This page has been archived and commenting is disabled.

Janet Yellen, a 'White Dove'?

Sprout Money's picture





 

While the heads of many investors are spinning these days – because of the record levels of the markets on the one hand, and the explosive evolution of bitcoins on the other hand – they are losing sight of the most important development in monetary history. A woman is about to take the lead of the most powerful central bank in the world. For many market watchers, this development can be considered a blessing for the financial markets. Finally some peace in the financial household!

Alas. We will need to disappoint you. Yellen was and is the right hand of Bernanke. Even more, she was at the root of some of the more unconventional measures taken by the central banker when the financial crisis hit in 2008. Lowering the short-term interest rates to almost zero percent, for example, or buying back government and real estate debt from banks, better known as ‘Quantitative Easing’. Those measures were put in place to make sure the United States’ impressive mountain of debt didn’t implode under its own pressure. The goal was to avoid a depression like the one we experienced in the 1930s, but the core of the problem – the debt burden – has not been dealt with. The problem was displaced … to the Fed’s balance sheet.

Fed Base Bernanke Yellen

The above chart, the Fed’s monetary base, screams more than a thousand words. And although Bernanke carries the responsibility, it is mostly Janet Yellen that delivered this result. If you look closely at the chart, by the way, you will see that the Fed’s balance sheet is blowing up fast. This is the result of the new, goal-oriented QE: the Fed will only tighten its monetary policy when certain goals are met. At this point, these goals mainly include an unemployment level below 6.5% and inflation to be above 2%. As long as neither of them are reached, the Fed is not going to stop its accommodative policies. Even tempering QE (tapering), which is something that a lot of market watchers pointed out as a possibility in recent months, would not be on the agenda.

Even more, we are expecting the buyback program to pick up speed more than anything else. Not only is the Fed not attaining its current targets, but also the market is going to test Janet Yellen in 2014. Most newcomers to the job of Chairman of the Fed have to go through this. However, 2014 is going to be a more turbulent year than 2013 as well. More volatility in combination with (strong) corrections will push the leading lady of the Fed out of her comfort zone.

Although she will be new to the job, Janet Yellen will surely stand her ground. The expected reaction from the Fed’s top exec could bring a whole new dimension to the monetary policies of the Federal Reserve. Janet Yellen was not afraid to color outside the lines in her proposals already. So there is no doubt in our minds that she will continue to do so when it is necessary. And what might that look like? Well, it has been described in many studies that extreme conditions sometimes call for extreme measures. A stock market crash can be moderated by direct purchases from the Fed, for example. In the United States this is still considered as an extreme measure, but in Japan, the central bank is already applying this tactic to the financial markets for months through supporting and buying listed stocks and ETF’s.

Another measure we are reading more and more about these days is the negative deposit rate. If the Fed would implement this, banks would be forced to make their reserves work for them, and pump excess capital into society through new loans and financing. However, the banks are not excited to do this of course. They are still licking their wounds and quite comfortable in their current position – borrowing at almost zero percent and investing in risk free government bonds with an interest rate of a few percent. Yellen will probably not change a lot about this situation, however. Many people forget the shareholders of the Fed are private banks in the US, not the government as is the case in Europe.

Finally, there remains the direct injection of money into the economy by the Federal Reserve. The image of Bernanke’s helicopter, with which he has been associated for the last few years; figuratively dropping dollar bills from helicopters, referring to a statement from Milton Friedman. This means that citizens are literally being rewarded to stimulate the economy. Now they are pumping fresh dollars into the banks, but those dollars are not going anywhere (for now), which causes a delay in the economic impact. If the people, however, got the money directly, the possibility of spending and stimulating the economy increases. It wouldn’t surprise us if Yellen takes monetary policy to that level, as she has always been in favor of giving a voice to the people. This would not be a United States first, however, as former president George W. Bush gave every American family a check after the crisis.

Ultimately, Janet Yellen can be considered a champion of accommodative monetary policies aimed at avoiding another economic depression. All necessary means will justify the cause. While Bernanke is considered more as a conservative dove always trying to keep all parties satisfied, Yellen comes across as a more decisive dove that wants to shine in the monetary arena during her term. So please hold on for unconventional and new measures from the Fed. The other side of the coin, however, is that these measures will sooner or later get out of hand, with the necessary consequences for the financial markets and your capital. Please take timely precautions when it comes to reckless monetary measures and policies.

Prepare & Download Sprout Money’s Free Guide to Gold

 

Sprout Money offers a fresh look at investing. We analyze long
lasting cycles, coupled with a collection of strategic investments and
concrete tips for different types of assets. The methods and strategies
from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 12/09/2013 - 10:51 | Link to Comment squid427
squid427's picture

If they had given the QE money directly to the people the situation would not be improved. It would cause horrible inflation.

