5 things to know about Janet Yellen

From Victoria McGrane at msn.com:

1. She has pushed the Fed to use aggressive new policies to boost the economy.

Yellen, who focused much of her academic research on the costs and causes of unemployment, has consistently called for the Fed to respond forcefully to high joblessness. She argues that inflation isn’t likely to emerge with the economy in such a debilitated state – a point on which so far she has been right. “These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families,” she said in a speech to the AFL-CIO labor union in February.

Yellen thinks that the Fed can print money to reduce unemployment.  This is based on the Phillips Curve, the economic theory that there is a trade-off between the inflation rate and the unemployment rate.  According to the Phillips Curve, a government can reduce the unemployment rate by increasing the inflation rate.  The problem is that this theory was refuted in the 1970s, when the U.S. economy experienced a high rate of inflation and a high rate of unemployment at the same time.

2. She has a record of being concerned about excessive inflation.

Her public statements and past actions show she is committed to maintaining low inflation. The Fed “is determined to ensure that we never again repeat the experience of the late 1960s and 1970s, when the Federal Reserve didn’t respond forcefully enough to rising inflation,” she said in a 2011 speech.

She was a longstanding proponent of the Fed adopting a 2 percent inflation target, and was closely involved in the decision to do so in 2012. In 1996, while a Fed governor, Yellen debated then-Chairman Alan Greenspan over the right level of inflation, contending that too-low inflation could harm the economy just as too-high inflation could — a view that is now widely accepted at the Fed, but wasn’t then. Later that year, she urged Mr. Greenspan to raise short-term interest rates, fearing the booming economy threatened to unleash excessive inflation — advice he declined, according to former Fed governor Laurence Meyer.

She just contradicted the first thing you should know about Janet Yellen from #1 above.  She believes that you can reduce unemployment by printing money, but that the printing of that money won’t cause prices to rise.  Someone who is concerned about inflation would be advocating reducing the money supply and raising interest rates.

And all the talk about ‘inflation targeting’ is blather.  The Fed and the government are already manipulating the CPI and other measures of inflation.  Gas prices have doubled since 2008, food prices are up 30-50%, but the Fed and the government say that inflation is 2%.  Right.  And setting an inflation target would just result in more manipulation.  For more on how the official government statistics are all a bunch of crap, click on the ShadowStats link on the right of the page.

3. She is a good forecaster.

The Fed must forecast growth, inflation and unemployment to make policy decisions. Yellen has produced the most accurate forecasts of all the current Fed officials from 2009 through 2013, a Wall Street Journal analysis found.

Being the best forecaster among current Fed officials is like being the prettiest fat girl at a party: it just doesn’t matter.  Economic forecasts are bunk.  They are mathematical models based on unrealistic projections of what the economist thinks will happen.  Heck, most people can’t forecast what they will eat for lunch tomorrow.

4. The financial crisis made her a believer in tougher financial regulations.

Yellen has said that the 2008 financial crisis, which occurred when she was president of the San Francisco Fed, transformed her from a somewhat “docile” regional bank regulator to a believer that firm rules are more effective than leaving it up to regulators to react when trouble appears on the horizon.

“This experience has strongly inclined me toward tougher standards and built-in rules that will kick into effect automatically when things like this happen that make tightening up a less discretionary matter,” she told the congressionally-crea​ted Financial Crisis Inquiry Commission in a 2010 interview in which she expressed frustration at how long it took the Fed and other regulators to negotiate and issue new rules.

In a June speech, she said the Fed might need to require the nation’s largest, most complex banks to carry even fatter capital cushions against losses than required by new rules set out by international regulators, a prospect hotly contested by big U.S. banks.

Great.  Now that the horses are out of the barn, Janet wants to close the door.  The big banks own the Fed.  They control the Fed.  There’s no way in hell that they are going to agree to carry fatter capital cushions against losses.  They even got the Fed to buy their toxic assets a few years ago.  It’s wishful thinking on Janet’s part.

5. She believes in transparency, and the markets thinks she’s a good communicator.

In 2010, Bernanke asked Yellen to lead an internal communications committee that has produced several innovations in the way the central bank articulates its goals and policy plans to the public. These include so-called forward-guidance in which the Fed makes statements about the likely future course of policy, which has evolved to employ specific unemployment and inflation thresholds; the regular press conferences Bernanke holds; and a longer-run goals and strategy document released in January 2012 that laid out, for the first time, the rates of inflation and joblessness the Fed finds to be consistent with its mandate from Congress.

“The effects of monetary policy depend critically on the public getting the message about what policy will do months or years in the future,” she said in a speech to a gathering of reporters and editors in April. “I hope and trust that the days of ‘never explain, never excuse’ are gone for good,” she said.

Market participants think she does a good job of explaining the central bank’s thinking. In two separate surveys last year, officials at primary dealers — banks that do business directly with the Fed — responded to general questions about the Fed’s communications by saying Yellen’s speeches were particularly helpful.

Yes, the Fed is more transparent…technically.  I am still waiting for someone to translate the Bernanke-ese from the last Fed minutes into English that someone on the street will be able to follow.  Alan Greenspan was called the Maestro in part because he could talk to Congress for hours and not say anything.

“Market participants” = Wall Street = big investment banks like Goldman Sachs.  They like her.  Because she isn’t going to stop the QE* and ZIRP** policies of her predecessor.  This means more free money for Wall Street to play around with.

 

QE = Quantitative Easing.  The Fed is buying $85 billion in government and mortgage-backed securities every month.  They do this by printing money and giving it to the sellers of the bonds.  The result: inflation.

ZIRP = Zero Interest Rate Policy.  The Fed is maintaining very low interest rates.  For example, I earn 0.10% interest on the average balance in my checking account.  After one year, I will have earned 10 cents for every $100 dollars I have in my account.  Yay!

ZIRP is also a big reason why your insurance rates have skyrocketed since 2008.  Insurance firms used to invest the premiums that they received and then used any proceeds to pay for claims.  Those premiums don’t exist anymore, so the insurance firms are forced to use the premiums to pay for any claims against them.

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Categories: Borrowing, Debt, Depression, Inflation, Money Supply, Stupid People

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