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The Twisted Logic the Federal Reserve Wants You to Believe

The stock market is at record highs, the unemployment rate is low, home prices are growing and wages are down. Collectively, what does it all mean?

Danielle DiMartino Booth, former insider at the Federal Resserve and author of Fed Up: An Insider's Take on Why the Federal Reserve is Bad for America, joined Glenn in studio to explain why the Federal Reserve is worried and what it means for the average Joe.

"The last time the unemployment rate was where it was, wages were growing at about four percent. Today, with the same unemployment rate, wages are running at two and a half percent. Yawn. We wonder why there's a shadow economy. We wonder why people are driving Uber at night. There's a reason. Their wages aren't growing. Their paycheck has barely moved and not kept up with inflation," DiMartino Booth said.

In a recent speech, Bill Dudley --- second in command at the Federal Reserve --- expressed concern about the unemployment rate crashing, causing run away wage inflation.

"The average working Joe wants their paycheck to go up. There's nothing intuitive about the reasoning right now at the Fed, nothing," DiMartino Booth said.

Enjoy the complimentary clip, listen to the full segments or read the transcript for details.

GLENN: Hello, America. Welcome to the Glenn Beck Program.

You have so much to worry about, trying to hang on to your job, trying to educate your kids, just trying to make it through -- I don't know about you, but there are days that I just go -- I get up in the morning. I'm just like, my goal for today is just to make it back here to go back to bed. Maybe that's just me.

But life is tough. We want to arm you with information so you can prepare yourself for what's coming, both good and bad. A lot of great things happening in the world of technology. A lot of great things on the horizon.

But there's also some really big bumps in the road, as well. We are thrilled to have back with us Danielle DiMartino Booth. She's the author of Fed Up. She's a woman who worked on Wall Street and then said, "This is sickening." Got out, started to expose it for the Dallas Morning News.

The Fed here in Dallas, run by Richard Fisher, or was run by Richard Fisher at the time, he was I think brilliant and one of the really good guys in the Fed. And he saw her work and said, "Hey, she should come to work for her." She was working for the Fed, kind of in a lower position. She was ringing the bell about 2008 and the collapse. Most people made fun of her for that. The collapse happened, and Richard Fisher said, "You need to be my right-hand man for information and what is coming." So that's what she did. He left the Fed. She left the Fed. She is now ringing the bell on what's next. What's coming. Another 2008? She'll describe what she's saying in the last few weeks and last couple of months since we saw her last. We begin there, right now.

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GLENN: Welcome to the program, Danielle --

DANIELLE: Let's get your circulation going.

GLENN: Yes. Welcome to the program, Danielle DiMartino Booth. How are you?

DANIELLE: I'm doing great. How are you doing?

GLENN: Very good.

A lot has happened since we last talked. The world is in a crazy place that we are just --

DANIELLE: Uh-huh.

GLENN: -- we are literally, last week, dodging bullets that could change the world.

DANIELLE: Oh, yeah.

GLENN: We have Syria and Russia this week, with a downed Syrian jet that we took down. And Russia said, "Oh, yeah, by the way, we're canceling our hotline. And if you cross the Euphrates, we'll shoot you down." So we have that on the horizon.

We have North Korea, with now three aircraft carriers, and they just dumped basically this poor kid out of Cincinnati -- they just dumped a practically dead body on our doorstep.

DANIELLE: Well, he is now.

GLENN: Yeah. Like -- you know, almost like a Don Corleone move, just saying, "Hey, here's -- here's your trash."

DANIELLE: The aftermath of years of doing nothing.

GLENN: Yes. Yes.

And then last week, a shooting that could have changed the world. I don't know if you heard last hour. But I presented a scenario --

DANIELLE: Yeah.

GLENN: Any thoughts on that scenario? How crazy did that scenario sound to you?

DANIELLE: It didn't sound so crazy. I mean, there is something called the Plunge Protection Team, and it's dragged out in times of extreme market duress.