INFLATION IS NOT ECONOMIC GROWTH! INFLATION IS NOT ECONOMIC GROWTH! INFLATION IS NOT ECONOMIC GROWTH!

INFLATION IS NOT ECONOMIC GROWTH! INFLATION IS NOT ECONOMIC GROWTH! INFLATION IS NOT ECONOMIC GROWTH!

Sun, 12/08/2013 - 23:08 | Link to Comment q99x2
q99x2's picture

Janet Yellen is ugly. She missed her calling as an exterminator or maybe she didn't. Anyhow, she is still ugly. Nasty witch to fat for a broomstick.

Mon, 12/09/2013 - 01:45 | Link to Comment All Risk No Reward
All Risk No Reward's picture

You can expect whatever she's told to do by her MASTERS...  Biggest Finance Capital.

Do you people read at all?

"It must not be felt that these heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called "international" or "merchant" bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks. This dominance of investment bankers was based on their control over the flows of credit and investment funds in their own countries and throughout the world. They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans, the discount rate, and the re-discounting of commercial debts; they could dominate governments by their control over current government loans and the play of the international exchanges. Almost all of this power was exercised by the personal influence and prestige of men who had demonstrated their ability in the past to bring off successful financial coupe, to keep their word, to remain cool in a crisis, and to share their winning opportunities with their associates.
~Carroll Quigley, Tragedy and Hope (Council on Foreign Relations Insider Researcher)

Read the whole chapter...  learn something so you don't come off ignorant that there is a false narrative put out to trick the chumps.

http://real-world-news.org/bk-quigley/07.html#19

 

Sun, 12/08/2013 - 23:14 | Link to Comment the grateful un...
the grateful unemployed's picture

hi handsome do you post here often?

Sun, 12/08/2013 - 23:02 | Link to Comment the grateful un...
the grateful unemployed's picture

she has to fall on her sword instead of handing it back

Sun, 12/08/2013 - 23:09 | Link to Comment the grateful un...
the grateful unemployed's picture

she is no Lady in the Lake, and no Joan of Arc, certainly, maybe she is Toyko Rose... at least Toyko Rose told the GIS the truth

Sun, 12/08/2013 - 21:42 | Link to Comment WTFUD
WTFUD's picture

A puffy smelling Cunt, I guess!

Sun, 12/08/2013 - 23:14 | Link to Comment the grateful un...
the grateful unemployed's picture

did someone give you a green arrow for the C word?

Sun, 12/08/2013 - 21:30 | Link to Comment Eric L. Prentis
Eric L. Prentis's picture

If the Fed does not taper in December—that is tantamount to the Fed admitting the 2008 credit crisis is ongoing—and they have failed.

Mon, 12/09/2013 - 11:22 | Link to Comment marathonman
marathonman's picture

They haven't failed.  They have kept alive the TBTF banks, kept alive the Federal leviathan, and enriched their shareholders under extremely difficult market conditions.  For the Fed - it's Mission Accomplished.

Too bad in the interrim, they exposed that our monetary system is a Ponzi scheme, that there is no real distinction between the political parties of the US, and our military is pretty much a mercenary force for Goldman Sachs.  Unintended consequences of the Crisis of 2008.  Sometimes you have to scramble a few eggs to make an IMF SDR omelette.

Mon, 12/09/2013 - 09:49 | Link to Comment eclectic syncretist
eclectic syncretist's picture

Definitely true, but will the market realize it?  That the Fed has failed to solve the financial crisis is obvious to anyone who takes the time to consider what they've done and where we are, but them admitting they have failed is another thing altogether.  Naturally, Bernanke's massive ego is telling him to taper so that he can declare victory on his way out the door, just like Greenspan did with his series of 0.25% rate increases as he completed his term, before handing the mess he created off to Bernanke.

Sun, 12/08/2013 - 20:52 | Link to Comment blindman
blindman's picture

http://www.youtube.com/watch?v=m0G9F-Bwago
Rowan & Rice "White Dove"
.
http://www.youtube.com/watch?v=1Cin0QzuEss
White Bird- It's A Beautiful Day -1968
.
"white bird in a golden cage
on a winters day in the rain..."

Sun, 12/08/2013 - 19:53 | Link to Comment AngelEyes00
AngelEyes00's picture

The same players that orchestrated the bail out in 08/09 are probably the same one's that pushed her name forward to replace Bernanke.  What came first, the chicken or the egg?  In other words the powers at hand put in place someone to perpetrate their needs; continued QE.   

Sun, 12/08/2013 - 16:15 | Link to Comment moneybots
moneybots's picture

"Ultimately, Janet Yellen can be considered a champion of accommodative monetary policies aimed at avoiding another economic depression."

 

How does Yellen avoid something we are already in?  We have been in a depression since 2008.  This is almost 2014.

