Plenty of ink has been spilled lately brooding over who’ll be the next Fed Chairman when Ben Bernanke’s term concludes on January 31, 2014. Here at the Economic Prism we really don’t give a rip who the next monetary Caesar is. Still, there’s intrigue in the unknown…
We find delight in the spectacle of it all much like a child finds delight watching a circus performer balance a grocery cart on his chin. We watch in awe of the popular madness over a job that shouldn’t exist to begin with. Why do we need a bureaucrat fixing the price of money anyway?
Certainly, the world would be a much better place without all the distortions their rate suppression schemes produce. But we don’t live in a world of what should or what ought to be…we live in what is. So, thus, in the spirit of constructive mischief, we’ll pause to add some of our own scribbles to the voluminous body of cogitations.
The burden of today’s missive will likely fall squarely on one of two sets of round and droopy shoulders. As best we can tell, those shoulders belong to either a Summers or a Yellen. Neither appears to be up to the task of returning reverence and trust to the dollar.
But who will make a bigger mess of things? Quite frankly, it’s hard to tell. We’ll start with a look at Larry Summers…
Cold Breakfasts at Harvard
“People know Larry Summers, and Larry Summers is someone who tends to say what he thinks, who thinks he is the smartest person in the room, and that makes market participants very nervous about what he would do at the Fed.” – Julia Coronado, chief economist at BNP Paribas, former Fed staffer.
It’s near impossible for a total moron to blow big money. To succeed at such a feat you must be a genius. Moreover, to blow massive amounts of other people’s money you must be the smartest guy in the room.
While a total moron may squander his family inheritance at the craps table in an Indian Gaming Casino…or, perhaps, he’ll run up the legal fees on a string of failed marriages…you never hear of a total moron losing $2 billion dollars of other people’s money making recklessly bad bets on interest rate swaps. It’s only the smartest guys in the room – like Summers – who are capable of pulling off such a feat.
For example, while President of Harvard University, explains naked capitalism, “Summers insisted on gambling with the university’s operating funds, which are the monies that come in every year (tuition and board payments, government grants, the payments out of the endowment allotted to the annual budget). His risk-taking left the University with over $2 billion in losses and unwind costs and forced wide-spread budget cuts, even down to getting rid of hot breakfasts.”
Naturally, we don’t want the guy that’s so smart he lost hot breakfasts for Harvard to be fixing the price of money and credit. But is Janet Yellen any better?
Beardless Ben and Bad Bet Summers
Janet Yellen has held various positions with the Federal Reserve over the last 20 years. We don’t really know much about what she’s done there. But, at a minimum, she’s guilty by association of participating in an era of unprecedented Fed activism.
Certainly, she’s spent some time over the years squinting at aggregate demand graphs and charts and contemplating how monetary policy can be twisted to boost demand. We don’t know this for sure…but we do know she thinks monetary policy is a moral issue.
In fact, back in 1995, at a Federal Open Market Committee meeting, Yellen argued in favor of allowing inflation to exceed inflation targets for moral reasons…
“Ms. Yellen told the committee that ‘the moral’ of all this is ‘that the Fed should pursue multiple goals,’” recounts the Economic Policy Journal. “She said that ‘when the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target.’”
Remember, inflation acts as a hidden tax on savers. It devalues the purchasing power of their accounts. Ask any retiree living on a fixed income or a hardworking prudent individual skimping to squirrel away some nuts for retirement. Policies of inflation are not moral and humane…they are deceptive and theft.
Nonetheless, to money printers par excellence, like Yellen, savers are to be squeezed and banks are to be saved. In other words, in practice, Yellen will be just like Bernanke…but without the beard. If she becomes Fed Chairman a currency crisis is virtually guaranteed.
Thus, you see, these are the choices: Bad Bet Summers and Beardless Ben. We haven’t seen picks this bad since the last presidential election.
for Economic Prism