Friday, March 12, 2010

The Status Quo Continues...

Obama renominated Bernanke, so no surprise here:

President Barack Obama plans to nominate Janet Yellen as vice chairman of the Federal Reserve Board, a person familiar with the matter said.

Ms. Yellen, president of the Federal Reserve Bank of San Francisco since 2004, has been a strong supporter of Fed Chairman Ben Bernanke's policies to fight the deep economic downturn.

One of the more dovish policy makers among the Fed's 12 regional bank presidents, Ms. Yellen has been a key advocate of the Fed's policy of near-zero interest rates and a massive expansion of the central bank's balance sheet, even as some regional Fed officials advocate for pulling back the monetary stimulus more quickly. ...

[S]he could face some tough questions over whether the San Francisco Fed acted aggressively enough to quell reckless banking on the West Coast, where a large number of financial institutions have failed in the last two years.

"Tough questions" indeed. Yellen has her fans, but I'm not one of them. One of the most important issues in monetary policy right now is the debate about whether the Fed should short-circuit asset bubbles in real time or wait to clean up the expensive mess. Yellen's position was clear as early as 2005, an important year in the chronology of the bubble:

This brings me to the debate about how monetary policy should react to unusually high prices of houses -- or other assets, for that matter. ...

In my view, the weight of a decision to deflate an asset price bubble rests on positive answers to three questions. First, if the bubble were to collapse on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble?

My answers to these questions in the shortest possible form are, "no," "no," and "no."

If there was any accountability for policymakers who played a role in the crash, Yellen's disastrous and date-critical underestimation of the bubble and its consequences would be enough to keep her in the Pacific time zone.


Blogger Andy said...

Janet Yellen was a trending topic on Twitter today. I covered it on my show

3/12/2010 4:36 PM  
Anonymous KAIMU said...


The Status Quo Continues...

What do you expect from politicians who base their campaign on HOPE and CHANGE?

Only one Presidential Candidate actually had the elimination of the US FED and INCOME TAXES on his platform.

3/13/2010 11:35 PM  
Anonymous goldhorder said...

Karl of my favorites...was discussing the status quo also.

The banks are no safer today than two years ago. Also in the news the IMF is going to sell another bunch of gold. China is not going to let India sneak off with the goods this time like they did in November...or so the rumor goes. I have to wonder...what is going to happen to the price of gold if India and China end up in a bidding war to buy IMF gold? LMAO. It seems like they are getting tired of taking nicely printed pieces of paper with long dead US politicians on them. I wonder why!

3/14/2010 11:24 PM  
Anonymous goldhorder said...

BTW...what about the Fed's role in creating the bublle? Let alone taking action to deflate the bubble. The Fed's low interest rate policies clearly contribute.

3/14/2010 11:28 PM  
Anonymous goldhorder said...

Missed this one... God...Allah...Zues....please save me from the cesspool of corruption I live in.

3/17/2010 1:01 AM  
Anonymous dubai escort said...

It cannot succeed in reality, that's exactly what I suppose.

5/23/2011 11:48 AM  

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