We need to talk about Jerome.

"Propaganda very often works better for the educated than it does for the uneducated." - Chomsky

I wrote an illustrated Twitter thread back in November 2021 on Christopher Leonard’s excellent article, “Jerome Powell’s Fed policies have boosted the system that made him rich,” about the background of Private-Equity Man, Jerome Powell. (Since I’m now suspended, I’ve turned to Archive.org for help partially recreating it.)

Chris Leonard is one of the very, very few mainstream reporters who seem to understand that the Federal Reserve’s policies have been very bad for most Americans.

On the other hand, the financial media is full of Fed sycophants, like the Wall Street Journal’s objective “chief economic correspondent” Nick Timiraos, who subtitled his new book, “How Jay Powell and the Fed Battled a President and a Pandemic---and Prevented Economic Disaster.” (He also unsurprisingly got to ask the first softball nonsense question at the last Powell presser.)

Then there’s folks like CNBC’s Scott Wapner, who tweeted out this gem:

And we can’t forget the appropriately named Steve Liesman, CNBC’s very objective “senior economics reporter.” I documented his love for the Fed many times. e.g.,

So you can see what I’ve been up against for years, ever since goofballs started calling Patient Zero Alan Greenspan “the Maestro.”

Leonard wrote another great article, “The Fed’s Doomsday Prophet Has a Dire Warning About Where We’re Headed,” about Thomas Hoenig. I wrote a long thread on that article too, partially recreated here. (While Archive.org is useful, it’s far from perfect. It’s so irritating to me that Twitter has now made all my work over the years inaccessible, and I have to resort to digital archeology to try to recreate parts of it. Remember, if you’re suspended from Twitter, your “archive” is like trying to put back together something that has been bombed.)

So where am I going with all this? Let’s revisit Private-Equity Man’s background:

A lawyer by training who has been a member of the Fed’s board of governors since 2012, Powell worked for Carlyle between 1997 and 2005. He’s credited with founding the global investment firm’s industrial division within its US buyout fund. After Carlyle he formed Severn Capital Partners, a private investment firm which focuses on specialty finance and opportunistic investments in the industrial sector. In 2008 he joined Washington DC-based Global Environment Fund, a private equity and venture capital firm that invests in clean technology, emerging markets, and international forestlands. He also has investment banking experience, having spent six years at Dillon Read.

So, a Joe Six-Pack type.

While at the Fed, Powell strangely transformed from a less-reckless apparatchik, along the lines of Hoenig, or Dick Fisher, into the second coming of Pimco & Citadel’s Ben Bernanke:

As late as June 2014, Powell seemed wary of the Fed’s easy money stance. “After almost six years of highly accommodative policy, the risks are out there and continue to build,” Powell said during one meeting. What worried him more was the prospect of “a sharp correction amplified by the liquidity mismatch in the markets that would damage or halt the progress of what is still a weak economy.” He was saying that a lot of traders and hedge funds had built up risky positions using a lot of debt. If markets fell—because inflated asset prices started to reflect their real value—then traders might dump their assets and cause prices to crater.

But just seven months later, Jay Powell gave a speech at Catholic University in Washington, D.C., aimed at disarming the central bank’s critics, such as libertarian figures like former congressman Ron Paul, who was calling for more oversight of the Fed. Powell said that the increasingly vocal criticisms of the Fed were misguided…

His reversal was noted by his colleagues at the FOMC who had previously argued alongside him about the risks of quantitative easing.

“There was a shift, and I think it’s noteworthy,” Fisher, the former Dallas Fed president, says in an interview. Fisher was not aware of any study or new data set released between June and February that would justify a reversal of Powell’s judgment about quantitative easing or zero-percent interest rates.

