The real power in the US is not held by the globetrotting President who “leaves snickers in his wake” nor the deadlocked Congress or any elected official. In fact, the real power in the US lies with “a Ph.D.-toting economist named Janet Yellen who happens to be Chair of the Federal Reserve Board,” wrote Paul Singer in Elliott Management’s highly anticipated quarterly investor letter reviewed by ValueWalk.
Also see: Paul Singer Warning On Financial Structure, Says Lobbyists Writing Law
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ValueWalk's Raul Panganiban interviews JP Lee, Product Managers at VanEck, and discusses the video gaming industry. Q4 2020 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview With VanEck's JP Lee ValueWalk's ValueTalks ·
Yellen real leader of “so-called Free World”
Paul Singer noted that Yellen is “actually acting like the leader of the so-called Free World,” a notion that today “conveys more irony than truth.” The free world is actually more planned and manipulated than at any point in history. Paul Singer noted significant societal shifts that have generally escaped public review. Among these shifts is the changing US Federal Reserve.
Citing a recent Yellen trip to Chicago, the “presidential” seeming campaign stop featured Yellen donning a welding mask and speaking of “heart-rending, vivid stories about three citizens ravished by the failures of the economy, which she is determined to carry on her shoulders.” Humorously noting that two of the three featured citizens in this campaign stop had been convicted felons, Elliott recognized a shift in the Fed. “Astonishing – she seems to be mimicking the demeanor and messages of someone either running for or actually serving as President, Governor or Mayor.”
Un-elected Fed chief giving political leaders easy economic solutions
The un-elected Fed chief, keeping an eye on the invisible yet powerful hand from the semi-private organization’s ownership, might be good at running a campaign, but Paul Singer is not so sure about the Fed’s historic inability to encourage, rather than control, the economy. Noting the problems underneath what many insiders consider a faux economic recovery, Paul Singer points to the problems: “Easy-money policies that facilitated the debt/real estate bubble that led to the crash, and the failure of the subsequent five years of QE and ZIRP to create a strong, sustainable recovery in economic growth and (honestly measured) employment, represent an abdication of responsibility by the Administration, Congress, investors and citizens.”
That’s a big list of issues. But who is Elliot to provide such critique? It was Elliott, just before the 2008 market implosion, who pointed out to European central bankers that, despite the façade of apparent robust economic growth at the time, the bottom was about to fall out. Cue the derivatives-led, fraud laden economic implosion in 2008, and Paul Singer joins a list of economic masters to recognize the economic truth that was being hidden in opaque and intentionally complex fraud.
Just as before 2008, today Paul Singer recognizes structural economic problems
Like the 2008 crash Paul Singer predicted and officially warned about, he looks at today’s economic landscape, strewn with what he had previously termed “lawlessness” on Wall Street with an economic house and its foundation built on the insecure sand of stimulus, Paul Singer notes similar problems between 2008 and 2014. “Unfortunately,” he writes, “the situation is getting worse, not better.”
Does the Fed give the President and Congress an “easy button?”
One problem often cited by Paul Singer and other hedge fund executives who understand how markets operate is the undue complexity that the Fed applies, and they don’t understand how free markets operate. The Fed has become a policy arm, serving political purposes. Its goal is to inflate asset prices and do the economic heavy lifting that sound, hard working economic policy used to achieve. Today’s Fed is “providing cover for the President and Congress to avoid having to develop thoughtful and intelligent policies toward growth.” In today’s environment, quantitative stimulus is doing the heavy lifting, not fundamental economic policy. It is here that Elliot connects the history of the Fed with reality, then addresses inequality.
“The Fed has lost any semblance, any wispy remnant of humility, introspection, caution and historical perspective,” Paul Singer writes. The US is moving towards a planned economy and applying economic policies that are anthemia to established economic principle. “It is all cameras and applause, with the welding mask sideshow serving as a perfect symbol of what monetary policy in America has become.”
Inequality at the doorstep of Fed
The difference between the Fed-led US version of a planned economy and the old Soviet Union version is that the Fed institutes policies specifically having the impact of making the rich richer. In the old USSR they had a two-tiered legal system, as is increasingly becoming the case in the US, but at least they kept up appearances of striving for equality.
“Inequality in the U.S. today is near its historical highs, largely because the Federal Reserve’s policies have succeeded in achieving their aim: namely, higher asset prices (especially the prices of stocks, bonds and high-end real estate), which are generally owned by taxpayers in the upper-income brackets,” Paul Singer writes, noting the often obscured core fundamental economic weakness that exists today. “In the absence of the Fed’s money printing and ZIRP, the economy would either be softer or actually in a new recession.”
Forget the fact that the same economic crew has been running the economy since the late 1990s. Republican or Democrat administration just doesn’t matter when it comes to Wall Street and how the economy is managed. The White House a recent history of outsourcing economic management to a small clique who rises above the law while it reaps enormous profit, garners a too big to fail guarantee and with $600 trillion in OTC derivatives exposure, can implode the world economy with the push of a button. It is this group that has presided over the documented doom of the middle class, the economic destruction that was 2008, but is seldom called out for their deeds. In fact, they are placed on a pedestal. Now that is total control.
The real irony of the situation is that one cause of inequality, quantitative easing, is really giving Congress and the President easy short term choices – an “easy button” – while allowing them to avoid building and maintaining a strong economic foundation.
“The President is railing against inequality as one of the most important problems of the day, despite the fact that his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality.”
Here’s the punch line. The easy solution – print more money that benefits the big banks and upper tier of society – provides politicians the easy way out. “This simple truth cannot be repeated often enough,” Paul Singer writes.