wage earners made less than $50k in 2020.]

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“More money has been lost reaching for yield than at the point of a gun.”

- Ray DeVoe

Celsius “offers high-yielding interest accounts, often misconstrued as bank-level savings accounts, to retail investors. According to its website at the beginning of May, Celsius had 1.7 million users and held $12 billion in customer funds, the majority of which are retail…“Almost every YouTube crypto related channel was recommending Celsius and that’s why I thought it was safe…”

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"I have a healthy degree of skepticism for complex models that don't actually get it right."

- former Fed economist Alan Boyce

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"How hard is it to understand that when an industry calls it a 'liar's loan,' there might be a problem with fraud?"

- Bill Black (apparently for the Fed it was very hard)

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