GLENN: Was that -- was that around, or was one of the first times we did in the '30s? because I know we the Rockefellers of the world, the Astors of the world kind of stepped to the plate and said, "I'm going to dump money in, and you're going to do it too."

DANIELLE: Right.

Well, bear in mind, before 1913, with the establishment of the Federal Reserve, when there were economic calamities, somebody like JPMorgan would bring people together in his parlor room and say, "Okay. Guys, we got to write some checks here. We got to save the world."

GLENN: Right. Right. Right.

DANIELLE: It was his realization that he was mortal, that brought about the Fed, after the Panic of 1907, really.

But even if you go to modern history, you know, Hank Paulson, others, they brought the biggest banks into a room and they said, "We've got trouble. You're all going to have to pony up." And a lot of the banks were saying, "No."

GLENN: I know.

DANIELLE: And Uncle Sam looks down and says, "No is not an option."

GLENN: You know what's really crazy is I have a friend who was in that room that night, that Sunday night, and he and his bank said, "No, we're not doing it."

DANIELLE: Don't need the money.

GLENN: Right. We don't need the money. We're not doing it.

And the banks get blamed. And I think the banks deserve a lot of blame. But the banks get blamed for this, when it really was the United States government, the Treasury, that said, "No, you are taking it."

DANIELLE: Right.

GLENN: In fact, the exact quote from Paulson is, "No one is leaving this room until you sign."

DANIELLE: Yeah. Until you brandish your scarlet letter. Put it on. Take the blame.

GLENN: Yes. Yes.

Okay. So you said a few weeks ago, when you were here, that the one thing you were looking for -- I asked you for signs of the economy.

What do we look for as a sign that things are not going well?

DANIELLE: Uh-huh.

GLENN: If you pay attention at all to the Fed, as I do -- and I think this -- I'm a little more than the average person, to where I'll actually just read what Yellen has done, but I'm not going to read deeply.

DANIELLE: Uh-huh.

GLENN: The story that I heard last week was -- or, was it this week? Things are going so well.

DANIELLE: Oh, things are great.

GLENN: Right. The economy is so well.

DANIELLE: Smoking hot.

GLENN: Right. That they have to raise the interest rate again.

DANIELLE: I'm sorry. Who is in the White House? Oh, wait. But you digress.

GLENN: I'm just trying to figure out, what has changed to make things so great that we're raising interest rates?

DANIELLE: Well, things have gotten worse. So we should tighten so that we don't have to tighten -- wait. There's no logic there.

GLENN: Right.

DANIELLE: The head of the New York Fed gave a speech a few days ago, Bill Dudley. Bear in mind, this is the vice chairman of the Federal Open Market Committee that sets interest rates. If Janet Yellen -- if something happens to her and she's got the flu and she can't make the FOMC meeting, he's the guy in charge. People do not realize that the guy in charge of the New York Fed is really the number two in command at the Fed.

GLENN: Okay.

DANIELLE: He made a speech saying that the economy is doing so well that we're afraid the unemployment rate is going to crash. His words. Crash.

And, therefore, we're going to have to get out in front of this and tighten more so we don't have to tighten so much more down the road that we put the economy into recession.

GLENN: Wait. Wait.

DANIELLE: Exactly. Exactly.

GLENN: A, why would we be afraid of the -- of the unemployment rate crashing?

DANIELLE: Crashing?

GLENN: That would be, oh, my gosh, panic. We have a 0 percent unemployment rate. That doesn't make sense.

DANIELLE: Right. So the last time the unemployment rate was where it was, wages were growing at about 4 percent. Today, with the same unemployment rate, wages are running at two and a half percent. Yawn. We wonder why there's a shadow economy. We wonder why people are driving Uber at night. There's a reason. Their wages aren't growing. Their paycheck has barely moved and not kept up with inflation.

And Bill Dudley is worried that the unemployment rate is going to crash and make wage inflation run away. Sorry.

The average working Joe wants their paycheck to go up. It's -- there's nothing intuitive about the reasoning right now at the Fed. Nothing.

GLENN: Wage inflation. See, this is their problem. They're trying to convince the American people that there is no inflation. And on some things --

DANIELLE: Well, there's very little wage inflation. That doesn't take very much convincing.