“There was no condition in 2015 that would have indicated, or necessitated, easing off that argument,” Fisher says. More likely, he believed, was the effect of being a Fed governor. “The evolution may well have come from being there longer, being surrounded by brilliant staff that has a very academic side to them and bias,” Fisher says. “You’re living in a cloistered atmosphere. It’s a different environment when you’re in that hallway. You conform more…”

I’ve said many times that there really is no ideological diversity at the Fed. They thrive on consensus, especially if it’s wrong. Ben Hunt explains:

…FOMC meetings are driven by a desire to form a consensus with the other smart people around the table, so that each of you is recognized by the other members of the consensus as being smart enough to be a member of the consensus. It’s the precise opposite of the old Groucho Marx joke: “I don’t want to be a member of any club that would have me as a member.” 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. The internal political dynamic of academic cultures like the Fed, at least at the highest levels of Governor to Governor interaction, is NOT antagonistic or divisive. On the contrary, it’s cooperative and consensus-forming.

My point in the end here is that Powell is Private-Equity Man, leading an institution that has collectively chosen to enrich the very wealthiest Americans with their endless QE programs (despite the Fed’s endless woke platitudes.) The Volcker comparisons are a joke.

For many years, as pundit after pundit said, “There is no inflation,” and, “We need higher inflation,” average Americans were dealing with a constantly higher cost of living, particularly in homes and rentals, as private-equity firms fueled by Fed-crack bought up entire neighborhoods.

Private-equity has been killing it over the past decade. My Twitter account was full of links to examples. Private-Equity Man came through for his people. The American middle-class? Not so much.

As Leonard writes, “Many years of easy money policies have been rocket fuel for private equity firms like Carlyle Group because cheap debt is their lifeblood.” Jerome Powell isn’t going to want Larry Fink or David Rubenstein mad at him.

I’ve been making taper and liftoff jokes on Twitter for nine years. Despite all the hawkish talk (and it’s all talk), this Fed will never tighten or “normalize” much. They will not threaten their past and future employers. They are mostly an inbred-cult of dangerous econ ideologues, with some opportunistic types like Jay Powell and ex-Goldman partner types thrown in for good measure.

Even now, the Fed policy rate is sub-1% and their official (understated) inflation model’s over 8%. Who are they kidding? (Apparently about 95% of market observers).

In the end, the Fed Put is at whatever level the future jobs at Blackrock, Pimco or Citadel begin to dry up.

Hell, the Fed bought T-Bills TODAY.

FOMC members WANT inflation. They just don’t want it too fast. They’ve been calling for it for years.

Powell called low inflation “one of the major challenges of our time., (go say that in a supermarket, Jerome), and Janet Yellen’s “only regret” as Fed Chair was Low inflation. I wish everyone would finally wake up.

Yes, the FOMC jawboning has led to the markets “tightening,” by the greatest amount since [fill in some year], but a little perspective please:

Yes, I know debt levels are ridiculously higher now. Gee, how did that happen?

It’s almost as if there is some powerful entity that constantly does everything possible to try to get everyone into more unproductive debt, even rescuing incompetent firms when they fail.

Reminds me of this passage from Leonard’s book, talking about September 2019:

…the Fed stepped in, almost instantaneously, and initiated a $400 billion bailout. This bailout was unprecedented, and it benefitted a small group of hedge funds that had essentially hijacked the repo market and used it as a vehicle to make risky bets. The Fed saved them from the consequences of those bets. But maybe the most remarkable part of the bailout is that the Fed did it without much notice. A $400 billion emergency cash injection was no longer news. The Fed described it as a matter of normal maintenance.

Anyway, this is from early April, 2021:

In response, I wrote this:

Jay Powell's a liar. The cost of living is already going up more than 2%, and he wants to raise it higher. This will hurt struggling Americans whose wages won't come close to cost of living increases. It'll help the firms ex-FOMC members go to though.

I stand by that assessment.

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I recommend Christopher Leonard’s book, “The Lords of Easy Money: How the Federal Reserve Broke the American Economy.” It’s not perfect, but it’s refreshing to see a reporter actually investigating the negative effects of Fed policies. Also, make sure to really read the two articles from Leonard I highlighted above.

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