The good news? Federal Reserve Chair Ben Bernanke is getting the boot. The bad news? His replacement looks no better.
Last Thursday, the Senate Banking committee voted to place Janet Yellen as head of the Federal Reserve. The full body of august solons is expected to confirm this nomination, electing her as head honcho and chief cook (kook?) at the nation’s quasi-private/quasi-public central bank.
I am sure there are folks who look on this passing of the baton with a sort of patriotic piety. I know there are Democrats who rejoice in a banker referred to by Reuters as “a monetary policy dove who puts more weight on driving down high unemployment than the risk this will ignite future inflation.…”
Of course, the Fed has already pumped trillions into the system. A burgeoning employment boom has not resulted. To say the least.
Reviewing the current situation, and the likely appointment, economist Gerarld P. O’Driscoll, Jr., reminds us of the big truth about those who push at the Veil of Money: “the Fed is not capable of stimulating job creation, at least not in a sustained way over time.” What the Fed has succeeded in doing, in recent years, is prop up our benighted federal government’s continuing crisis of over-spending: “Congress and the president have been spared a fiscal crisis, and thus repeatedly punted on fiscal reform.”
Problem is, no one really believes debt accumulation or monetary back-up make for a sustainable policy: at some point, O’Driscoll tells us, rising interest rates will “precipitate a crisis.”
I wouldn’t want to be in charge at the Fed when that happens.
So, some sympathy for Ms. Yellen.
This is Common Sense. I’m Paul Jacob.
6 replies on “The Woman Who”
There have been problems historically when finance and industry were basically under the control of the government, especially for the “little people”. The last occurrence was in the 1930’s in Italy and Germany. It did not work out too well.
The fiat currency issue has appeared in history many, many times, always with the same totally unsatisfactory result.
Those who ignore history are doomed to relive it!
Bernanke is a 1600 SAT scholar and one of the smartest people involved in the system. If he is bailing, he must be figuring that the end is getting close.
Not holding the bag when the music stops. Now THAT is common sense.
What is the alternative? People talk about the many booms and busts that occurred in the US prior to creation of the Fed. Of course at that point the US was primarily agrarian and government was local. Some say that national industrialization made the Fed a necessity. I’ve heard many people call for its elimination. Which is worse — the disease or the cure?
The Fed Uncertainty Principle penned by “Mish” in ’06:
Fed Uncertainty Principle:
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.
Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three:
Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
Regarding the above. I email with Mish occasionally and have encouraged him to take this into a broader economic principle. I believe it basically explains everything going on in America today from healthcare to exploding bureaucracy everywhere you look. Schools failing, give them more power, police failing, give them tanks & drones. FDA screws up drug launches, give them more powers.
But the problem is the lobbying powers of the status quo are so powerful now that it feels out of control. I don’t think we can or will pull back from the brink before we go over it economically. That jobs report yesterday was BS. What the Fed is doing is systematically destroying the US dollar to regain competitiveness. They can’t fight $2/hour labor from China so they are silently killing the dollar to try to overcome that and also make the debt cheaper in the future. But this time it will end badly because when the Keynesians were effective, we didn’t start out with this much debt.
I am afraid never was till 2008, wonder why?