The stench around the fed is putrid

Wednesday, 6 October 2021 — Gold Coast, Australia

[8 min read]

It’s no secret that central bankers suffer from an acute form of superiority complex.

They wield enormous power. Sit in wood-panelled boardrooms. Enjoy corporate hospitality at the finest restaurants. Are fawned over by the Davos crowd.

They go to bed each night thinking…

Here in the real world, we know all too well their distorted and irresponsible policies have blown bubble after bubble after bubble.

Yet, mystifyingly, these pompous blowhards continue to occupy positions of privilege and power.

If we’d have stuffed up as badly as them, the Centrelink queue would await us.

When you consider yourself superior to and above everyone else, it can lead to overreach…laws for the common folk don’t apply to you.

Remember this?

‘Former Federal Court judge Marcus Einfeld has been sentenced to at least two years in jail for lying to evade a speeding fine three years ago.’

Sydney Morning Herald, 20 March 2009

You and I would’ve copped it sweet and paid the fine.

And speaking of jail time, Dayakar Mallu is facing the prospect of spending the next 25 years in the big house.

Dayakar who?

Glad you asked.

To quote from the US Department of Justice media release from 17 September (emphasis added):

‘According to court documents and his admissions in court, Dayakar Mallu, 51, of Orlando, Florida, admitted that between 2017 and 2019 he conspired with others to trade in the securities of Mylan N.V., a NASDAQ-listed public company, in advance of corporate announcements concerning drug approvals, financial earnings, and a merger. Mallu, who was at the time Vice President of Global Operations Information Technology of Mylan…he ultimately realized net profits and losses avoided of more than $4.2 million from his insider trading.’

Dayakar was a naughty boy. He was caught red-handed with his hand in the corporate cookie jar. Dayakar abused his inside position to front-run his company’s stock.

What’s any of this got to do with central bankers?

Again, I’m glad you asked.

Our story begins with The Rum Rebellion on 31 August 2021:

‘In a previous life, Fed Chair Jerome (Jay) Powell worked in investment banking.

‘If the numbers on his net worth are accurate, Jay did alright for himself, amassing an estimated personal net worth of US$55 million.

‘As a high-ranking public official, every year Jay must file a 278e Form with the Office of Government Ethics (does government actually have any ethics? A question for another day).

‘While not revealing exact amounts, the 278e form requires disclosure of income and assets outside of Jay’s remuneration from the public purse.

‘Based on the range of information provided by Jay, the good folk at Calderwood Capital Research have created the following pie chart on the Powell’s asset allocation:

‘If you were the person in charge of pumping up the market’s tyres and deflating those of the savers, then of course you’d be overweight shares and underweight cash.

‘With almost 60% of his personal wealth in equities (shares), Jay has at least 33 million reasons to make sure asset prices remain inflated.’

Powell’s personal portfolio allocation means he has an obvious conflict of interest.

In accepting the role as Fed Chair, Powell should have been forced to remove any potential conflict and liquidate his portfolio.

That story was a month ago.

Little did I know then that Powell’s conflicts of interest were about to be overshadowed by others within the Fed.

This is from the 22 September edition of The Rum Rebellion:

‘On 9 September 2021, The Wall Street Journal published an article titled “Two regional Fed chiefs to sell stocks to avoid appearance of conflict of interest”.

Here’s an extract (emphasis added):

“The leaders of the Boston and Dallas Federal Reserve Banks said they would sell off individual stocks they own, invest the proceeds in diversified indexed funds or cash savings and cease trading in individual securities.

“The Thursday announcement comes after the Federal Reserve Bank of Dallas this week disclosed that its president, Robert Kaplan, bought and sold millions of dollar in stocks and other investments in 2020. A disclosure from the Boston Fed showed that its president, Eri Rosengren, also was an active trader last year, albeit at a smaller scale.

“Both men defended their actions as consistent with their respective bank’s code of conduct policies, but said they didn’t wish to create any perception that their trading of securities and investments would conflict with their role in setting monetary policy.”

‘Create the perception of a conflict of interest?

‘This statement just shows you how out of touch and arrogant these people are.

