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Yellen Yap Silliness
The spotlight on Fed Chair Janet Yellen is rather amusing given she is more disingenuous than former Chair Ben Bernanke. Some of the headlines are downright silly. For example, Bloomberg reports Dollar Rises to Highest in 3 Weeks on Yellen Comments.
The dollar reached the strongest in a month versus the euro as wholesale prices in the U.S. rose more than forecast and the Fed saw modest to moderate growth in June. New Zealand’s dollar slumped the most in seven weeks after inflation accelerated slower than expected and a gauge of dairy prices dropped to its lowest since 2012. South Korea’s won slid to the weakest since April.US Dollar Weekly Chart
Yellen testified before the House Financial Services Committee today that she’s not seeing “alarming warning signals” in markets.
“My general assessment at this point is that threats to financial stability are at a moderate level and not a very high level,” she said. While some asset values “may be on the high side and there may be some pockets where we see valuations becoming stretched,” in general “price equity ratios and other measures are not outside of historical norms.”
click on chart for sharper image
Questions of the Day
- Did the US dollar rise because of what Yellen said or in spite of what Yellen said?
- Was the move based on wholesale prices or other economic data, as opposed to anything Yellen said?
- What about none of the above? Was this a random fluctuation not attributable to anything?
- Even if the move in the US dollar could reasonably be attributed to Yellen, was the move worth mentioning in a headline?
Yellen Yap Lies
Let's move from silliness to outright lies, and an excellent post by Yves Smith on Naked Capitalism that discusses the lies (whoppers).
In response to the New Yorker article The Hand on the Lever regarding "How Janet Yellen is redefining the Federal Reserve", by Nicholas Lemann, Smith accurately assesses the setup in her coverage Yellen Tells Whoppers to the New Yorker
A Nicholas Lemann profile of Janet Yellen in the New Yorker, based on interviews with her, is creating quite a stir, and for many of the wrong reasons. The article verges on fawning, but even after you scrape off the treacle, it’s not hard to see how aggressively and consistently the Fed chair hits her big talking point, that’s she’s on the side of the little guy.Bingo
In fact, as we’ll discuss, Yellen’s record before and at the Fed shows she’s either aligned herself with banking/elite interests or played two-handed economist to sit out important policy fights. Even if she actually harbors concern for ordinary citizens, she’s never been willing to risk an ounce of career capital on it.
The article is also generously larded with standard defenses of the Fed, that it lacked the power to do much of anything about dodgy mortgage lending in the runup to the crisis. In fact, the Fed was so firmly in denial that even in 2007, Fed officials were convinced that banks were victimized by subprime borrowers, which is hardly a pro-intervention stance.
And why did the Fed take so little interest? The real reason was that prior to the crisis, if borrowers bought more costly housing than they could afford, the losses fell mainly on them. There was enough of an equity cushion on average that the banks came out at worst only mildly dented.
In other words, readers are supposed to take Yellen’s claims at face value, when the Fed’s policy of saving banks by goosing asset prices and convincing itself that ordinary people would benefit because the “wealth effect” would lead to more consumption. The result has been widening income and wealth disparity and corporate profits at record levels as a percent of GDP, meaning workers are getting less than they’ve ever gotten.
At the Fed, Yellen is given more credit than she deserves for sounding some mild concern about rising housing prices. She’s also been cited as the best forecaster on the FOMC, but given how the FOMC failed to see the crisis coming, her “success” is tantamount to declaring her the winner of a height competition among peanuts.
In other words, Yellen was in the center to center-right of the Democratic party technocratic elite of the 1990s and never departed from conventional thinking. She’s now trying to rewrite her record by making pious statements and getting her interlocutors to focus on what she presents as her character in the hope that they won’t bother looking at her actions.
Yellen’s contention that she’s really out to help little people would be far more credible if she acknowledged her past anti-middle class policy positions and claimed that she’d made a Pauline conversion. But her institutional and political loyalties preclude that.
The Fed is the number one cause of widening income and wealth disparity and corporate profits at record levels, as I have pointed out on numerous occasions.
It is very refreshing to be on the same side of the debate as Yves Smith, possibly because her article did not go into solutions. I advocate free market solutions while Yves tends to advocate more intervention.
Regardless, Yves did an outstanding job bashing the disingenuous nature of Yellen. Her article merits a read in entirety.
Mike "Mish" Shedlock