Janet Yellen and the Art of Bullshit

by lizard

The next titular head of the Federal Reserve, Janet Yellen, showed that she has the necessary skill-set of talking without saying anything for the position.

Michael Whitney described this skill-set in his piece yesterday, titled The Coronation of Janet Yellen:

Yellen is as slippery as they come. She skillfully dodges tough questions by poring over arcane economic theory that sounds like an answer, but really doesn’t reveal anything about how she plans to lead. She also has a good sense of how her diminutive appearance works in her favor making it impossible for male senators to be too tough on her without being seen as “sexist” or “bullies”. Also, she’s already mastered the opaque language of the Fed, that is, she knows how to use circuitous, jargon-laden koans and pompous-sounding gibberish to conceal the Central Bank’s real agenda which is to shift more wealth to its constituents on Wall Street.

On the two questions that were on everyone’s mind–QE and asset bubbles–Yellen was characteristically evasive. While she opined that she would continue to “support the recovery” (in other words, keep the money flowing to Wall Street.) she obliquely added, “the program cannot continue forever.”

How’s that for clarity? In other words, “We’re going to keep doing the same thing, but we’re going to stop, too…. probably.”

To no one’s surprise, the Committee found this answer entirely satisfying.

None of our elected representatives found it necessary to prod Yellen about the failure of the Fed’s QE program because they are hopelessly captured assets of Wall Street. Here is an example from Whitney’s article:

Instead of grilling the candidate on conspicuously-flawed policies that have failed to produce a sustainable recovery after 5 years, ingratiating senators, like Chuck Schumer, felt their time would be better spent congratulating Yellen and singing her praises.

“I think you’ll make a great chair, and your Brooklyn wisdom shines through,” beamed the Senator from New York.

Thanks for that, Chuck. You’re a great American.

Yellen’s finest moment —if you can call it that–was her “bubble-denial” performance which makes her a shoo-in for this year’s Oscar awards. Yellen dismissed the idea that the Fed’s $3 trillion liquidity surge had made markets more frothy.

Instead of simply quoting Yellen’s response, I’m going to take her language and break into lines, so that it resembles a poem. Here is her brilliant response:

I don’t see
evidence at this point
of asset prices, misalignments.
there is limited evidence
of reach for yield
we don’t see a broad buildup
in leverage
where the development of risks
that I think at this stage
poses a risk
to financial stability.

The rest of the article features Whitney showing why Yellen is full of shit:

Everything is bubbly. Everything. Which is what happens when you pump $3 trillion into financial assets. (The Fed’s balance sheet has exploded to nearly $4 trillion mainly due to QE.)

And did you catch that part about investors dumping $51 billion into companies that ARE LOSING MONEY. Chew on that for a minute. This is just like the dot.com craze when rates were so low that speculators loaded up on everything they could get their hands on. It didn’t matter what you bought, because the loose-goosy monetary policy and uber-leverage kept driving stocks higher by the day. Then–without notice– Greenspan pulled the rug out from under the markets by raising rates which sent equities into the shi**er. Remember that? And now we’re seeing the same thing all over again. It’s like Back to the Future 2.

But Yellen sees none of it, in fact, she wants to keep the money flowing for as long as possible, until the bubble is so humongous that the slightest pin-prick puts the financial system into a death spiral and the real economy slumps back into recession.

It’s madness. Just like it’s madness for the committee to even consider a candidate with Yellen’s dodgy resume. Do we really want someone running the Fed who argued “against” deflating the housing bubble because she thought it would only be “a good-sized bump in the road, but that the economy would be able to absorb the shock”?

I’m glad Larry Summers isn’t going to be getting this gig, but let’s not kid ourselves, Janet Yellen won’t be any better. Under her “leadership” the scam will continue.


  1. lizard – I’m not sure arguing for tighter monetary policy is the progressive position here. The worst case scenario in QE is that it stops, and the markets fall again, and wealth that was largely imaginary to begin with disappears. But the most common economic complaint against QE is that it penalizes savers by keeping interest rates artificial low and skews the market in favor of borrowers. So it does. But guess who are the savers and who are the borrowers in this economy? The savers are the banks and companies like Apple sitting on piles and piles of cash and T bonds; the borrowers are the vast majority of Americans. The fear of a leveraging-caused bubble is overblown – companies aren’t leveraging, they are saving far more than they should. They aren’t investing, much less borrowing to invest.

    What needs to happen? Companies need to stop stockpiling profits and start spending them. How do you do that? Bring up core inflation so that companies start losing more money on cash lying around. And inflation, generally associated with looser monetary policy, has a second salutary effect – it makes paying down nominal debts much easier. And guess who has a lot of nominal debt? I’ll give you a hint – not the 1%.

    Have we gotten significant inflation yet? No, but we’re doing far better than the Eurozone, where the central bank has continued with its tight money policies (which seems to be the position Mr. Whitney is arguing for), lead to less than 1% inflation, which has only increased the pain of Spain and Portugal trying to deleverage and gain competitiveness. So while I get that you’re naturally distrustful of the Fed, in this case what they are doing has been far more successful than any other Central Bank in the world, and Janet Yellen is the best person to continue that.

    • lizard19

      instead of saying “savers” and “borrowers” how about we say “criminal hoarders of ill-gotten liquidity” and “indentured debt slaves”?

      and that’s part of the problem, how we talk about this stuff, or, to be more specific, we’ve been lied to from the beginning about the actual intentions behind the Fed’s monetary policy.

      I don’t think Whitney is advocating for tighter monetary policy. if you’ve been reading him for any length of time, he’s been very critical of the quivering house of cards the Fed is propping up.

      we are apparently locked into QEinfinity, and any hint of scaling back the cash faucets sends tremors through the markets.

      anyway, I always appreciate your comments, PW. I’m going to have to look into this a bit more after reading your comment.

      • I’ll accept debt slaves and hoarders and generally accurate terms. I haven’t been reading anything Whitney has written; I’m just concerned that the ‘Fed is causing a bubble with loose money’ line of reasoning tends to lead in the direction of tighter money.

        I’ve been reading Brad DeLong and Simon Wren-Lewis pretty regularly on the issue, and one point they both come back to is that the Fed can’t solve all our problems. DeLong points out, for example, that the Fed can scarcely manage a dual mandate of controlling inflation and providing full employment, much less a triple mandate of avoiding bubbles. That’s what the SEC and other enforcement agencies are supposed to be doing, with laws and regulations that congress should be passing. And ultimately most mainstream economists even will tell you that QE is trying to do with monetary policy something we ought to be doing with fiscal policy. The easy way to stop cash hoarding? Raise taxes on those doing the hoarding and spend the money you raise on infrastructure investments. (Or, if you’d rather not raise taxes, just keep spending until there is some actual danger of inflation or an increase interest rates, in which case you’ll have accomplished largely the same thing).

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