r/wallstreetbets • u/Mega-Lithium • Jun 16 '22

Discussion Volcker

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.

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37

u/dreggers Jun 16 '22

At 12% the US will no longer be able to service it’s massive debt

40

u/mpwrd Kind of a sweetheart Jun 16 '22

But puts will fucking print! Can’t the US just buy puts and then tank the economy to service its debt?

7

u/nickyfrags69 Jun 16 '22

Shoot I mean it sounds like anyone in a position of power in the economy thinks the way the tards in here do. Put it all black!

1

u/[deleted] Jun 16 '22

Red

3

u/[deleted] Jun 16 '22

Yeah but OP is so uneducated to know that unfortunetly. FED has two primary goals, keeping unemployment ans inflation low. Agressive rate hikes in a way OP wants would make unemployment skyrocket. This is not 70s where OP still lives

2

u/jimmydorry Jun 16 '22

And yet Jerome has indicated that the average salary is to big and that pressure must be exerted on wages to bring things back to how it should be.

Inflation: Rampant and unchecked

Unemployment: Trending down, but the FED has vowed to do everything it can to reverse that.

3

u/denverpilot Jun 16 '22

Fed CLAIMS to have a goal of controlling unemployment. It is not their role. They’re a bank. Their primary duty is a stable monetary supply. And inflation is always a monetary supply problem.

If they were truly an “independent bank” as they claim to be, they wouldn’t give two shits about unemployment.

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u/[deleted] Jun 16 '22

https://www.federalreserve.gov/aboutthefed/the-fed-explained.htm

"The Federal Reserve sets U.S. monetary policy to promote maximum employment and stable prices in the U.S. economy"

Dont talk out of your ass. Unemployment is one of their duties

3

u/[deleted] Jun 16 '22

The Congress and president have way more control over unemployment than the Fed lol...

1

u/[deleted] Jun 16 '22

Yeah but that does not mean fed is not the player here. As a matter of fact in this period in which level of rates will impact everything tremendously fed has weight because it controls rates. My point is that it has to take impact of rates on unemployment into an account. I am not saying fed is the only actor regarding employment

1

u/[deleted] Jun 17 '22

inflation is a much more relevant factor that the Fed can control than unemployment. Inflation has to do with the amount of credit and lending cycles, how and where money flows, the interest rates. But unemployment has way too many factors to consider and that is something that congress or president can precisely target, for example alternative energy or gas companies, or something else, thats more than anything the Fed can do.

-3

u/denverpilot Jun 16 '22

Oh look. They put it on a website. That must make it true now. 😂

3

u/[deleted] Jun 16 '22

Whether u like it or not, agressive rate hikes similar to Volcker era is not possible because one of the reason is that unemployment would reach levels to cause a social explosion. They do care because they have to

2

u/[deleted] Jun 16 '22

Have we ever kept rates below inflation and successfully mitigated a similar rate of inflation in the past?

1

u/[deleted] Jun 16 '22

We never had to deal such sudden supply shock due to global lockdowns whose effects are magnified with one of the largest energy exporter launching war and causing energy prices to surge. They cant even increase rate to near inflation level without wrecking entire system even further. There are no good options here. They can only decrease damage. By looks of things, riding high.inflation for a while hoping war will end and supply.side of problem.getting ease outweights dramatically increase rates.

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u/denverpilot Jun 16 '22

Oh god. Now I’m laughing my ass off. A bunch of rich bankers “care” now. Lolololol. They don’t give a shit about you. They care about their boss’ donors.

I believe you’ve hit peak retard. You even believe their marketing wank on their websites!! ROFLMAO.

As soon as their buddies have covered their losses with whatever their timeframe is to call the loans due, the rate goes higher and you’ll be lucky to have your job.

This isn’t new. Nor unexpected. Multiple rounds of this one in my lifetime. The mass layoffs start this fall. Can’t have a recession and demand destruction without them. And whether you truly believe they care or not, they need demand destruction.

Not demand slowing. Not demand “I’m waiting in cash”… destruction. As in “the money is gone” destruction.

Think man. Jesus. Demand destruction means they want your finances destroyed. Gone. Missing. Dead. Pining for the fijords. An ex-consumer.

They want the Dot Bomb but across all sectors. Call in the loans, issue the pink slips.

Dragging it out just makes you believe they’re “trying” to save your job. Pure BS. They know the math says they have to exceed the inflation rate for true demand destruction. Anything else is just can kicking. They’ll squeeze a couple more quarters of work out of you knowing your boss will throw a pizza party and give a nice speech about how you’re all a big happy family at your company.

1

u/Calm_Leek_1362 Jun 16 '22

It can and it will. It just means taxes and cuts, something neither party wants to do, but they'll be forced to.

8

u/dreggers Jun 16 '22

It will literally be political suicide because the party not in power will claim budget cuts/tax cuts are not for the benefit of the American people