GLENN: Correct. And on some things, there isn't inflation. But on -- on other things, there is gigantic inflation.

DANIELLE: Look at home prices.

GLENN: Yes.

DANIELLE: Today we had a report that came out that showed that home prices are growing at 5.8 percent. They're at record high prices right now. No wonder the average working Joe can't afford to buy a house, and it's finally begun to push back.

Look at college tuition. I buy a gallon of milk every day to feed my four gigantic growing children. I can tell you that gallon of milk keeps getting more expensive.

JEFFY: It sure does.

GLENN: It does. It does.

DANIELLE: It does.

These are not figments of our collective imagination. My retired mother tells me about what her copay is and what her -- what her drugs cost at the pharmacy. These are real things.

GLENN: Okay. So you said one of the things to look for -- so wait. Wait. Before we get on to that. What does this -- why are they raising the rate then?

DANIELLE: Well, the gallows humor is that they want it to make sure that they kept Trump in place. So if you slam the economy into a recession by tightening financial conditions, thus forcing a recession, then you've got Trump's attention and he doesn't put independent people, independent thinkers, dissenters in at the Fed who ruffle the doves' feathers.

GLENN: So this is --

DANIELLE: Give me two seconds.

GLENN: Yeah.

DANIELLE: Last Wednesday with the day the Federal Reserve raised interest rates, there was a story strategically placed on the front page of the Wall Street Journal that said Gary Cohn is looking for replacements for the Fed.

And, by the way, before you even had to open the page to get to the rest of the story, Janet Yellen's name was thrown out there as being a potential contender.

Do you think the administration has folded to the pressure? Because something has to make the Fed back off tightening interest rates.

GLENN: The rumor is -- and I don't know if this is true or not, but this is what happened to Ronald Reagan. That Ronald Reagan -- Volcker got in. And Ronald Reagan said, "Oh, you don't like the Fed? Oh, okay."

DANIELLE: Try me.

GLENN: And that's when interest rates went through the roof.

DANIELLE: And he had a recession 18 months into office.

GLENN: Correct. Correct.

DANIELLE: Trust me, somebody has read Trump this playbook.

GLENN: Yes, you did.

DANIELLE: I'm sure he read it himself.

GLENN: So what should the president do?

DANIELLE: I would like for him to stand firm. I wrote a whole book about it. We need independent thinkers. We need people at the Fed who are on the receiving end of their own policies, not bureaucrats who have been their entire lives in academics who don't understand the implications of the decisions they make. They don't understand what they've done to a generation of Baby Boomers trying to save for retirement.

GLENN: Who is around the president that can tell him this?

DANIELLE: Steve Cohen and Steve Mnuchin.

GLENN: And do you think he's stopped listening to them now?

DANIELLE: No, I don't.

GLENN: Good.

DANIELLE: In that same Wall Street Journal story, Steve Cohen was quoted as saying, basically, I have faith in the Fed. The Fed knows what it's doing. They need to be left alone.

I mean, these are the things that just stand up the hair on the back of my head. They really do.

GLENN: So what should we watch for or be wanting the president to do? What would be a sign that he's pushing back on them?

DANIELLE: If he comes out with a nominee to replace one of the three current open vacancies that does not comply with what the media has been suggesting those individuals should be.

GLENN: And when will -- when will he make those decisions?

DANIELLE: He's going to have to make them pretty soon. The fact that he's been in office, for what? 150 days or so.

GLENN: Yeah.

DANIELLE: And has not taken the opportunity to name a single individual to put up to the Senate is questionable.

GLENN: How will they fare in the Senate?

DANIELLE: Last I checked, the Republicans still have --

GLENN: Yeah, but I don't know what that means. I don't know what that means anymore.

DANIELLE: Well -- okay. So it's undefined.

GLENN: Yeah.

DANIELLE: But I think that given especially the representatives from Texas --

GLENN: Yeah.

