Last Tuesday, new Fed chair Janet Yellen appeared before
Congress and answered questions.
It gave us a sneak peek on what we can possibly expect from her and the
Fed going forward.
Her statements and demeanor confirmed something to me. She is towing the political line and
she will go along with the establishment, even if it is contrary to her core
beliefs. She is a figurehead for
the Fed, just as Obama is a figurehead for the executive branch.
A lot of conservatives were really fearful about Obama and
his Marxist/ socialist ideology when he won the presidency. A lot of conservatives (and some
libertarians) are still quite fearful of Obama and his ideology. While I am fearful of his policies to a
certain extent, I can’t say that it is any more so than I would be with an
establishment Republican in the White House.
If Obama did half of the things that his predecessor did,
Republicans would be ripping him apart, calling him a socialist. Other than Obamacare, most of Obama’s
policies have just been a continuation of Bush. Even Obamacare could be considered a continuation.
Obama’s ideology probably is Marxist/ socialist, but his
politics come first. He will play
ball with the establishment and he won’t make any drastic changes, especially
in his second term now.
After Yellen’s appearance before Congress, we can conclude
something similar. She may be a
Keynesian or a socialist or whatever, but her ideology is only going to go so
far. Going along with the
establishment will take precedent over her ideology. She is not going to risk her career by strongly going against
One of the things Yellen discussed was continuity. She made it clear that she was not
going to alter the Fed’s course set by Bernanke, unless it was warranted by
She did admit that the Fed might consider slowing down
tapering if the economy showed troubled signs. But, this could have just as easily been said by Bernanke.
The stock market went up a lot on Tuesday. Investors seemed to like what Yellen
was saying, although we never know how much of the rise in stocks can be
attributed to her words.
Gold was also up.
This is an indication that investors are less concerned about the Fed
tapering. Yellen provided
reassurance that the Fed may slow down its tapering in the face of a declining
It actually puzzles me that investors would have been that
excited over her remarks. Everyone
who pays attention knows her ideology and that she thinks creating money out of
thin air is the main answer to all of our economic woes. If anything, her statements before
Congress were less extreme than what she would normally say.
At this point, I am not sure that we should be any more
scared of a Yellen Fed than a Bernanke Fed.
Bernanke more than quadrupled the adjusted monetary base in
5 years time and he assisted in the biggest bailout ever seen in this
world. Bernanke may not be as
outspoken as Yellen on Keynesianism and money printing, but does is really
matter? Can Yellen really be any
worse than Bernanke was?
I will take Yellen at her word that she wants
continuity. It is continuity of
horrible policies that will lead to a major train wreck down the road.
When the next major financial crisis hits, I’m sure Yellen’s
Fed will turn up the monetary inflation if it is within the acceptable bounds
of establishment opinion. But
would Bernanke’s Fed have really been any different?