Danielle DiMartino Booth: An Insider Exposes The Evils Of The Fed

Danielle DiMartino Booth, former analyst at the Federal Reserve Bank of Dallas, has just released the book Fed Up: An Insider's Take On Why The Federal Reserve Is Bad For America.

In it, Danielle describes how the Federal Reserve is controlled by 1,000 PhD economists and run by an unelected West Coast radical with no direct business experience. The Fed continues to enable Congress to grow our nation’s ballooning debt and avoid making hard choices, despite the high psychological and monetary costs. And our addiction to the "heroin" of low interest rates is pushing our economy towards yet another collapse.

This reckless monetary policy pursued by the Fed has resulted in the rich elite becoming markedly richer, while savers and retirees are being absolutely gutted. All while risking a coming conflagration in the bond markets that will destroy a painful percentage of the world's financial wealth:

On The Ticking Bond Market Time-Bomb

That’s the trillion-dollar question. We didn’t used to call it that did we? We used to call it the million-dollar question. But it's now the trillion-dollar question. The punditry up there will tell you that The Fed has been in tightening mode since the taper began several years ago, but I say hooey to that. What we have today is absolute fungibility with central bank purchases on a global basis. You're talking about something upwards of $200 billion every single month.

What the global bond market now revolves around, and relies upon, is the assumption that somebody somewhere will be conducting quantitative easing. As long as they do that, we're operating in a bond market that is assuming that every single bond purchased by a central bank globally has been expired permanently.

You’re taking supply out of the system, which is the only thing that could get you to justify where bond yields are and, therefore the mirror image of that, where bond prices are, which is at record highs or close to record highs. That I think is at the crux of central bankers’ global dilemma. The first central bank that even hints that they are going to reduce the size of the balance sheet or even worse, sell off a single bond, it is game over at that point for the world bond market.

On The Ticking Pension Time-Bomb

The problem with pensions is that the sins are compounding over time. They are piling up. Every single fiscal year that goes into the history books with a 6%+ gap between what was assumed versus what was returned piles on to the next year of equal, if not worse, relative underperformance.

You’re talking about having to make up for all of that lost time, but in spades -- at multiples of what the current rate of return assumptions are. Going forward, on an ongoing basis for years to come. Which is highly unrealistic when you are staring down the barrel of an almost 40-year bull market in bonds and the second longest bull market in US history. The assumptions are simply Herculean in magnitude and impossible to achieve. That’s why you’re seeing rate of return assumptions begin to come down.

This is all good, fine and well until you completely square the circle and understand that every time a municipality or a state pension plan reduces their rate of return assumptions, some entity, whether it be the state, the school district, some entity has to write a bigger check in order to make up for the cash flow that is no longer being assumed in by the actuaries via rate of return investments. It doesn’t work. You can’t do it for very long when you’re not bringing money in as a state municipality.

Click the play button below to listen to Chris' interview with Danielle DiMartino Booth (40m:01s).

This is a companion discussion topic for the original entry at https://peakprosperity.com/danielle-dimartino-booth-an-insider-exposes-the-evils-of-the-fed/

Great guest, and great interview Chris. Danielle’s unique insider perspective is fascinating, including hearing how her opinion frequently clashed with the centrist academic Fed insiders. Yet unfortunately, it would appear that such dissent is very rare.
Thanks for a look behind the curtain, Danielle!

Great interview. I always respected Richard Fisher…And was surprised to learn from the interview that the FED charter requires diversity of opinion. Hope the 2 seats are filled with grounded individuals, and no more academics.

Great woman. Great interview. Now at last I can allow myself to believe the Fed is practically evil incarnate.

Cornelius999 wrote:
Great woman. Great interview. Now at last I can allow myself to believe the Fed is practically evil incarnate.
Or possibly just wrongly motivated for poor reasons. I was really taken by this analysis by Ben Hunt of Epsilon Theory in September of last year. I mentioned it in the podcast...here's the relevant snippet:
In an academic organization like the modern Fed, your internal reputation is based entirely on how smart you are, as evidenced by the research you do and the papers you write and the talks you give, not on how effective you are in any practical implementation of organizational aims. It’s not that the Fed or major research universities are intentionally ignoring or trying to put down practical implementations like teaching or outreach to commercial bank staffers, but every hour you spend doing that is an hour you’re not spending impressing your colleagues and bosses with how smart you are. It’s just how the internal political game is played, and anyone who has achieved any measure of success in an organization like this knows exactly what I’m talking about. What this means in practice is that FOMC meetings are driven by a desire to form a consensus with the other smart people around the table, so that each of you is recognized by the other members of the consensus as being smart enough to be a member of the consensus. It’s the precise opposite of the old Groucho Marx joke: “I don’t want to be a member of any club that would have me as a member.” Every FOMC member desperately wants to be a member of the club that would have him or her as a member, because it means that you’ve been recognized as one of the smart kids. The internal political dynamic of academic cultures like the Fed, at least at the highest levels of Governor to Governor interaction, is NOT antagonistic or divisive. On the contrary, it’s cooperative and consensus-forming. Not sure what I’m talking about? Read this Jon Hilsenrath interview of St. Louis Fed Governor Jim Bullard again (I say again because I published it for other reasons in the last Epsilon Theory note, Magical Thinking), where Bullard describes this consensus building dynamic. (Source)
Not evil, just little people with big egos trying to look smart by being centrist and 'reasonable.' You know, not like those unsmart people who don't know how the game is played.

