Janet Yellen's Coming Out Party Finally Arrives
Janet Yellen's "coming out" party underwhelmed the markets yesterday when she said Fed tapering would continue and the unemployment "benchmark" of 6.5% would no longer determine whether or not the Fed pursued QE or not. It really wasn't anything she did or didn't do. In fact, who knows, maybe markets will reverse today or in coming days and decide they liked what she said after all. Or maybe markets will just go ahead kick the dust off their sandals and continue walking down the road to "Bubble-land" as these credit-induced markets have since 2009. In the end, there was no problem with Janet Yellen yesterday. It was just the usual dance of the Fed Chief and the markets. But still, there remains a problem with this woman.
The problem with Janet Yellen is the same as the problem with just about any Fed Chairman, or for that matter with most if not all members of the Board of Governors of the Federal Reserve. You can see it in this video, of roughly 15 minutes of edited footage from the full-length film, Money for Nothing. The footage was shot before she became head of the Fed, but does give us an insight into her thinking.
(Click HERE for the edited interview of Janet Yelen.)
As you can see, the woman appears to be intelligent and well-intentioned. She's sincere in her belief that the Federal Reserve has always and will always act in the interests of the public, that is, the American people. She understands that certain actions taken by the Federal Reserve may - and in the recent case of the 2008 collapse did - greatly benefit Wall Street. But in her view, it was necessary to do so in order to better serve the people. I have no reason to doubt that this woman believes what she says. I don't question her sincerity.
But if you you listen carefully to her, you may also notice that she also sincerely believes that the Fed can control the economy to a significant degree. So, for example, while she disagrees that the Fed ought to influence markets, she does believe the Fed can and should at times control, or direct, or influence the economy (take your pick). She cites the tech bubble as an example. She asserts that it was possible to identify and characterize the dramatic rise in the NASDAQ as symptomatic of a bubble. But she also asserts that, at the time, the economy was functioning as it should. And so, at that time, the Fed should not have interfered in the stock market, as indeed they did not. Since the economy was functioning properly, the Fed kept its hands in its pockets. Given that unemployment was not a problem and that prices were stable - the two charges Yellen notes the government has given the Fed - there was nothing for the Fed to do. The economy didn't need any change in Fed policy to function as it should.
So what you have in Janet Yellen, and in most other Fed officials, are people who believe a) they are acting in the public interest and b) they can effectively control the economy, if they pay close attention and take appropriate action.
I've no reason to doubt "a." And there lies the problem. For even if we accept their sincerity and intelligence, even if we believe they do and will act in the public interest, we still must answer the question whether they or anyone else has the capability to control or steer the economy in order to fulfill their mandate to keep unemployment low and keep prices stable - a mandate the Fed believes it has been given by the government, which it believes represents the best interests of the American people.
As for "b," we should ask ourselves whether, with all the data at their fingertips, they can always (or even often), accurately diagnose what is happening in the economy today, or at any present point in time, never mind predict what may happen in the future whether or not they take certain actions. They've a much better chance of using their data and the reams of studies they commission to understand the past than they do of discerning the current state or trend of the economy. But, of course, that doesn't stop them from formulating or pursuing policies to control the direction of the economy.
Sincere or well-intentioned she may be, but do we have any reason to expect Janet Yellen to any more successfully promote, never mind guarantee, low unemployment or stable prices than past Fed chairmen? The problem isn't with Janet Yellen as a person, it is rather with what she and her associates are charged to do, and how they choose to pursue their mandates. No matter how intelligent or sincere they may be, is it reasonable to expect these individuals to possess such insight into the current state of the economy or its future direction? Is it reasonable to expect them to know exactly what to do if they sense a problem?
Apparently they believe they do and they can. And that's a problem.
The problem with Janet Yellen is the same as the problem with just about any Fed Chairman, or for that matter with most if not all members of the Board of Governors of the Federal Reserve. You can see it in this video, of roughly 15 minutes of edited footage from the full-length film, Money for Nothing. The footage was shot before she became head of the Fed, but does give us an insight into her thinking.
(Click HERE for the edited interview of Janet Yelen.)
As you can see, the woman appears to be intelligent and well-intentioned. She's sincere in her belief that the Federal Reserve has always and will always act in the interests of the public, that is, the American people. She understands that certain actions taken by the Federal Reserve may - and in the recent case of the 2008 collapse did - greatly benefit Wall Street. But in her view, it was necessary to do so in order to better serve the people. I have no reason to doubt that this woman believes what she says. I don't question her sincerity.
But if you you listen carefully to her, you may also notice that she also sincerely believes that the Fed can control the economy to a significant degree. So, for example, while she disagrees that the Fed ought to influence markets, she does believe the Fed can and should at times control, or direct, or influence the economy (take your pick). She cites the tech bubble as an example. She asserts that it was possible to identify and characterize the dramatic rise in the NASDAQ as symptomatic of a bubble. But she also asserts that, at the time, the economy was functioning as it should. And so, at that time, the Fed should not have interfered in the stock market, as indeed they did not. Since the economy was functioning properly, the Fed kept its hands in its pockets. Given that unemployment was not a problem and that prices were stable - the two charges Yellen notes the government has given the Fed - there was nothing for the Fed to do. The economy didn't need any change in Fed policy to function as it should.
So what you have in Janet Yellen, and in most other Fed officials, are people who believe a) they are acting in the public interest and b) they can effectively control the economy, if they pay close attention and take appropriate action.
I've no reason to doubt "a." And there lies the problem. For even if we accept their sincerity and intelligence, even if we believe they do and will act in the public interest, we still must answer the question whether they or anyone else has the capability to control or steer the economy in order to fulfill their mandate to keep unemployment low and keep prices stable - a mandate the Fed believes it has been given by the government, which it believes represents the best interests of the American people.
As for "b," we should ask ourselves whether, with all the data at their fingertips, they can always (or even often), accurately diagnose what is happening in the economy today, or at any present point in time, never mind predict what may happen in the future whether or not they take certain actions. They've a much better chance of using their data and the reams of studies they commission to understand the past than they do of discerning the current state or trend of the economy. But, of course, that doesn't stop them from formulating or pursuing policies to control the direction of the economy.
Sincere or well-intentioned she may be, but do we have any reason to expect Janet Yellen to any more successfully promote, never mind guarantee, low unemployment or stable prices than past Fed chairmen? The problem isn't with Janet Yellen as a person, it is rather with what she and her associates are charged to do, and how they choose to pursue their mandates. No matter how intelligent or sincere they may be, is it reasonable to expect these individuals to possess such insight into the current state of the economy or its future direction? Is it reasonable to expect them to know exactly what to do if they sense a problem?
Apparently they believe they do and they can. And that's a problem.
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