Despite her Keynesian’ shortcomings it is difficult to vilify Federal Reserve Chair Janet Yellen. After all, when Yellen took over Bernanke already had ultra-easy experimental monetary policies in place. Moreover, Yellen, for the most part, hasn’t said or done anything shockingly absurd…at least until recently.
First, consider the following thought Yellen shared a few months ago when discussing the next financial crisis (or lack thereof?):
“Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not [happen] in our lifetimes and I don’t believe it will”
Obviously this bold statement will be tattooed on Yellen’s legacy should (and more likely when) the next financial calamity comes around a corner and shocks policy makers. And while Yellen could have left the building with these comments, she decided to double-down last week.
$20 trillion national debt “should keep people awake at night”
10-days after she submitted her resignation and after nearly 4-years of doing absolutely nothing to try and decelerate the U.S. government’s rapid accumulation of ‘cheap’ Fed-supported debt, Yellen, one of the most influential policy makers in the U.S., has become a debt hawk? Wow. Finally, and perhaps most shocking, Yellen offered the triple-down (C-SPAN):
“We want to do this [raise rates] gradually, because if we allow the economy to overheat, we could be faced with a situation where we might have to rapidly raise rates and throw the economy into recession. We don’t want to cause a boom-bust condition in the economy.”
So, after the most aggressive period of monetary madness the world has ever seen, Yellen says the Fed does not “want to cause a boom-bust condition in the economy”?? Since 1Q09 U.S. household net worth has increased by more than $41 trillion and during her tenure alone Yellen has stood idly by and watched net worth skyrocket by $17.3 trillion (or roughly $1.24 trillion for every quarter Yellen was in charge). Given that these figures make the unprecedented 1990s ‘boom’ look tiny, someone should explain to Yellen that the ‘boom’ part of her ‘boom-bust condition’ is in full raging-boil right now. In fact, unless you believe in new paradigms, the pace of the current asset/debt boom makes a ‘bust’ ending inevitable.
Suffice to say, and at risk of belaboring this oft made point, just because the CPI index isn’t skyrocketing doesn’t mean ‘inflation’ (in say equities or debt) should not be a serious concern for policy makers. Traditional inflationary readings have not been the primary cause of any serious economic or financial crisis since Volcker was Fed boss, and yet the last two meltdowns almost tore the entire financial system completely apart.
With this in mind, that Janet Yellen has the audacity to even suggest that the Fed is concerned about a ‘boom-bust condition’ or that another crisis will not happen in her lifetime is laughable. A la Bernanke’s ridiculously wrong “contained” sentiments before the last crisis, Yellen has provided enough material that the jinx is in place. The only question is which quote(s) will stand the test of time.