Your quoted piece nails it well Chris. Many centuries ago an influential thinker put it like this:
" The road to Hell is paved with the best of intentions ". Augustine of Hippo

Chris - that was a great interview. Thank you!
2 thoughts:
From a demographics perspective, that ‘lost’ generation of Millenials represents a full quarter of the American population and is the largest single generational cohort. Losing the next generation of potential entrepreneurs, civic leaders, and great thinkers to low opportunity debt serfdom or simple existential disgust is profound. Having these folks opt out of or be unavailable to continue paying for Boomers’ retirement is more than a bit disturbing to this Gen-Xer sandwiched between parents reliant on entitlement programs and teenage kids just ready to launch into a system without fuel and no room to fail. My own retirement is a distant and fading fantasy; supporting three generations right now is simply impossible.
On a lighter note: let’s start a Kickstarter campaign with the aim of mailing ever Fed employee a copy of Danielle’s book. They can read it while they take the vacations the rest of us can no longer afford.

So the FED does manipulate markets. LOL! “We’ll postpone the rate rise until our buddies with sensitive stocks can sell them.”
That the pension managers are not yelling and screaming tells us one of two things: 1) the managers are idiots, 2) They have been told by the FED the bailout is coming after changing the rules.

cmartenson wrote:
Not evil, just little people with big egos trying to look smart by being centrist and 'reasonable.' You know, not like those unsmart people who don't know how the game is played.
Sometimes optimism amounts simply to whitewashing. The individuals may not be evil, but the institutions are no longer predominantly or even majority "good". Reform is way overdue. How do these "little people" rise to the top of the food chain and in positions of power? Sure, as you say, by appearing reasonable and playing the game, both necessary but nowhere near sufficient. I suggest we have to include: vicious levels of ambition and willingness to do/say anything to advance. Yes, they are little, they are not intellectuals' they do not think of the greater good, the common man, longevity of culture, etc. they are simply married to the spirit of the age - power and prestige. And what does that say about ALL our institutions and positions within them that wield power (Government and Law, Academia, Churches, Media, etc). They are full of ambitious gamesters that seek wealth, power and prestige vs truth, justice and human solidarity. The tares have taken over and are strangling the wheat - or to paraphrase Bill Black, bad ethics and bad faith chases out the good in these institutions. It is no wonder that the revolt against the "experts" and "institutions" is manifest and accelerating.

When there is talk of “smart people” I think of Enron. They were proud of and bragged they only hired the smartest people. How’d that work out?
I listened to Ms. Booth on the X22 Spotlight as well as this podcast. One of the last things she said on the Spotlight podcast was that she is having all four of her children take Mandarin lessons (Chinese). That’s interesting, what does she know that we don’t.

is not laissez faire. I disagree with the basic premise that academic institutions lead to group think and the support of power. I think history shows the exact opposite to be true. Most radical movements and challenges to power came from student movements, young people, at there most ideal, exposed to new ideas and ways of thinking, to history, science and facts. Inspired by professors who did not have to dance to the tune of power or money interests (notice I used the words “did not” - past tense). Who are not on the whole, petty small minded ego maniacs. As uncomfortable as these people make us feel sometimes, like our cherished constitutional right to free speech, they are powerful resource that provides great benefit to our society.
What has happened recently, is not normal, nor accidental. The reinforcement of single minded economic theory almost as a theocracy, is not the natural devolution of academic institutions over time, but the result of the relentless work of neoliberal think tanks and their absurd efficient market theories that lead to the deregulation and collapse of “free” markets (with the full support of both republicans and democrats). We are back in another gilded age, perhaps with a wealth distribution even worse than then. Move over Mahatma Gandhi, Martin Luther King, Mother Teresa, Nelson Mandela, Confucius, Buddha, Thomas Merton, Albert Schweitzer, etc. Our new heroes are Milton Friedman and Warren Buffet, the “sage” from Omaha, what the sage?!?!?! Wasn’t that word reserved for a different kind of person?
And all this neoliberal free market gobbledygook was just thin academic cover for one of the worst savaging of worlds population by a rapacious group of sociopaths who love wealth above all other things. And we have gone along for the ride smiling and nodding, yeah, we’re all going to be rich too, and if your not, its your fault. Fed policy is the result of a bunch of small minded well meaning ivory tower academic ego maniacs who are just out of touch with reality? Yes and the Patriot Act was written by patriots, and we really did think there were weapons of mass destruction in Iraq. Yes, and they named a private banking cartel the Federal Reserve just by accident.
Evil may be unconscious at a spiritual level, but it certainly not stupid and unintentional at an intellectual level. This is not an intellectual debate over theory, its robbery by criminals. Intentional robbery by criminals with the Chicago School providing academic cover. And the problem is a lot deeper than just getting rid of the Fed.

A great new uncensored News Service and magazine ( Nexus ) that tells you what Google & Wikipaedia won’t. NexusNewsfeed.com. Enjoy.
And I have to agree with you Treebeard, now that you explicate it, evil exists and has to be planned at it’s core.

Hoping children, even yours, will save the world or right the wrongs is wrong headed; parents are not fonts of transcendence.

just sayin’

In the modern Fed, your internal reputation is based entirely on how smart you are, as evidenced by the research you do and the papers you write and the talks you give, not on how effective you are in any practical implementation of organizational aims.”
This has nothing to do with the reality that the Fed chairman takes his or her marching orders from the Too-Big-And-Ever-Growing-Bigger Banks that own it. In fact, recent Fed Chairman Ben Bernanke frankly admitted at a class reunion, " There I was, teaching Econ 101 and I got this call…"

My MBA finance prof was retire exec VP from Federal Reserve. He really sparked my interest in global macro economics… But, the highlight of the class, one of my fellow students, somewhat seasoned in life, asked the question in 2010, “with all the smart people on wall street, and all the smart people at the Fed, how did this happen”? He paused for a second, and if he had a beard, it would have been a perfect time to begin stroking his beard… “Chris, what makes you think they are smarter than you?” then went on to further talk about the echo chamber that exists in the financial and political arenas…