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At the 2022 Jackson Hole Symposium, we got a brief glimpse of what a Fed Chairman could accomplish with “flattery” if he concluded that it was the right thing to do and, moreover, had the leadership qualities to carry it out.
In that moment, Powell offered and truly embodied something revolutionary, especially for a generation of delusional speculators who have little conscious or even living memory of anything other than a tolerant Fed that provides unlimited liquidity through ongoing open market operations and stands ready to pounce with a predictable “Fed put” at the slightest hint of systemic risk.
The proverbial “punch bowl” has never been as prevalent a panacea for narcotic pleasure as the one that has been created by the Fed's quack medicine of the past 14 years.
But now, after a terse nine-minute speech about “bringing some pain to families and businesses,” Powell not only took the punch bowl away, he dumped it down the toilet, flushed all the methadone out, grabbed the addict behind the shoulders and slapped him across the stunned, confused face.
Needless to say, all markets reacted accordingly.
Bond market yields rose significantly, with the 10-year Treasury yield rising by more than 80 basis points over the next four weeks, but the notable summer rally has completely unravelled, with stocks falling by about 15% over the same period.
This was the right approach at the right time for Fed policy.
After nearly 35 years of steadily increasing intrusions into private markets and encouraging moral hazard, followed by the most absurd 14 years of “Zero Interest Rate Policy” (ZIRP) and “Quantitative Easing” (QE) futility, the Fed has finally stated the truth… financial “pain” is a fact of life, it is finally coming down to your home or business, and the Fed has no intention of stopping it.
But where did this clarity from Fed Chairman Powell come from?
While it was well known that there had been last-minute changes to the message, and watching the speech it seemed as though he had literally “torn up the manuscript” and simply followed his own instincts, such a masterful job of candor required the fortitude and courage that can only come from actual leadership.
To truly understand the role of leadership in human life, it is important to seriously consider what it means to be a “leader.”
The modern Merriam-Webster Dictionary superficially defines a leader as “one who directs” or “one who has command or influence,” while an older dictionary written by Samuel Johnson in 1768 adds only “one who leads or directs” or “one who advances.”
Perhaps one of the best quotes on leadership was published in the Manchester Weekly Times and Examiner on Saturday, March 7, 1846, within a lengthy article on legal policy issues.
“In ethics, the law of compromise is unknown. There is one right and one wrong, one truth and one falsehood, but no middle ground. Compromise is human, physical, born of the weak human need to concede and to produce it through conceding. Compromise is merely the game of politicians, not the game of truly great leaders, whose life is the unravelling of divine truths.”
In a sense, true leaders paint a vision of the future and inspire people to embark on a mission to that future, not because they want to take the easy path, but because they know it is the only true way forward, even though the path may be difficult, risky, or even dangerous.
Those to whom we give the empty label “leaders” today are not real leaders at all. They are weak, appeasement political tacticians who exert calculated malice on the masses for purely political gain, for the sake of fulfilling the obligations of their institutional roles, or more selfishly, for their own legacy, or for worse, sinister reasons.
Whether they are the political gods of “A New Hope,” billion-dollar industrial tycoons, highly educated and acclaimed academics, or decorated military commanders, the problems these charlatans face are often not truly real, and their solutions are often not real either, or instead their “solutions” literally create or exacerbate real problems through stories spun by appealing to authority, emotion, ignorance, or simply fantasy, which are then socialized to the masses and evangelized through television and technology for maximum effect.
But reality is inexorable and will always find a way to break through the current hegemonic machinations, especially in economic matters, and ultimately wipe out all evil and deception, and along with them the clever swindlers and charlatans who perpetrate these wrongdoings.
Our economy is on a dire trajectory, and only true leadership can restore some of what has been lost over the past 35 years — and only by truly understanding the real situation, not by “easy monetary policy” that postpones the problem.
For a brief moment, at least within the confines of the Federal Reserve, that leadership seemed to emerge in the form of Jerome Powell.
He spoke the truth, stated his points clearly and concisely, leaving no room for equivocation. Like Orwell's maxim, “In a time of deception, speaking the truth is a revolutionary act,” Powell's concise nine-minute “Pain” speech was nothing short of revolutionary.
Sadly, the revolution may have been only a brief rebellion, or merely a fluke caused by a severe bout of diarrhea or some other temporary digestive disorder that plagued Powell.
There was no further follow-through or further momentum, just a retreat to the earlier timid “data-dependent” stance, with a non-stop procession of dovish Fed speakers led not by Chairman Powell but by the queen of doves, Vice Chair (and aspiring politician) Lael Brainard, and her close friend, San Francisco Fed President Mary Daly.
The rest of 2022 was truly bleak. Overwhelmed by the UK gilt fiasco, UN warnings of a global recession, the looming midterm elections, or the idiotic yin-yang hyperventilation of people like “Nobel laureate” Paul Krugman and Wharton nutcase Jeremy Seigle, Chairman Powell allowed the Fed’s forward guidance to collapse into a pile of decidedly dovish and confused outlooks, with Fed speakers signalling their intention not to “crash the economy” with too aggressive rate hikes while trying to “see through” the COVID-19 supply shock that is driving inflation (i.e. still focused on the mystical “temporary” nonsense).
These missteps, in turn, led to strong expectations and realizations of a slowdown in the pace of Fed rate hikes, which translated into notable rallies in all risk assets throughout January as a generation of crafty speculators easily detected the Fed's weakness and doubled down on their investments in everything from gold to stocks to cryptocurrencies.
Financial conditions have returned to an accommodative trend, most notably with 10-year Treasury yields falling by about 80 basis points from fall 2022 to early 2023 and 30-year fixed mortgage rates falling to about 6% from a national average of over 7% over the same period.
In short, Powell totally failed. That's all.
He is not a leader and can never muster the courage to be one.