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Yellen not reassuring choice as Fed chief

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Saturday, Oct. 26, 2013, 9:00 p.m.
 

The chairman of the Federal Reserve Board is probably the world's most important job.

The central bank can influence economies around the world by manipulating interest rates and regulating the supply and purchasing power of the dollar, the international reserve currency, which is used for global trade and held by more than two-thirds of foreign central banks because it is believed to be strong and stable.

Earlier this month, President Obama nominated Janet Yellen to replace Ben Bernanke in this role. Investors, business people and politicians throughout the world will try to evaluate what changes, if any, Yellen likely will bring to Bernanke's policies.

When the Fed was authorized in 1913, Congress gave it a dual mandate: Protect the strength of the dollar and — unlike central banks elsewhere — ensure full employment. The first was a financial goal. The second helped politicians win elections. Often the two conflicted.

Over the remainder of the century, the political goal overwhelmed the financial goal as the dollar lost some 97 percent of its value. In recent decades, this reduced the living standards of American workers while benefiting politicians, owners of real assets and financiers.

Yellen's three immediate predecessors — Paul Volcker, Alan Greenspan and Bernanke — all began their Fed chairmanships as what is known as “sound money” men. They believed in a strong dollar. Backed by the strong money President Reagan, Volcker held to his principles. Persuaded by politics, Greenspan and Bernanke adopted the debt-fed economic growth through quantitative easing, the printing of synthetic currency and currency-debasing policies of British economist John Maynard Keynes.

In 1933, Treasury debt stood at $4.9 trillion. Twenty years later, it is more than $17 trillion, nearly 3.5 times as much.

During the great Greenspan/Bernanke asset booms, wealth — of those rich enough to own real estate, stocks, bonds and precious metals — mushroomed. Meanwhile, the standard of living of most ordinary Americans eroded markedly. Single-job families became two-job dependent to get by.

Bernanke used the nation's credit to save the “too-big-to-fail” banks. No major financial leader was arrested for the widespread frauds.

In an excessively indebted economy, Bernanke's quantitative easing of $85 billion a month in bond purchases has provided only tepid economic growth. The activity has become so bad that even within the Fed there is strong disagreement.

Unlike her immediate predecessors, Yellen is an avowed Keynesian from the start. She believes that just 12 people should regulate the price and supply of international Reserve Currency for the more than 7.1 billion people in the world. Furthermore, at her acceptance, she reaffirmed her belief in the controversial dual mandate.

Yellen's appointment promises increased Fed distortion of money and markets. It is unlikely to end well.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Contact him at johnbrowne70@yahoo.com.

 

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