‘You are sitting in the room deciding on a policy setting that can positively or negatively impact your personal financial (and/or trading) position. Gee, what do you do?’

As at 9 September, Kaplan and Rosengren were hanging in there.

No offer of resignation was made.

But this blatant misuse of power is so rotten, not even the usually teflon-coated central bankers could dismiss this in their usual high-and-mighty, offhanded manner.

As reported by NBC News on 28 September (emphasis added):

‘Dallas Federal Reserve President Robert Kaplan became the second regional central bank leader to resign Monday, saying he was stepping down early following a recent controversy over stock market trades he made.

‘Kaplan’s early retirement follows an announcement earlier in the day from Boston Fed President Eric Rosengren, who said he will leave. He cited health concerns, and not the issue over his investment portfolio activity.’

Health concerns? Was he sick in the guts because he got found out?

If you want to read more on the murky details of Robert Kaplan’s trading activities, you can do so here. It’ll make your blood boil.

And the news just goes from bad to worse for the Fed.

To quote from Reuters on 2 October (emphasis added):

‘U.S. Federal Reserve Vice Chair Richard Clarida traded between $1 million and $5 million out of a bond fund into stock funds one day before Chair Jerome Powell issued a statement indicating potential policy action due to the worsening of the COVID-19 pandemic, Bloomberg News reported on Friday.’

The culture within the Fed is rotten.

What Kaplan and Rosenberg are alleged to have done is no different to what Dayakar Mallu has pleaded guilty to.

Prima facie, the former and current Fed officials appear to have used their inside position to turn a tidy profit for themselves.

So why haven’t they been questioned by the Department of Justice and/or SEC?

Well, there might be some good news on that front.

According to the 5 October edition of Daily Mail UK, experienced Democrat Senator Elizabeth Warren is on the case (emphasis added):

‘Senator Elizabeth Warren…is demanding that the US Securities and Exchange Commission (SEC) open an investigation into three top Federal Reserve officials' potential 'insider trading' during the COVID-19 pandemic on Monday.

‘In a letter to SEC Chair Gary Gensler, Warren asked him to probe securities trading of Fed Vice Chair Richard Clarida, Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren after stunning reports emerged they cashed in on the market while millions of Americans were reeling from the pandemic's economic effects.

‘The progressive senator also took aim at Fed Chair Jerome Powell, hinting that he knew they violated insider trading rules and did nothing to stop it.

‘“If these trades were based on Fed officials' knowledge of non-public, market moving information, they may have represented potentially illegal activity,” Warren wrote.’

While Democrat Senator Warren’s initiative is to be applauded, we should recognise she might be acting out of political self-interest…Jay Powell was a Republican Trump appointee.

Either way, I sincerely hope she maintains a very public pressure on the SEC.

If these entitled Fed officials have overreached and used inside information to front-run and profit from the market, they deserve to share a cell with Dayakar Mallu.

The sweet smell of justice would go some way to masking the rotten stench coming out of the Fed.

Regards,

Vern Gowdie,
Editor, The Rum Rebellion

Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

This weekend, we hosted a wedding for our daughter. What a production!

Your editor gave the customary father of the bride speech.

Here’s a photo of the setup:

You’re probably eager to hear the details. But that will have to wait…

Money doesn’t guarantee victory

Today, we’re following up from Friday. We were looking at war…and armies…and how they become corrupt and incompetent.

And we follow up by looking back to the ancient world. The Achaemenid Empire of Persia was the world’s hegemon — the US of the 4th century BC.

Imagine what it must have been like for the handful of soldiers at Thermopylae. They had been sent to defend the pass into Greece. They looked out and saw thousands of gleaming helmets…swords…bright-coloured tunics…and wicker shields.

Ancient Greek historian Herodotus puts the number of Persians assembled by Xerxes, King of the Achaemenid Empire, at 2.5 million. The real number was surely much, much lower.

Still, the Greeks were outnumbered by at least 20 to one…including by the legendary Persian ‘immortals’ (roughly equivalent to the US’s Delta Force).

The Greeks were wiped out at Thermopylae…but they won the war.

