The Independence of the Federal Reserve

"The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of monetary policy. The Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long-run goals and do not become subject to political pressures that could lead to undesirable outcomes." - Board of Governors of the Federal Reserve System

The Federal Reserve must be celebrating today as unemployment dropped below 8% for the first time since 2009.  Finally the open ended purchasing of toxic debt and other assets, keeping interest rates at unsustainable low levels, has paid off as we are now trending in the right direction.  A number of interesting things jump out of the page regarding these numbers.

First of all is the fact that the majority, 582,000 of the 873,000 jobs created, were part time.  Now I wonder how many of those part timers were looking for a full time job.  Furthermore it ties in with an article written in the local news paper last week that there are plenty of part time jobs available as stores ramp up for the holiday season.  Is it just me or does this holiday season seem to happen earlier and earlier every year?  It appears that retailers are trying to get a jump on the competition and boost frail sales numbers but either way part time jobs come and go and this is a seasonal adjustment.

The next interesting question is the timing of the release.  It could not have happened at a better time for Obama.  Interesting again is the fact that the Bureau of Labor Statistics had been under reporting the actual employment numbers all year and suddenly found their mistake this month.  I don't know about you but to me the timing is questionable.  Certainly Obama will use this number to show the world how effective his leadership has been and that sticking to his plan will create jobs.  So let's look at the plan. 

More than a trillion dollar a year deficits for as far as the eye can see covered by the printing press that is the Federal Reserve.  The Federal Reserve's purchases of the government's massive trillion plus dollar deficits is what is called "monetizing" the debt.  By monetizing the debt the Federal Reserve is giving Congress a blank check book saying spend as much as you want and we will buy the junk.  Fiscal discipline is out of the window and in its place is a government that is out of control attached firmly to the umbilical chord of the Federal Reserve to preserve their madness.  How anyone in government can look themselves in the mirror and say "It is only a few more trillion of my constituents money but it is well spent" is definitely not in touch with reality.  That is why mirrors are banned in the White House! Only joking of course but how else can you wander around actually believing that what you are doing is solving the problem?

This dysfunctional government is creating a vast wall of debt that is rapidly becoming unmanageable however as long as the Fed keeps interest rates at the lowest level in our recent history the debt service charge is as low as it was $7 trillion dollars ago.  Remember back 10 years ago, everyone was shocked at a $158 billion deficit and $6 trillion in debt.  What would we give for that "little" of a number today?  I bet that you cannot imagine us ever going down to such a low level again, but unless we do trouble lurks ahead.  Just think about it for a minute, 10 years ago a massive deficit of $158 billion and now the deficit is 10 times that amount!  That equates to a growth rate of 22% compounded annually!

So let's look at the results of all of this printing.  Jobless rate of 8% five years after the Recession began and this is supposedly the recovery period.  47 million Americans on food stamps.  Four years of declines in household income to a level equal to that of 1995.  The lowest labor level participation since 1981.  Gasoline prices above $4 a gallon up from $1.50 in 2002.  Is this a recipe that is working?  And yet the Fed continues to believe in printing money to bolster stock prices, housing prices and raise asset values so that the man in the street "feels" more wealthy and then will open their wallet to buy things stimulating the economy.  Now I did not make that last sentence up, it comes directly from the mouth of the Fed Chairman!  So this is how yous timulate an economy, manipulate all asset prices to give everyone the warma nd fuzzies so that tehy can spend money they do not have and get creamed by the next burst bubble.  Nice!

Let's not also forget that they also need to monetize the ludicrous policies of the government and you have a situation where the independence of the Federal Reserve is vaporized.  No longer are their policies to assist employment and keep prices stable for we have just seen that neither of these metrics is happening.  What is happening is that they are manipulating prices and letting the government spending spin out of control with no accountability.  Please do not get sucked into this manipulated market rally, look around you and see what is going on and protect your assets.