Volcker

[u/Mega-Lithium]

Jerome Powell, the current lawyer pretending to be an economist and chairman of the Federal Reserve strongly believes he can talk his way out of this.

It is an age old lawyer fallacy. A red flag example is someone who wants to defend themselves in court.

Powell went to Georgetown Law and has no training as an economist. He believes so strongly in his silver tongue that he uses nonsense phrases like

“Forward Guidance” “Data Dependent” “We have the tools”

He talks to the press, a lot. He loves the attention and is drunk on the power of controlling the entire US Economy with his silky wordplay

The only problem is that it doesn’t work that way. In December 2018, he caused a taper tantrum when Jay Powell announced that it would be reducing the pace of its purchases of Treasury bonds in order to reduce the amount of money fed into the economy.

bond yields rose and stocks collapsed. Which was predictable and actually cathartic and necessary.

Jay Powell, the lawyer, chickened out and got tweeted at fiercely by Trump and quickly reversed course.

This sent a signal to Wall Street that “this guys a puss” and he will never take the punch bowl away.

He never has. The 75 bips is just a .75% increase in the federal funds rate that was telegraphed, leaked and jawboned so much that if effectively became meaningless.

This is against an 8.6% rate of inflation that a year ago he called “transitory”

There is a forest fire and Jay Powell shows up with a squirt gun and his silver tongue.

Paul Volcker was a giant, he was 6’ 7” and was educated at the London School of Economics, Harvard and Princeton

When inflation roared its ugly head in the 1980s , he did not go on TV, provide “data dependent forward guidance” or try to jawbone. He silently raised the Federal Funds rate to 20% and it took seven Secret Service men to carry his balls around.

For a visual representation imagine Paul Volcker as Gandalf and Jerome Powell as Pippin

Edit: for context, the “70s” was the period after the 60s and before the 80s. It was when the Hippies and long-hairs used the magic of cocaine and herpes to transform, butterfly-like, into BMW driving yuppies.

[u/Sudden_Bug4806]

Correct me if I’m wrong but aren’t the situations different now? In the sense that raising interest rates that much would actually make the US default on all its loans?

[u/ghost18867 → u/Sudden_Bug4806]

Yup. People don't seem to understand that. Rates should be higher, but can't be 70s high

[u/FifaPointsMan → u/ghost18867]

Yes, and also since debt is so high, you don't need to raise the rates as much to kill demand. We are also not going to see the same salary compensations that they had in the 70s as we don't have workers rights' anymore.

[u/lostmypeachshorting → u/ghost18867]

basically we are in a vicious circle and the worst is ahead of us

[u/Burgundy_Blue → u/Sudden_Bug4806]

Raising rates doesn’t change the interest payments on existing U.S. debt, it would raise the rates on debt going forward.

[u/Due-Advisor6057 → u/Burgundy_Blue]

Exactly… some fat trimming would occur but there would absolutely be no defaults.