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On Janet Yellen as Federal Reserve Chair


On October 9, 2013, President Obama appointed Janet Yellen, current vice-chair of the Federal Reserve, as the new Fed chair, to replace Ben Bernanke expected to retire at year’s end. Obama’s appointment, subject to Senate confirmation that is likely, comes after a general consensus in recent weeks that Yellen would be Obama’s choice.

That followed prior weeks of heated public debate and maneuvering involving Yellen, as favorite of liberals in and out of Congress, and Larry Summers, favorite of Obama administration staffers and in-siders. Summers withdrew his candidacy several weeks ago, however, under pressure from conservative elements, who viewed his role as former Obama adviser, as too liberal on fiscal spending in Obama’s administration, and liberal elements, who viewed his role as former Clinton administration Secretary of the Treasury as too accommodating to bankers and financial deregulation.

It has been interesting to watch how liberals, within and without the Obama administration in recent weeks organized aggressively on behalf of Yellen. Yellen was the ‘Fed Dove’, willing to continue Ben Bernanke’s generous free money policies of QE and near zero interest rates. In contrast, Summers was the monetary ‘hawk’ that would likely accelerate a withdrawal from QE faster. Of course, both profiles were mostly spin.

Noted liberal economists, like Paul Krugman of the New York Times, fell completely into the Yellen camp, praising her policies and more liberal credentials. Even progressives of the moderate persuasion fell for the ‘Yellen as Fed Dove’ fiction.

But a closer inspection would have revealed that neither Summers nor Yellen would have departed much, if at all, from current chair Bernanke’s policies.

Those policies, in the form of QE (quantitative easing) and ‘zero bound interest rates’, since 2009 have had little if any impact or effect on the real economy—and therefore on housing recovery, jobs, or middle class incomes.

In the course of four years of both QE and zero rates, the Federal Reserve has pumped more than $13 trillion in liquidity (money) into the US and global banking system (and shadow banking system) to bail out the banks. In terms of QE alone, this occurred in at least three versions—QE1, QE2, and now currently QE3—which together will have provided by year end 2013 (along with QE 2.5—called ‘operation twist’), nearly $4 trillion of liquidity injections to bankers as well as individual wealthy investors seeking to dump their collapse subprime mortgage bonds on the Federal Reserve.

QE and the $13 trillion resulted in record booms in the stock and bond markets in the US and globally. Much of that likely flowed out of the US economy into the global, serving to stimulate real growth in emerging markets and even more in generating financial asset speculative bubbles around the world since 2009. There is in fact a very high correlation between the announcement, introduction, and conclusion of QE programs and stock-bond, derivative, and other financial asset booms and declines since 2009. Conversely, there is virtually no such connection between housing, jobs, and other real sectors of the US economy.

Bernanke Fed monetary policies have thus boosted financial capital gains and in turn the incomes of the wealthiest in the US and globally, as real disposable income for US households has consistently declined for four consecutive years. As recent data on income distribution from studies of economists at the University of California have shown this past summer: The wealthiest US 1% households have accrued for themselves no less than 95% of all the income gains in the US since 2009.

Yellen has been perhaps the strongest supporter of out-going Fed Chair, Ben Bernanke’s policies of QE and zero bound rates, which have directly resulted in this lopsided income inequality. So why were liberals so impressed with her as the preferred choice for next Fed chair? It certainly wasn’t for her policies. Or was it?

Perhaps they still labor under the false notion that, in the world of 21st century global finance capitalism, that low interest rates create jobs? But that academic economics fiction no longer has evidence in reality. It belongs in the same trash bin with other fictions, like more business tax cuts create jobs. Or that more free trade agreements , like the pending Transpacific Partnership, pushed by the Obama administration and liberals, will create jobs. Here again, the empirical track record shows that neither have, or will, create jobs. But liberals nonetheless adhere to these false notions, believing in the various forms of ‘trickle down’ economics.

Yellen as Fed Chair will do no more for jobs and real middle class-working class incomes than Obama’s appointment of General Electric’s CEO, Jeff Immelt, did for jobs since 2010 by getting the Obama administration to pass new free trade agreements with Panama, Columbia and Korea, or more tax cuts for multinational manufacturers like GE, Microsoft, or big pharma have done for jobs.
But Yellen was given the ‘dove’ tag and therefore the liberal endorsement.

Yellen as Fed Chair will continue policies no different in content than has Ben Bernanke. Yellen will continue to pump QE into bankers and investors, stocks and bond markets, global speculators and offshore investors, as had Bernanke. If she really were liberal, she’d take the $1 trillion given them in just the past year of QE3 liquidity injections and use it to fund a government direct job creation program. That would create 20 million $50k a year jobs, and jump start the economic recovery overnight.

But the Bernanke-Yellen policy of giving that $1 trillion (and $12 trillion more) to bankers and investors will instead continue to prop up the stock, bond and other speculative financial markets. And just as Bernanke ‘chickened out’ this past summer when he rapidly backed off suggesting the $85 billion a month QE3 injections might be reduced by modest $5 billion, so too will Yellen go slow, and reverse course quickly as necessary, when the bondholders revolt again at any such suggestion.

There will be no fundamental change, in other words, from a Bernanke Fed to a Yellen Fed. As currently structured and led, the US Federal Reserve is an institution serving bankers and wealthy investors. Before the Fed can ever begin serving the rest of the economy, the country and its citizens, it will have to be radically restructured and its leadership democratically chosen.

The Federal Reserve will have to be democratized and the bankers and investors totally marginalized from its operations. The Fed will have to become an institution that functions as a ‘public banking entity’, not a private banking conduit. It will then provide low money cost loans to households, small businesses, students, and workers—instead of wealthy investors, bankers, and speculators.

And instead of issuing QE for the latter, it can then issue QE to create jobs, raise incomes, and generate a sustained economic recovery for all instead of a perpetual subsidized recovery for the 1%. But that won’t happen under a Yellen Fed, or under a government led by the dual one-party system in the US today. It will take a new, grass roots movement for real democracy in the US, and a new party based upon that movement.

Dr. Jack Rasmus is the author of the book, “Obama’s Economy: Recovery for the Few”, published by Pluto Press, London, April 2012. He is the host of the weekly internet radio show from New York, ‘Alternative Visions’, on the Progressive Radio Network, His website is and he blogs at His twitter handle is drjackrasmus.    


Jack Rasmus is the author of  ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at His website is and twitter handle, @drjackrasmus.

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