Yellen said at least one thing of importance last week, but not in a good way. She confessed to the frightening truth that the FOMC formulates its policies and actions based on forecasts of future economic developments.

My point is not simply that our monetary politburo couldn’t forecast its way out of a paper bag; that much they have proved in spades during their last few years of madcap money printing.

Notwithstanding the most aggressive monetary stimulus in recorded history—84 months of ZIRP and $3.5 trillion of bond purchases—average real GDP growth has barely amounted to 50% of the Fed’s preceding year forecast; and even that shortfall is understated owing to the BEA’s systemic suppression of the GDP deflator.

What I am getting at is that it’s inherently impossible to forecast the economic future, but that is especially true when the forecasting model is an obsolete Keynesian relic which essentially assumes a closed US economy and that balance sheets don’t matter.

Actually, balance sheets now matter more than anything else. The $225 trillion of debt weighing on the world economy—up an astonishing 5.5X in the last two decades—imposes a stiff barrier to growth that our Keynesian monetary suzerains ignore entirely.

Likewise, the economy is now seamlessly global, meaning that everything which counts such as labor supply and wage trends, capacity utilization and investment rates and the pace of business activity and inventory stocks is planetary in nature.

By contrast, due to the narrow range of activity they capture, the BLS’ deeply flawed domestic labor statistics are nearly useless. And they are a seriously lagging indicator to boot.

Nevertheless, Yellen & Co. are obsessed with the immeasurable and largely irrelevant level of “slack” in the domestic labor market. They falsely view it as a proxy for the purported gap between potential and actual GDP. Not surprisingly, they are now under the supreme illusion that the labor slack has been largely absorbed and the output gap nearly closed.

So they are raising money market rates by a smidgeon to confirm the US economy’s strength and that the Keynesian nirvana of full employment is near at hand.

No it isn’t! These academic pettifoggers are so blinded by their tinker toy macro-model that they can’t even see the flashing red lights warning of recession just ahead.

Just consider the most recent data on wholesale sales and inventory. This sector of the domestic economy embodies the leading edge of business activity, meaning that trends in wholesale level sales and inventory stocking are advance indicators of the general macroeconomic outlook.

Needless to say, the soaring inventory-sales ratio is not a sign that “escape velocity” is just around the corner. Contrariwise, whenever the ratio has busted through 1.30X in the past, what came next was a recession.

Recessions happen on the main street economy, of course, when sales weaken and inventories build to the point where liquidation of excess stocks becomes unavoidable.Accordingly, of far greater significance than the 19 labor market graphs supposedly on Yellen’s dashboard is the unassailable fact that wholesale sales have now rolled over.

The natural market driven bounce back from the deep liquidation during the Great Recession is now over and done. Wholesale sales are down 4.5% from their June 2014 peak and have returned to September 2013 levels.