DANIELLE: -- Hensarling, Brady, they've been pushing for reform at the Fed. I think they thought that we would have seen some independence reintroduced at the Fed by now. I dare say in private, they're probably a little frustrated that they haven't. Because there are leaders inside the Senate -- there are people on the Hill who will push through truly independent nominees.

GLENN: Okay. Now let's go to the next thing that you said we should watch for. And that is automobiles.

DANIELLE: Five months of weakness in a row.

GLENN: What does that mean to you? What should that tell the average person?

DANIELLE: Yesterday, a report came out. We know that automobile defaults, delinquencies are rising. We know that payments are beginning to cripple households. We know that especially in places where people are commuting, they have to have their car to get to work. It's the last thing they want to stop making a payment on. And the repoman can swoop in really quickly and just hit a kill switch. And you're not turning your car on anymore. And he's going to come and repossess it.

But we've seen reports come out in the last few weeks that show that the 2015 vintage of car loans made is going to be -- subprime car loans made in 2015 will reset, become the worst performing ones on record.

GLENN: Holy cow.

DANIELLE: We know that. And yesterday, Experian came out with a report that showed that credit card delinquencies have started to tick up as well. So you're seeing a trickle down in terms of household stresses rising.

GLENN: And anything on the horizon in the next few that you are looking at and say, "This could be the real big tripwire?"

DANIELLE: The Cheesecake Factory came out last week with a report that said things are really worse than we were anticipating --

GLENN: Right.

DANIELLE: -- they would be.

If restaurants, which employ 10.6 million Americans, if the restaurant industry begins to follow brick and mortar retail into the abyss, we are in the soup. They employ lots of people. A lot of these big restaurant chains, their footprints are too big. And they're going to have to start following the JCPenney's, the Macy's of the world, down the path of downsizing. This is not good news for people's whose skills are not transferable.

STU: That's why I'm going to the Cheesecake Factory today to support the cause.

JEFFY: Me too.

GLENN: I was thinking about that myself.

DANIELLE: I could go for some turtle cheesecake. Bring it.

GLENN: Me too.

The name of the book -- Danielle DiMartino Booth. The name of the book is Fed Up: An Insider's Take On Why the Federal Reserve is Bad For America.

A lot of people have been saying, you know, we want to disband the Federal Reserve. We want to have checks and balances on the Federal Reserve. Great. Read her book to actually educate yourself on what the Federal Reserve is, what they do, how it works, where they have gone wrong. Fed Up. Thank you so much. Appreciate it.

GLENN: We have Danielle DiMartino on with us for a few more minutes. Because I -- we started talking during the break about Illinois.

Illinois is in financial meltdown, and I want you to listen to this line: We talked about this earlier. Top financial official just warned 100 percent of the state's monthly revenue will be eaten up by court-ordered payments.

Now, what that is, is when we were at Fox, remember I used Illinois and said, these pensions, these unions, it's a sham. And when the chicken comes home to roost, there's no money left.

It's now happening in Illinois.

DANIELLE: Right.

GLENN: And you said that there is a --

DANIELLE: There's an op-ed out today, look it up, that said we should potentially jettison Illinois. It's as bad as Venezuela. Let's get rid of it. Let's break the state up into many little pieces and have the neighboring states absorb it because they can -- this is year three with no budget. Moody's came out last week. And they were downgraded to one notch above junk. A junk bond state. Illinois is the fifth largest economy in this country, and it is in a state of shambles because the chickens, as you say, have come home to roost.

GLENN: How many states are approaching this --

DANIELLE: Well, I mean, you can talk about New Jersey. You can talk about Rhode Island. I mean, it's a really small state with a really bad problem.

GLENN: So what do you think the geniuses are going to do?

DANIELLE: As in?

GLENN: You know, what will the geniuses come up with to get us out of this?

DANIELLE: It remains to be seen. These are issues that are popping up with the stock market at record highs. Think about that.

GLENN: Holy cow. Holy cow.

Danielle, we appreciate your look at things. We would love to have you back. The name of the book is Fed Up: The Insider's Take on Why the Federal Reserve is Bad for America.

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