Yellen Overstates The Health Of The Labor Market, Understates Inflation – Podcast

Yellen on the Labor Market and Inflation

JM Bullion
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Podcast Summary

0:00-4:37 – Introduction

Yellen Overstates the Heath of the Labor Market and Understates Inflation

4:37-8:05 – discussion of the Fed’s decision to not use the targeted 6.5% unemployment rate as a basis for making monetary decisions. The Fed will use new tools to determine the health of the labor market. Janet Yellen overstated the health of the labor market and understated inflation. The Fed will reinvest all the maturing securities that they have already bought. Tapering is nothing new to the Fed that is why there has been QE’s 1, 2, 3…If the economy/labor market/inflation don’t behave as the Fed expects, they may have to return to QE.

8:05-10:28 Discussion of mortgage interest rates and their relationship to QE. Discussion of the Fed’s plans to keep rates low “six months” after they finish tapering.

Who Will Buy the Treasuries and Mortgage Back Securities When the Fed Stops?
Why the Fed Might Want Higher Interest Rates

10:28-12:38 Discussion of who might be the buyer of U.S. Treasuries when the Fed stops buying them. The Fed may wish to raise rates because everything they do it to help the banks, not necessarily the economy, the government or the labor market and higher rates may help the banks, now that their balance sheets are cleaner, banks can make more loans at higher rates.

12:38-16:10 Discussion of the recent announcement that twenty nine of thirty banks now meet their stress tests. If the market crashes the banks supposedly could withstand it- and probably be in the best position to buy up all the cheap shares. Discussion how higher interest rates would help small businesses.

16:10-20:11 Discussion of a recent Zillow poll claiming that four million renters want to buy homes. The problem with the housing market isn’t low inventory, it’s low demand. New home starts, new home permits and mortgage applications are down.

Discussion of the blog post “Who will buy homes as investors leave the market“.

20:12-26:10 Discussion of homes listed outside the MLS. Discussion of what home investors need to do to manage their portfolios besides just buying homes. Discussion of homeowners with negative equity.

26:10- 33:54 Who are the potential home buyers that might replace investors in the housing market. Millennials, baby boomers, move up buyers and foreigners. Home sales will continue to fall and as they fall so will prices.

Russia Calls Off Retaliation – Says “Never Mind”

33:54 -39:30 Discussion of the situation in Crimea and Russia’s annexation of that country and the potential for financial sanctions levied by both sides with perhaps dramatic consequences. The threatened economic sanctions against Russia turned out to be a non event, with the United States placing sanctions on eight Russian cabinet members (but not Putin himself) leaving the Russian President to declare there was no further need to retaliate against the United States. This issue could be raised at a future date. Discussion of how Russia used the threat not to use the dollar in international trade to take over Crimea. Discussion of how international situations are over blown into crisis and how its more difficult now to convince Americans that military action is necessary after the Iraq invasion based on the existence of weapons of mass destruction. Comparison of Iraq and the Cuban Missile Crisis. Discussion of why Europe and the U.S. backed down.

39:30-44:56 predictions of what the Fed might do in the coming months. Perhaps one more taper, but if the ten year note goes over 3% the Fed may be forced to stop the taper. Discussion of Janet Yellen and negative interest rates. Discussion of alternatives to QE- purchasing student loan debt or infrastructure projects to create jobs. Discussion of the size of the current QE program with the prior QE’s.

The Media’s Characterization of the Economy as in “Recovery” – The Wishful Thinking Economy

44:45-54:27 Discussion of the initial jobless claims data and how the media spins it as positive news vs. how the alternative media analyzes news. Existing home sales are down, new home sales are down, mortgage applications are down, the labor participation yet is down, home ownership rate is down, student loan defaults are up yet the media insists on characterizing the economy as being in “recovery” (for five years!). Discussion of the Emperor’s New Clothes and the power of collective thinking/delusions. Discussion of banker suicides. The Fed spent $4 trillion on QE yet the U.S. economy only grew $1 trillion during the .

54:27- Credit Tip of the week

Russia Backs Off Retaliation For Sanctions

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Further Reading:

If Russia Sells its U.S. Treasuries Will The Fed Buy Them?

For Fed Presidents Hope Springs Eternal in the Spring

Why Saudi Arabia Matters in Keeping the U.S. Dollar as the World’s Reserve Currency

Why the End of Quantitative Easing May be Bad for the Dollar (and Good for Gold and Silver)

Initial Jobless Claims

The False Housing Recovery of 2013 and How it Unravelled

Fed Presidents Continue to Talk Taper

Royal Canadian Mint

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