The naval Battle of Salamis destroyed the Persian fleet. Then, fearing having his vast forces cut off, Xerxes retreated. Almost all of his soldiers died from starvation and disease as they struggled to get back across the Hellespont.

Money does not guarantee victory in war…or in anything else. Often, it gets in the way.

And of all the parasitic, degenerate, incompetent elite groups of the US empire, the military/industrial complex is the biggest…and the most adept at separating the public from its money.

Despite spending many times more than any enemy — real or imagined — the Pentagon has a record of failure at least equal to the Fed’s other major boondoggles.

The war on poverty…the war on drugs…or the war on COVID-19 — none can match the military, neither in squandering money…nor in pernicious consequences.

Fiasco war

Wait…you may think…‘OK, it’s such a big organisation; it’s inevitable that some money will be badly spent. But it’s better to spend too much on defence than too little.’

That’s not the way it works. You get what you pay for. Pay top dollar for a military; you get an army that’s good at getting paid.

But soldiers are best when they are lean…not when they are fat. And the officers are best when they are promoted and rewarded for winning wars, not for losing them.

The 20-year debacle in Afghanistan, for example, was a huge defeat for the US. But it provided career-long enrichment opportunities for the Pentagon.

The brass rotated through the Hindu Kush, punched up their resumes, got their medals and their ‘combat’ pay…boosting their retirement compensation.

Meanwhile, they were spending trillions of dollars. So it was not exactly a surprise that when their careers in the military were over, they went to work in cushy sinecures with defence contractors.

In other words, the skills the officers learned had nothing to do with winning a war. Instead, they got to be very good at lobbying Congress and keeping the money headed in their own direction. Which is how they managed to get a US$24 billion increase — even after conducting a fiasco war for two decades.

And now, always seeking more money, the whole officer corps is super sensitive to political fashions. It no longer even tries to win wars.

Instead, it stretches them so as to squeeze out more money…while promising to fight like a lion against racism, global warming, inequality, and other bugaboos!

Real war

Our question for today: What will happen when these people face a real war?

We may already know.

Last October, the Pentagon conducted a major war game…apparently trying to model what might happen if the US went head-to-head with China in Asia.

In July, Vice Chairman of the Joint Chiefs of Staff, Air Force Gen John Hyten, reported the results. Speaking at a conference sponsored by the National Defense Industrial Association, he revealed that the US got its tail whipped.

The Afghanistan adventure not only corrupted America’s armed elite, it also provided a 20-year opportunity for enemies to study US equipment, tactics, and strategy. Hyten reports:

‘An aggressive red team that had been studying the United States for the last 20 years just ran rings around us…They knew exactly what we’re going to do before we did it.’

In short, he added, the Pentagon ‘failed miserably’.

Complete annihilation

Our friend, Byron King, former aide to the United States Chief of Naval Operations, elaborates:

‘Opposing forces wrecked the entire complex of U.S. logistics. Rear bases came under fire, while aircraft and ships at sea were targeted by long-range missiles. There’s just no hiding anymore from people with sufficient technology to find you.

‘Even worse, most U.S. weapons were outranged by new systems recently deployed by China, much of it based on advanced Russian designs. It’s a long-term U.S. failure in research, development and procurement.

‘When the balloon went up, most U.S. forces near-immediately lost the ability to coordinate attacks and/or return fire. Much of the targeting data was worthless in any event, while systems used for aiming and guiding munitions also failed.

‘To the extent that communications worked at all, much of the data were corrupted or hacked.

‘It’s not overstating to say that, in this one wargame, far from home, the U.S. lost vast numbers of people and equipment. In real world terms, think of casualty numbers in the tens of thousands. Of entire bases obliterated. Of hundreds of airplanes lost. Of dozens of ships sunk. And that’s just in the first few days.

‘The wargame ended with American forces defeated and devastated. U.S. allies were similarly shredded. And U.S. interests in the Western Pacific and Asia were annihilated.’

It was, of course, only a ‘game’.

Real life will come later.

Stay tuned.

Regards,

Bill Bonner,
For The Rum Rebellion