FacebookTwitterGoogle+RedditEmail

The Coronation of Janet Yellen

by MIKE WHITNEY

“As a first line of defense, we have a variety of supervisory tools, micro- and macro-prudential, that we can use to attempt to limit the behavior that is giving rise to those asset price misalignments.”  Janet Yellen’s  circular, Greenspan-like response to a simple question about How the Fed should deal with “asset bubbles”.

On Thursday, the Senate Banking Committee conducted  hearings to decide whether Janet Yellen would be confirmed as the next chairman of the Federal Reserve.  Yellen, who was nominated by President Obama, is in line to replace acting Fed chairman Ben Bernanke in January 2014.

Despite the controversy surrounding the Fed’s unconventional monetary programs, which have buoyed stock prices to record highs but failed to pull the economy out of the doldrums, the hearings were largely uneventful. For the most part, senators were civil and reserved, while Yellen was courteous and attentive.   Aside from some predictable grandstanding, there were no hardball questions, no hectoring, and no impassioned denunciations of Central Bank policy. The Committee’s performance was as perfunctory as any ever given on Capital Hill. Yellen was never in trouble nor was her confirmation ever in doubt. She breezed through the 3 hour confab without as much as a scratch.

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.

Yellen was also asked whether the Fed would cut the rate it pays on excess reserves at the banks, to which she replied,  “It certainly is a possibility.”

Yes, Janet, we know it’s a possibility. We also know that’s not an answer.  What the Committee wants to know is what you plan to do as Fed chairman. At least, that’s what one would expect elected representatives to ask if they had even minimal critical thinking skills …which they don’t.

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.

“I don’t see evidence at this point, of asset prices, misalignments. Although 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.”

“Limited evidence of reach for yield or buildup in leverage”? No asset bubbles?  Are you kidding me?

Is Yellen aware that margin debt on the NYSE (the money that investors borrow to buy stocks) is now at its highest level EVER. ($401 billion) That’s higher than 2008 before the crash!  Wouldn’t you think that would send off a few alarms at the Central Bank where regulators are supposed to be monitoring these things?

And what about corporate stock buybacks which are up by nearly 20 percent this year and are on track to beat their previous peak in 2007. In fact, stock buybacks–which are just a way for corporations to juice their stock prices without adding any real value to their companies–is leaps and bounds higher than real non-residential fixed investment. In other words, corporate fatcats are swapping paper to make bigger profits instead of investing in factories, equipment or improvements which add tangible value. It’s all a big paper chase which has been amplified many times over due to the Fed’s low rates and the ocean of liquidity that’s been pumped into the system.

But Yellen says she doesn’t see any of this. (“I see nothing. Nooothing.”) How credible is that?

Then there’s this from the Testosterone Pit:

“Bubble data keep piling up relentlessly. IPOs (Initial Public Offerings) so far this year amounted to $51 billion, the highest for the period since bubble-bust year 2000, the Wall Street Journal reported. Of them, 62% were for companies that have been losing money, the highest rate on record…..

It’s even crazier in the land of bonds….. So far this year, $911 billion in bonds were issued, also a Dealogic record. Emerging-market bond issuance hit $802 billion, a notch below their all-time record last year…”(“The Day The Bubble Became Official, And Everyone Was Happy”, Testosterone Pit)

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”?

How’s that for poor judgment? By my estimate, that “bump in the road”  amounted to more than $8 trillion in home equity losses, 5 million foreclosures, 14 million jobs,  and a thoroughly decimated US economy.  That was a bad call on Yellen’s part, and in a sane world it would have disqualified her from contention. But we don’t live in a sane world. We live in a world where failing upwards is a reality and where the best jobs go to the apple-polishers who nose their way to the front of the line by doing what they’re told and keeping their mouths shut.

And that’s why “punch bowl” Janet is going to get the Chairman’s Suite in the Eccles Building. Because she knows how the game is played.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:
Weekend Edition
July 22, 2016
Friday - Sunday
Jeffrey St. Clair
Good as Goldman: Hillary and Wall Street
Joseph E. Lowndes
From Silent Majority to White-Hot Rage: Observations from Cleveland
Paul Street
Political Correctness: Handle with Care
Conn Hallinan
The Big Boom: Nukes And NATO
Ron Jacobs
Exacerbate the Split in the Ruling Class
Richard Moser
Actions Express Priorities: 40 Years of Failed Lesser Evil Voting
Eric Draitser
Hillary and Tim Kaine: a Match Made on Wall Street
Jill Stein
After US Airstrikes Kill 73 in Syria, It’s Time to End Military Assaults that Breed Terrorism
Jack Rasmus
Trump, Trade and Working Class Discontent
John Feffer
Could a Military Coup Happen Here?
Jeffrey St. Clair
Late Night, Wine-Soaked Thoughts on Trump’s Jeremiad
Andrew Levine
Vice Presidents: What Are They Good For?
Michael Lukas
Law, Order, and the Disciplining of Black Bodies at the Republican National Convention
Margaret Kimberley
Gavin Long’s Last Words
Mark Weisbrot
Confidence and the Degradation of Brazil
Brian Cloughley
Boris Johnson: Britain’s Lying Buffoon
Lawrence Reichard
A Global Crossroad
Kevin Schwartz
Beyond 28 Pages: Saudi Arabia and the West
Charles Pierson
The Courage of Kalyn Chapman James
Michael Brenner
Terrorism Redux
Bruce Lerro
Being Inconvenienced While Minding My Own Business: Liberals and the Social Contract Theory of Violence
Mark Dunbar
The Politics of Jeremy Corbyn
David Swanson
Top 10 Reasons Why It’s Just Fine for U.S. to Blow Up Children
Binoy Kampmark
Laura Ingraham and Trumpism
Uri Avnery
The Great Rift
Nicholas Buccola
What’s the Matter with What Ted Said?
Aidan O'Brien
Thank Allah for Western Democracy, Despondency and Defeat
Joseph Natoli
The Politics of Crazy and Stupid
Sher Ali Khan
Empirocracy
Nauman Sadiq
A House Divided: Turkey’s Failed Coup Plot
Franklin Lamb
A Roadmap for Lebanon to Grant Civil Rights for Palestinian Refugees in Lebanon
Colin Todhunter
Power and the Bomb: Conducting International Relations with the Threat of Mass Murder
Michael Barker
UK Labour’s Rightwing Select Corporate Lobbyist to Oppose Jeremy Corbyn
Graham Peebles
Brexit, Trump and Lots of Anger
Anhvinh Doanvo
Civilian Deaths, Iraq, Syria, ISIS and Drones
Christopher Brauchli
Kansas and the Phantom Voters
Peter Lee
Gavin Long’s Manifesto and the Politics of “Terrorism”
Missy Comley Beattie
An Alarmingly Ignorant Fuck
Robert Koehler
Volatile America
Adam Vogal
Why Black Lives Matter To Me
Raouf Halaby
It Is Not Plagiarism, Y’all
Rivera Sun
Nonviolent History: South Africa’s Port Elizabeth Boycott
Rev. Jeff Hood
Deliver Us From Babel
Frances Madeson
Juvenile Life Without Parole, Captured in ‘Natural Life’
Charles R. Larson
Review: Han Kang’s “The Vegetarian”
FacebookTwitterGoogle+RedditEmail