Academic Insanity Costs You 2% Of You Purchasing Power Per Year


Janet Yellen, who will likely be the next Fed Chairman, is insane.


There is simply no other way to describe someone who claims inflation is below 2% today and that the Fed’s monetary tools can improve employment.


Here are her comments on these subjects.


We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.


For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.


First off, inflation is not below 2%. We’ve been over the fraudulent CPI data enough times for this claim alone to discredit Yellen as an economist. Even the former head of the BLS has stated that CPI is a joke and needs to be revised.


Secondarily, I fail to understand how inflation of 2% is acceptable. Why is this base assumption never challenged? At this rate, in 10 years you’ve lost roughly 20% of your purchasing power. And during the average worker’s lifetime, they will see a 40-60% decrease in purchasing power.


This is good?


Now let’s assess her claim that the Fed needs to continue its monetary policy tools to promote a robust recovery.


The official unemployment rate is highly charged politically as it is used by the media to gauge how well a particular administration is doing at generating job growth.


As such the unemployment numbers are routinely massaged to the point of no longer reflecting the true number of unemployed Americans. For this reason, I prefer to use the labor participation rate when gauging the health of the US jobs markets: this metric represents the number of Americans who are currently employed as a percentage of the total number of Americans of working age.



As you can see, the number of employed Americans of working age peaked in the late ‘90s. It has since fallen to levels not seen since the early ‘80s. Moreover, looking at this chart it is clear that job creation has failed to keep up with population growth.


This negates any claims of “recovery” in the jobs market.


In particular, I want to draw your attention to the last five years of this chart below. The US Federal Reserve began its first QE program, called QE 1, in November 2008. Since that time it has launched three other such programs, spending over $2 trillion in the process.


During this period, the labor participation rate has not once experience a sustained uptrend. Put another way, job creation has never outpaced population growth to the point of creating a significant turnaround in the jobs market. This has happened despite the recession officially “ending” in mid-2009.



The evidence here is clear. QE does not generate jobs in the broad economy. It failed for the UK, it failed for Japan. It’s failing here.


End of story.


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Phoenix Capital Research




via Zero Hedge Phoenix Capital Research

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