President Obama's nomination of Janet Yellen is not unexpected. Nevertheless,
it is greeted here with unrequited abjection. Unless the world's financial
hocus-pocus comes unglued between now and then, she will inflate electronic
money accounts without compunction. By doing so, Yellen will make matters worse
(a sampling: real incomes will fall further, the gap between the rich and the
poor will increase). She will redefine an acceptable inflation rate at 4.0%.
Currently, the Fed is gunning for 2.0% inflation. This will be part and parcel
to Yellen's attempt to drive interest rates down at all maturities. The
objective will grow harder so require larger electronic deposits. She will beget looser money and a more destructive policy than Ben
Bernanke's: a -4.0% real rate of interest.
That will be her policy. As to the person,
Janet Yellen will see exactly what she wants to see, no more and no less. A
sampling:
"Will capitalist economies operate at full employment in the
absence of routine intervention? Certainly not. Do policy makers have the
knowledge and ability to improve macroeconomic outcomes rather than make
matters worse? Yes."
-At Yale, in
1999
"While admirers of capitalism, we also to a certain extent
believe it has limitations that require government intervention in markets to
make them work."
-Magazine
interview, 2012
"I would also like to note that the same research paper
[produced by the Federal Reserve staff] analyzed the macroeconomic effects of
the FOMC's full program of [Quantitative Easing].... Those simulation results
indicate that by 2012, the full program of securities purchases will have raised
private payroll employment by about 3 million jobs"
-Denver, Colorado; January 8, 2011
"We failed completely to understand the complexity of what
the impact of the decline - the national decline - in housing prices would be
in the financial system. We saw a number of different things and we failed to
connect the dots. We failed to understand just how seriously the mortgage
standards, the underwriting standards, had declined, what had happened with the
complexity of securitization and the risks that were building in the financial
system around that."
-At Yellen's
Senate confirmation as Fed governor in 2010.
And yet, she learned nothing:
"At this stage, there are some signs that investors are
reaching for yield, but I do not now see pervasive evidence of trends such as
rapid credit growth, a marked buildup in leverage, or significant asset bubbles
that would clearly threaten financial stability,"
-March 4, 2013
FUN FACTS:
In 2009, when Yellen was president of the San Francisco Fed, her researchers
calculated the real interest rate should be -5.0% (that is: negative five
percent: inflation five percent higher than interest rates, according to the
"Taylor rule." At the same time, John Taylor, the Taylor of the rule,
calculated interest rates should be 0.5% (positive 0.5 percent).
In May 2011, the San Francisco Fed decided consumer inflation expectations were
flawed, so should not interfere with inflation expectations upon which the Fed
pegs monetary policy, since the public does not understand monetary policy.
Something like that. To quote a bit, while not being sure at all if this part helps
explain the San Francisco Fed's dismissal of the public:
"The... response to noncore inflation cannot be justified in
terms of the historical relationships in the data. This disproportionate
response is probably the reason why household inflation expectations have not
done well as forecasts of future inflation in recent years, a period of
volatile food and energy inflation. The poor forecasting performance argues
against reacting strongly to the recent increases in household inflation
expectations.... It's also possible that households' sensitivity to noncore
inflation goes up following substantial, sharp increases in the price of energy
and food items, such as those that occurred in the 1970s.... This similarity to
the 1970s is unsettling because it suggests that consumers are not accounting
for the ways monetary policy has changed over this period."
-Federal Reserve Bank of San Francisco Economic Letter, May 2011
Yellen had left the San Francisco Fed in 2010 for the Fed governorship, but,
this is her legacy. She resorts to institutional propaganda (the Fed calls
"research") that shields the Fed from any wrongdoing. Therefore, you
can count on it: she will always follow a policy of greater monetary inflation.
The Fed's free wheeling will last as long as the dollar retains its hallowed
status. In this regard, Chuck Butler wrote in his October 10, 2013 Daily
Pfennig (EverBank):
"Guess who is the newest member on the roster that makes up
countries that have signed a currency swap agreement with China?.... It's the
Eurozone! The European Central Bank (ECB) announced this morning that they have
signed a bilateral currency swap agreement with China to bolster trade
financing. Now, Eurozone companies don't have to change their euros to dollars
first to settle the terms of trade with China, they just deliver euros, or
receive renminbi. This is HUGE folks! China now has nearly all of Asia on their
roster, along with Australia, and New Zealand, Russia, Argentina, Brazil and
now the Eurozone!
"Talk about gaining a wider distribution of their currency!
This will strengthen the international use of the renminbi/yuan. And that's
what China wants! They want to keep removing the dollar's relevancy in the
terms of trade throughout the world, one country at a time. But the Eurozone is
HUGE, folks.
"Remember, the recent (June 28th) talk by People's Bank of
China (PBOC) Gov. Zhou, where he pledged to expand cross-border use of the
renminbi /yuan, and he encouraged multinational companies to include the
Chinese currency in their asset portfolios. When China decides to all direct
trading between their currency and other foreign currencies, convertibility
will occur, and when all that happens, it's game over for the dollar as the
reserve currency folks. I don't know how else I can say this to make it any
clearer."
Chuck Butler could be right.
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