Gold (and Silver) Is Laughing At Powell

Recently, my colleague, Egon von Greyerz, and I had some unabashed yet blunt fun calling out the staggering levels of open hypocrisy and policy desperation unleashed by former Fed Chairman, Alan Greenspan.

Poor Alan was an easy target of what I described as the “patient zero” of the reckless interest rate suppression and unbridled monetary expansion policies of the Fed which have always led to equally reckless boom and bust cycles in markets and economies. But let us be fair to comical Fed Chairmen like Greenspan, as he is not alone in making a mockery of his post at the Eccles Building. With the exception of Paul Volker and William Martin, the sad truth is that nearly every person who has sat in that lead Chair of a private bank masquerading as a “Federal” reserve has made the bank, and themselves, a public embarrassment.

For the most part, over-hyped Fed Chairs know how to run up debt levels and create lots of money to appear “accommodative” to markets in the short term and then blame “animal spirits” on the disasters which always follow longer term. In fact, if I had to come up with the most honest and historically-confirmed job description for a Fed Chairman, I would post the following job-post on LinkedIn: “Seeking D.C.-based expert fluent in double-speak, comfortable with unsustainable debt expansion and handy with a money printer. Ivy League credentials a plus.” As for double-speak, Mr. Powell is now seeking to outshine ol’ Mr. Greenspan’s art of spin with stunning elan.

At a recent economics club in Washington, Powell was both shameless and brilliant in his ability to spew fantasy with the skill of a circus promotor yet maintain the straight face of a circuit judge. Specifically, Powell tried to downplay the U.S. debt elephant in the room by admitting to its horrific size yet promising a miracle policy shift sometime down the road…

That is, he was unable to deny what he described as the “unsustainable path” of current U.S. debt levels growing “meaningfully faster than economic growth,” but was quick to comfort anyone gullible enough to believe him that for now “there is no question of our ability to service our debt for the foreseeable future.” Ahhhh. Such calming words, such confidence, such market-placating guidance. But now, let’s translate Powell’s Fed-speak into real-speak and get a deeper look into the mind of a first-rate spin-seller. When Powell says “there is no question of our ability to service our debt for the foreseeable future,” he is actually telling a kind of partial truth. Congratulations Jerome. Yes, so long as the Fed decides to print trillions more fiat dollars and artificially cap yields and interest rates, the Fed can indeed “service” it’s nearly $30T in public debt for the “foreseeable future,” as the cost of that debt is forced to the basement of history.

But what Powell forgets to say, quite cleverly, is that the “foreseeable future” of which he is telegraphing is nothing more than a future of equally foreseeable and grotesquely expanded, and hence, debased U.S. dollars, which is needed to monetize that truly unsustainable debt. Needless to say, such money printing is great news for gold…But Powell’s ability to spin fantasy gets even more pronounced with his next great lie masquerading as policy comfort.

Stated more simply, that “distant future” of “economic growth” in which the Fed “deals” with our debt problem is an open lie, no different than Bernanke’s 2009 promise that QE1 was “temporary” and would end by 2010. If Powell would like, I am happy to send him (or Monsieurs Greenspan and Bernanke) a few high-school text books on basic math, or maybe one or two essays on market history to help him (them) regain both a conscience and facts.

My former Harvard President and one-time Treasury Secretary, Larry Summers, for example, is no less of a master at promoting his image while ignoring his mistakes. Mr. Summers, the god-father of deregulating the otherwise toxic, uber-levered and price-fixing OTC derivatives market, deserves an honorable mention. Under his watch in 1998, that derivatives market went from $95T to $670T despite open warnings from Brooksley Borne at the CFTC. Meanwhile, Summers was openly insulting her while slapping backs with bankers and promising the world not to worry about their master plan to expand this once-safe futures exchange. But less than a decade after telling Congress that he and his banker friends were more than capable of managing OTC derivatives risk, that same market, as well as the S&P (and the Harvard endowment) tanked by greater than 50% in a matter of weeks in 2008.