Janet Yellen

Yellen is yet another academic with no banking or business experience what-so-ever. This makes three in a row (Greenspan, Bernanke, and now Yellen). The results speak for themselves.

The future of the US economy with Chairman Yellen at the helm is grim indeed, which provides all the more reason to end our system of central economic planning by getting rid of the Federal Reserve entirely. Ripping off the bandage may hurt some in the short run, but in the long term everyone will be better off. Anyway, most of this pain will be borne by the politicians, big banks, and other special interests who profit from the current system. Ending this current system of crony capitalism and moving to sound money and free markets is the only way to return to economic prosperity and a vibrant middle class.

While they often say it is not the size (stock) of the wave (of liquidity) but the motion (flow) of the ocean, as the following chart forewarns, the diminutive Janet Yellen faces a correlation crisis before she even enters office...

There are two characteristics of a currency that make it useful in international trade: one, it is issued by a large trading nation itself, and, two, the currency holds its value vis-à-vis other commodities over time. These two factors create a demand for holding a currency in reserve. Of course, psychological factors entered the demand for dollars, too, since the US was seen as the military protector of all the Western nations against the communist countries for much of the post-war period. Today we are seeing the beginnings of a change. The Fed has been inflating the dollar massively, reducing its purchasing power in relation to other commodities, causing many of the world’s great trading nations to use other monies upon occasion. President Obama’s imminent appointment of career bureaucrat Janet Yellen as Chairman of the Federal Reserve Board is evidence that the US policy of continuing to cheapen the dollar via Quantitative Easing will continue.  As we noted before, nothing lasts forever...  (especially in light of China's earlier comments)

Hong Kong's richest are busy offloading local assets which institutions are happy to buy. It's exhibit A why institutional money often represents dumb money. 

It may seem counter-intuitive but the US dollar appreciated last week, despite the partial closure of the Federal government, the heightened risk of default and the nomination of Yellen.  The dollar can move higher next week too.  

“There is precedent for a government shutdown,” Lloyd Blankfein, the chief executive officer of Goldman Sachs, remarked last week. “There’s no precedent for default.” How wrong he is.

Pulling from an extensive record of public speeches and FOMC meeting transcripts, Goldman Sachs reviews Fed Chair-nominee Janet Yellen's views on a number of policy-relevant issues.

Stock market now held up by its one and final prop, a jerry-rigged, haphazard device with destructive side effects.

The dangerous habit of politicians and governments continually ‘kicking the can down the road’ cannot go on indefinitely. Eventually, the ramifications of this profligacy will be clear to all.

Yet another increase in the debt ceiling and the increasingly parabolic nature of the rise in U.S. government debt will be very supportive of gold in the medium and long term.

With Janet Yellen now confirmed as Bernanke Mark 2, it is time to recall that in addition to a new Chairman, four of the Fed's voting members will also rotate. And while below is the latest preview of the voting FOMC members (previously 2011 and 2012) ranked by Reuters in terms of their dovishness and hawiskness, the reality is that the peripheral Fed presidents (here we focus on the Hawks obviously) are nothing but figureheads whose only function is to be roundly ignored if and when they dissent with the new Chairman.

As regular readers know, the biggest legacy disconnect in the US banking system is the divergence between commercial bank loans which most recently amounted to $7.32 trillion, a decrease of $9 billion for the week, and are at the same the same level when Lehman filed for bankruptcy having not grown at all in all of 2013 (blue line below), and their conventionally matched liability: deposits, which increased by $60 billion in the past week to $9.63 trillion, an all time high. The spread between these two key monetary components - at least in a non-centrally planned world - which also happen to determine the velocity of money in circulation (as traditionally it is private banks that create money not the Fed as a result of loan demand) is now at a record $2.3 trillion.

U.S Government would rather default than lose their bullion.

After reading the coverage of Janet Yellen’s Fed Chair nomination yesterday, it feels as though it’s 2006 all over again. Confidence in our central bankers seems to be approaching all-time highs, little more than five years after it collapsed alongside the financial sector. The overwhelmingly positive response to Yellen’s nomination is worrisome because, well, it’s overwhelming positive. As Galbraith once astutely observed: “In economics, the majority is always wrong.”

• The ice breaks; fiscal talks set (The Hill); Ryan steps up to shape a deal (The Hill), as predicted here yesterday
• Republicans consider short-term U.S. debt ceiling increase (Reuters)
• Shutdown Standoff Shows Signs of a Thaw (WSJ)
• JPMorgan Clients in Cash as Schwab’s Options Hedge Default (BBG)
• Mitch McConnell, Senate GOP search for way out (Politico)
• Meredith Whitney Winds Down Brokerage Unit After Setting Up Fund (BBG)
• Washington Budget Chaos Keeps Fed Rates Low for Longer (BBG)
• Chinese Premier Outlines US Debt Concerns (FT)
• Saudis brace for 'nightmare' of U.S.-Iran rapprochement (Reuters)
• Obama Urges Action on Yellen’s Fed Nomination (Reuters)
• Libyan Prime Minister Ali Zidan Freed After Kidnap (WSJ)