Wednesday, February 15, 2017

THE HUBRIS OF JANET YELLEN, THE FEDERAL RESERVE, AND CONGRESS



Janet Yellen, the Chairperson of the Board of Governors of the Federal Reserve Bank (in other words the “leader” of the Federal Reserve Bank), went before a Congressional committee on Tuesday February 14, 2017, and presented what is basically a routine report. If this report is taken at face value, everything will seem to be just fine, without a problem in sight. However, after careful examination, given our understanding of money and economics, we can conclude that Mrs. Chairperson Yellen is full of crap.

I will analyze her report, line by line, and tell you what her words really mean when taken in the context of my previous posts to this blog. She begins by painting a very rosy picture of the overall economy and job market, citing reduction of unemployment and rising wages.

Since my appearance before this Committee last June, the economy has continued to make progress toward our dual-mandate objectives of maximum employment and price stability. In the labor market, job gains averaged 190,000 per month over the second half of 2016, and the number of jobs rose an additional 227,000 in January. Those gains bring the total increase in employment since its trough in early 2010 to nearly 16 million. In addition, the unemployment rate, which stood at 4.8 percent in January, is more than 5 percentage points lower than where it stood at its peak in 2010 and is now in line with the median of the Federal Open Market Committee (FOMC) participants' estimates of its longer-run normal level.

What price stability? Has Mrs. Yellen gone to the grocery store lately? Has she been paying attention as the price of food and consumer goods have skyrocketed over the past twenty years? The cost of college tuitions and medical care, have increased exponentially over the same period of time, and they are continuing to increase at a tremendous rate. Where is the maximum employment? There are more than 45 Million Americans on food stamps, and most of them have been unemployed for quite some time US Department of Agriculture Food Stamp statistics. 

Mrs. Yellen continues by quoting several different statistics and comparing the ups and downs of the economy. The numbers are obscure enough to confuse even the most astute Congressperson. Getting past all the happy talk of the 1.5% increase in the Gross Domestic Product, she finally arrives at a discussion of monetary policy. This is where the original mandate of the Federal Reserve was found; it was supposed to be the guardian of US currency by ensuring that the US dollar retained its proper value on the world market.

Turning to monetary policy, the FOMC is committed to promoting maximum employment and price stability, as mandated by the Congress. Against the backdrop of headwinds weighing on the economy over the past year, including financial market stresses that emanated from developments abroad, the Committee maintained an unchanged target range for the federal funds rate for most of the year in order to support improvement in the labor market and an increase in inflation toward 2 percent. At its December meeting, the Committee raised the target range for the federal funds rate by 1/4 percentage point, to 1/2 to 3/4 percent. In doing so, the Committee recognized the considerable progress the economy had made toward the FOMC's dual objectives. The Committee judged that even after this increase in the federal funds rate target, monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.
 That said, the economic outlook is uncertain, and monetary policy is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to the economic outlook and associated risks as informed by incoming data. Also, changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold. While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity. I would also hope that fiscal policy changes will be consistent with putting U.S. fiscal accounts on a sustainable trajectory. In any event, it is important to remember that fiscal policy is only one of the many factors that can influence the economic outlook and the appropriate course of monetary policy. Overall, the FOMC's monetary policy decisions will be directed to the attainment of its congressionally mandated objectives of maximum employment and price stability.

Why did Congress make the Federal Reserve responsible for full employment? How is the banking system supposed to do this? Is the Federal Reserve going to call every business owner in America and demand they hire additional employees? The idea is ludicrous!!! The economy is made up of individuals; every day those individuals make choices which affect the economy. Trying to quantify every individual employment decision on a neat little graph is ultimately misleading, because the numbers will not tell the whole story.
Mrs. Yellen and the Federal Reserve have failed to carry out their most basic fiduciary responsibility, that of maintaining stability of the US dollar. The rise in prices in consumer goods, in college tuition, and in every facet of life, is a direct result of their careless stewardship of the public’s money. A person working full time and earning up to $10 an hour is not able to support themselves because the money they’ve worked so hard to earn is constantly losing its value, and this makes it appear as if prices have risen. This is how inflation works, and the Federal Reserve has been advocating for ever increasing inflation since the 1930’s.
Allow me to quote Ludwig Von Misses, one the great economists of the Twentieth Century, as he spoke out against the sort of inflationary policies favored by our banks and government.

The great inflations of our age are not acts of God. They are man-made, or, to say it bluntly, government (bank) made. They are the off-shoots of doctrines that ascribe to governments the magic power of creating wealth out of nothing and making people happy by raising the “national income” (GDP).

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