2014 is setting up to be an extremely prosperous year, and, with Janet Yellen presiding as the Federal Reserve’s first Chairwoman, what could possibly go wrong?
The answer, of course, is many things. The world’s economy is built upon a shaky premise and the obligation to use debt-based currency brings with it a whole slew of unknowns that may become known over the next several years, such as, “what happens when borrowing and lending of a debt based currency become so disjointed that trading in said currency becomes not just unpalatable, but nearly impossible?” or “what happens when a $2.2 trillion dollar corporate cash hoard gets deployed all at once?”
The answers to these and other burning questions are likely to reveal themselves over the next several months.
Yellen's confirmation as Federal Reserve Chair has made it clear to all that there is one question that will not be answered in the near future, specifically, what happens to the financial system when the Federal Reserve turns off the monetary spigot that it has left open since 2008?
Lehman Brothers found out the hard way in 2008, and ever since then, the spigot has been turned on and nobody dares mention turning it down, let alone turning it off.
The current debt based monetary system, which has been around for just over 100 years, passed a critical stage in 2008 in which the system became so disjointed that, despite system liquidity being at record highs, none of the liquidity could make it to the real economy, where goods and services are exchanged due to the irreparable damage done to normal transmission channels when the Fed panicked and bypassed primary dealers in the fateful days of the Fall of 2007.
Ever since then, nothing has been quite right in terms of monetary policy. Anyone who has worked in credit markets will tell you that their world has fundamentally changed.
Yellen's appointment amounts to an extension of the Greenspan and Bernanke put at the Fed, meaning equity valuations are likely to continue into the stratosphere until further notice. However, while all eyes will be fixed on stock indices breaking new records, the trouble on mainstreet will continue to fester until meaningful direct stimulus to individual taxpayers is delivered.
Then, things will become very interesting indeed.