Yellen for cheap, easy cash
Janet Yellen made history last week when she appeared before the House of Representative's Committee on Financial Services as the first female chairman of the Federal Reserve.
Appearing well versed in her subject, Yellen hit hard at any suggestion by the committee members of blocking a debt ceiling increase. Overall, she assured the committee and the world of continuity and avoided even hinting at any important change in Fed policy. Stock markets soared on her reassurances of continued easy money. Bond markets were less certain. Gold closed up, but off its peak price of the day.
As was widely anticipated, the centerpiece of Yellen's remarks was her continued commitment to the enormous cheap and easy money experiment of her predecessor, Ben Bernanke.
After praising former chairman Bernanke, Yellen said: “… Let me emphasize that I expect a great deal of continuity in the (Federal Open Market Committee's) approach to monetary policy. I served on the committee as we formulated our current policy strategy, and I strongly support that strategy, which is designed to fulfill the Federal Reserve's statutory mandate of maximum employment and price stability.”
This statement was well-received by enthusiastic stock investors. Clearly, investors were relieved to hear that the Fed saw no major problem, blaming bad weather for the recent weak job figures. Further, they were relieved as certainty was restored to the flow of cheap, synthetic money into the economy and financial markets.
Many, however, seem to be looking past the reality of the situation. Despite more than $3 trillion of Fed support, economic growth has been anemic, with about 48 million Americans on food stamps. Weak corporate revenues are also cause for concern. Meanwhile, price-to-earnings ratios have risen, largely because companies hoarding cash rather than investing in their businesses have bought back their own shares. The result has helped boost the Standard & Poor's to a level about 173 percent above its 2009 low.
These factors led certain Congressmen to raise questions of a potential bubble. In response, Yellen said, “Our ability to detect bubbles is not perfect, but looking at a range of traditional valuation measures doesn't suggest that asset prices broadly speaking are in bubble territory.”
Bond market reaction was mixed. Gold prices rose, only to fall later. This price “capping” suggested heavy Fed-led manipulation as supposedly accompanied previous tapering announcements. Yellen hit hard at the suggestion that the government should adhere responsibly to its legal debt limit.
Responding to requests for a proper audit of the Fed, Yellen said the Government Accountability Office already audits “almost every aspect of our financial affairs.” The key word there is “almost.” Who knows what huge international currency swaps the privately owned Fed has engaged in or what monies have been spent on stock and gold market manipulation? Most importantly, who knows how much gold is left in Fort Knox or who are now the beneficial owners?
Yellen assured markets of continued monetary stimulus without a full Fed audit. Citizens should hope she knows how to deal with the unraveling.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Contact him at firstname.lastname@example.org.