Janet Yellen signaled that the Fed is grappling with the problem I have been warning about; the dollar has become the de facto only real currency and the Fed is indeed becoming the world’s central bank. Yellen has admitted that the Fed is being lobbied by everyone to surrender its domestic policy objectives to international. This is precisely what took place in 1927. Yellen stated that the Fed should worry less about inflation domestically than about global growth risks.
While pointing to the slowdown in China and depressed commodity prices, Europe is a real basket case. She used the words that the Fed must consider “caution is especially warranted” when it comes to raising interest rates. This has put most Fed watchers off to expecting any possible rate hike into retirement as they expect nothing before September. The BREXIT will most likely be rigged because it is exactly opposite of what they are telling the Brits that they will be isolated and the economy will collapse if the exit the EU. Nobody says Britain did fine before it joined only in 1973 or that it is the other-way-around; with BREXIT, Europe will fail. This heated issue in Britain is most likely the final nail in the coffin. Britain will collapse with the Euro and should have just handed its sovereignty to Brussels. Europe will never reform so it will be all go down together. The political risk in Europe is tremendous and Yellen cannot prevent that with simply interest rates.
It is ironic that it is also the same conditions setting up today as was the case in 1927. The Fed back then lowered US rates to try to deflect the capital inflows to help bailout Europe. The markets eventually backfired and capital shifted pouring into the USA doubling the US share market despite doubling interest rates to try to prevent the crisis they helped to create. This all led to the 1931 Sovereign Debt Crisis and those economic declines resulted in political chaos. In 1933 FDR came to power. But so did Hitler and Mao. That was all made possible because of the collapse in government debt. We are in the very same position today and the Fed is surrendering domestic policy objective for international concerns.
