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Did Anybody Else Notice What Jerome Powell Just Said?

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Last week Federal Reserve Chairman Jerome Powell was testifying in front of Congress. And if you actually listened to some of things he said, his comments were like the monetary equivalent of aliens landing on the White House lawn.

Perhaps Powell never imagined that anyone would actually listen to three hours of Federal Reserve testimony. Or maybe he’s just the latest Fed Chairman to take office seemingly as indoctrinated on Keynesian economics as his predecessors were.

But in either case, a half-hour into the broadcast Powell confirmed a statement that if properly priced in by Wall Street would have reset the entire financial board. Because at the 22:45 mark Powell makes clear that when the Fed talks about normalizing its balance sheet, they’ve apparently created a new definition of normal.

Chairman Jeb Hensarling: With respect to normalization I think you had said publicly that you expect the new normal with respect to the size of the balance sheet to be roughly $2.5-3 trillion and get there over 3-4 years. Do I understand that correctly Mr. Chairman?

Fed Chairman Powell: Yes

Huh?

When did that become the plan?

In reality I suppose it really doesn’t matter. Fortunately I long ago stopped taking too seriously anything any Federal Reserve official says or comments on. Primarily because regardless of what happens, the one thing you can count on the Fed to do is print more money. And that’s not going to change.

But what’s fascinating about Powell’s “yes” is that it finally acknowledges the Fed doesn’t even have the intention of ”un-printing” the money it created back in 2009 to buy the toxic debt that none of the other banks would touch. He’s confirming that even if the Fed does follow through with its plan to normalize the balance sheet, they don’t plan to do all that much normalizing.

Their balance sheet was around $800 billion before the housing bubble imploded, and the quantitative easing programs were sold as temporary. Now we’re talking about a new “normal” of $2.5-3 trillion. And that’s a projection over the next 3 to 4 years.

Anybody want to give me odds on that one?

Of course this hypothetical plan would be occurring at the same time interest rates are rising, while the real estate and stock markets have already gotten whacked in response.

So not only does the Fed’s “best case” scenario leave us with a lot more money than before, it’s also incredibly unlikely to occur. Which again is hardly news to anyone who’s been following Fed-speak for any amount of time. But as more and more whoppers like this get slipped in while just hoping no one will notice, I wonder if we are now living in truly historic times. Maybe this is what it was like for those who saw the Roman Empire on the brink of collapse 2000 years ago.

Coupled with the refusal by any of the decision-makers in Washington to in anyway address the unchecked spending that the Federal Reserve has been forced to monetize, it’s clear to anyone who wants to look that the Titanic is going down.

Fortunately however, by observing what’s going on and understanding the transfer of wealth that has begun to take place out of the dollar-based system, we don’t have to go down with the ship. This is why money has shifted into cryptos, and why in due time gold and silver will not be far behind.

The Federal Reserve chairman himself just told you that there are now going to be a few more trillion dollars permanently in circulation than were previously priced in. And God only knows what else he had to say in the other two and half hours of testimony (although I’ll find out and report back:).

But at least this time you get to see what’s going to happen before it’s too late to do something about it.

 

-Chris Marcus

March 12, 2018

 

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