John Tamny, 

Obama's Nomination Of Janet Yellen Is A Blow To Recovery-Starved Americans

Janet Yellen (Photo credit: Wikipedia)

When the Fed announced in September that it would postpone indefinitely the cessation of the economic vandalism that is Quantitative Easing (QE), investors and pundits expressed surprise. They shouldn’t have. Walter Bagehot brightly telegraphed Fed Chairman Ben Bernanke’s QE audible well over 100 years ago.
In his 19th century classic, Lombard Street, Bagehot described the individuals who aspire to central banking positions as ‘vain’ and ‘grasping,’ and in doing so, he easily foretold what Bernanke would do. For Bernanke to have ‘tapered’ would have been for the man who so publicly lusted for and politicked for the Fed Chair to voluntarily remove himself from the limelight. Not on your life.

Central bankers live for the attention of people infinitely wiser and more accomplished than they are, and clearly relish the fact that true achievers hang on their every word. Alan Greenspan was a less than prescient Wall Street forecaster before he had reverential books (Maestro) written about him, and CNBC breathlessly reporting on the size of his briefcase ahead of interest rate decisions. This charitably average seer was made a somebody by virtue of serving as Fed Chair, and his service filled his vain and positively Herculean desire for adulation.


Having surely witnessed the lionization of Greenspan, Bernanke similarly lusted for a position that would catapult him to notoriety exponentially greater than his often obtuse musings about the economy had so far boosted him. To presume a ‘tapering’ from Fed Chairman Bernanke would be to totally misunderstand how he came to be Fed Chairman Bernanke. These aren’t people who run from the spotlight, rather it’s their unquenchable thirst for the spotlight that brings them to central banks to begin with.
Notable is that Bagehot, contrary to what is broadly assumed, was not a fan of central banks. He instead tolerated them, and felt they should eagerly fill their role as lender of last resort for solvent banks short on cash, not five time Fed bailout recipients like Citigroup C +0.59%. This is worth bringing up when we think about senior Fed officials, including President Obama’s nominee to replace Bernanke, Janet Yellen. These people not only tolerate central banks, but as evidenced by their professional choices in life, actually think them necessary.
They think them necessary despite the certain truth that absent crony creations like the Fed, long on cash businesses like Walmart and Microsoft MSFT +0.21% would readily lend to solvent banks needful of short-term operating funds at a profitable, penalty rate. Since penalty lending to banks would come from private, for-profit businesses, it’s fair to say that they would lend to them much more carefully. And with the banking system operating under a market-driven lender of last resort, it would be much healthier for its weakest actors regularly being swallowed by their betters, as opposed to being bailed out.
Yellen’s nomination will bring up lots of questions to a verbally incontinent punditry about the good or bad of her policies, but that’s realistically to miss the point. Yellen wanted to be the Fed Chairman, Yellen, like Bernanke and Greenspan before her, politicked to be the Fed Chairman. Policies and beliefs matter, but the citizenry should fear Yellen simply because she wanted to run the Fed. She wanted to run an entity that’s always been wrong, that according to the wildly successful former head of BB&T BBT +0.31% Bank (John Allison) had “a 100 percent error rate in predicting and reacting to important economic turns” during his time running the bank.
Implicit in Yellen wanting to run the Fed is a belief that the cost of credit, easily the most important price in the world after the dollar, should be manipulated by her and other supposedly wise individuals laboring alongside her. Think about the stunning arrogance that underpins such a belief. The 20th century was in a sick-inducing way a gift to humanity for showing in murderously brutal fashion the horrors of central planning, yet Yellen honestly believes that she can divine the cost of credit better than can the infinite actions and decisions taking place every millisecond among billions of humans in the private markets.
And while even the mildly sentient among us well know that money isn’t wealth as much as it’s a facilitator of the exchange of wealth, Yellen, like Bernanke before her, believes that the creation of money for the sake of doing so is the path to growth. The obtuse theorizing which informs this kind of thinking can’t be underestimated, and merits worried thought. Even as kids we would somewhat intuitively grasp that even if counterfeiting were legal, it would ultimately be self-defeating as money creation for the sake of it would soon enough rob the unit of account of exchangeable meaning. Did Yellen miss those play dates?
Assuming she did, and Bernanke too, it’s probably not asking too much for a Fed Chairman to know that job creation is always and everywhere a function of investment. Sorry, but absent someone delaying consumption so that they can commit capital to a new business idea, there’s no funding for the business, and no jobs. To make even clearer what is positively luminous, when investors commit capital they are tautologically buying future dollar income streams. But what if the hubristic meddlers at the Fed are pursuing quantitative easing given their belief that money creation is wealth creation? The answer is simple: investment that would have migrated toward new business ideas instead lurches toward the hard asset sinks of wealth that are least vulnerable to the central bank’s explicit devaluation of the currency; in our case, the dollar. All entrepreneurs and businesses know that businesses can’t start or expand, and certainly can’t hire without investment, yet Bernanke and Yellen both support the explicit devaluation of money which repels the very investors so essential if Americans are to experience a full economic recovery.
Of course the mere mention of ‘economic recovery’ perhaps does the most to explain why we never experienced a real one under Bernanke, and why we won’t enjoy one under Yellen insofar as Yellen’s meddling hand resembles Bernanke’s. We won’t because lost on both is the essential truth that the recession IS the recovery, it is the fix, it is the happy reversal of that which made us ill initially, including excessive consumption of housing. Recession is the market’s way of correcting the mistakes, the misallocations of capital, the labor market mismatches, and in a more literal sense, it’s the market’s way of releasing the human, physical and financial assets of Webvan and theglobe.com to nascent concepts that the markets actually want like Google and Facebook.
In light of the above, it’s long fascinated this writer that so many who are so smart, and who should know better, ascribe ‘brainy’ to people like Bernanke. Really? If Bernanke were brainy he would understand that his unwillingness to cease ‘supporting’ the economy is the Green Monster of a barrier to the economic recovery we all crave. Yellen represents more of the same. Like Bernanke, her hunger for adulation will cause her to continue ‘helping’ the economy stay afloat, and in doing so, she’ll cruelly rob us of the recovery we so desperately desire.