Jon Access King Hilsenrath and Mikentucky Derby posted a report in the Wall Street Journal this weekend on Janet Holleran Yellen’s Friday speech to an adoring crowd of professional conomists in San Francisco. The reporters spent 16 paragraphs on a news free rehash of the Chairlady’s, seeming endless, and endlessly boring, no news is good news, tour d’farce on all the reasons the Fed will take its time raising rates. She, and they, covered everything we already knew about the US economy, while avoiding the elephant in the room– that is, the real reason why the Fed will delay, delay, delay in raising rates. It knows that Abracadabra Theory does not work.

In the good old days the Fed more or less controlled the Fed Funds rate by keeping reserves in the system tight. Each day it would enter the market and add or drain a small amount of money to or from the system to herd the Fed Funds rate toward the target range. Usually that worked. Today they can’t do that. There’s just too much cash in the system.They historically controlled rates by adjusting the supply of money each day. Today, there’s too much cash in the system for them to control.

So the New York Fed is doing a dog and pony road show to try to convince market insiders- the Primary Dealers, banks and money market funds that are active in the short term paper market, that yes, Virginia, the Fed really does have the tools to control interest rates when there’s $2.7 billion in excess cash in the banking system. The Fed is, after all, the great and powerful Oz! All we need do is click our ruby slippers and believe. The Fed will pull a magic wand from its toolbox, wave it around, shout “Abracadabra, rates go UP!” and voila! The market will believe and rates will magically rise, in spite of all that excess cash lying around.

Jonathan Spicer at Reuters was the first mainstream media guy to begin to pull the covers off this subject. Meanwhile, not a peep about it from Access King or Mikentucky. The Wall Street Journal always breaks bad news after the horse has bolted from the stable.

In case you missed it-

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