Sun, 12/08/2013 - 16:06 | Link to Comment moneybots
moneybots's picture

" Those measures were put in place to make sure the United States’ impressive mountain of debt didn’t implode under its own pressure. The goal was to avoid a depression like the one we experienced in the 1930s, but the core of the problem – the debt burden – has not been dealt with. The problem was displaced … to the Fed’s balance sheet."

 

Has it really been displaced?  The debt is now 17 trillion and climbing.

If the goal was to avoid a 1930's depression, they should have avoided a 1920's easy debt era, not doubled down on it.

Sun, 12/08/2013 - 21:00 | Link to Comment AGuy
AGuy's picture

"If the goal was to avoid a 1930's depression, they should have avoided a 1920's easy debt era, not doubled down on it."

Not Possible! In order for politicans to win elections it requires them to offer voters. Politicians will spend OPM (other Peoples Money) until it runs out. They the borrow money and still it to other people. This has been going on since the first democracies of Greece and Roman. Ours isn't different.

 

Sun, 12/08/2013 - 19:46 | Link to Comment Papasmurf
Papasmurf's picture

Alternatively, a means to pay the debt would have been promoted by pouring capital into the bottom of the pyramid not the top.  Placed at the bottom, money velocity would have improved and GDP would have increased.  By pouring money into the top, cash has been sequestered and the economy is stagnent and about to drop precipitously into the abyss.

Sun, 12/08/2013 - 16:55 | Link to Comment OneTinSoldier66
OneTinSoldier66's picture

I suppose they should have. But they are their own tribe. And we're not in it.

Sun, 12/08/2013 - 14:14 | Link to Comment smartstrike
smartstrike's picture

It wouldn't surprise me at all if she is a 'Volker in Drag.' The austerity trump card is what the bankers and CEOs have in mind for the 99%. They've been advocating this position for years now and ran series of experiments in Latvia, Greece, Cypress and Iceland to gauge public's reaction.

So far the public reaction has been very meek and dumbasses are willing to accept it. One can read ZH here and all the pages of blogs support that assertion; and they spread lots of disinformation whom to direct blame such as the mythical state, supplemental nutrition, workers seeking a raise, Social Security, private unions and any policy that distributes anything of value to the 99%.

Further the dumbasses think that the rich want to print money forever....no they don't. They want to keep what they got and make 99% pay for everything so that they can keep it.

They would never do a money helicopter drop, they'll roll up the sidewalk and close the Fed.

Sun, 12/08/2013 - 14:48 | Link to Comment Papasmurf
Papasmurf's picture

There's no reason to do a helicopter drop.  The QE's have been accomplishing the intended goal of sweeping assets to the top.  If $85B/month had been sent out in monthly checks to every household, the economy would have recovered long ago. 

Sun, 12/08/2013 - 23:07 | Link to Comment the grateful un...
the grateful unemployed's picture

theres always the possibility that the helicopter drop to REAL americans will commence, (as Hussman said recently the Fed is now making FISCAL policy) but i think Yellen would stop short of that measure, thus leaving us confounded which is where we always end up.

Sun, 12/08/2013 - 14:46 | Link to Comment ebworthen
ebworthen's picture

Yellen is just another monkey banging on a keyboard.

Sun, 12/08/2013 - 13:32 | Link to Comment monad
monad's picture

theft by fiat

Sun, 12/08/2013 - 19:25 | Link to Comment Debeachesand Je...
Debeachesand Jerseyshores's picture

No,theft by BailIn.

Sun, 12/08/2013 - 13:24 | Link to Comment Zynga
Zynga's picture

Who will eat the sins of the sin eaters?

Sun, 12/08/2013 - 12:51 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

I cried when Old Yellen died....

Sun, 12/08/2013 - 14:13 | Link to Comment Dick Buttkiss
Dick Buttkiss's picture

Yeah, that bitch was hard on the eyes but easy on the wallet. Mine's fairly bursting with single ply.

Sun, 12/08/2013 - 12:09 | Link to Comment Coldfire
Coldfire's picture

What can we expect from Old Yellen? Well let's hope it does not involve any form of tongue-punching. ::shudders::

Sun, 12/08/2013 - 11:49 | Link to Comment Cycle
Cycle's picture

The Fed has already lost control of long term rates, as of April, 2013. Bond dealers have been front-running the Fed during QE(n+1) and will continue to front-run the Fed if it tapers bond buying. This puts Ms. Yellen in a dilemma: continue to blow the Fed balance sheet bubble - which has already engendered many doubts about how it will be reversed, hence the rising long term rates...or begin to taper or even reverse bond buying, which will most definitely raise rates at an even faster clip. The results will not be pleasant over the next year, whichever way the Fed moves.

Sun, 12/08/2013 - 11:39 | Link to Comment blindman
blindman's picture

Key Largo - Public Enemy scene with Film Score
http://www.youtube.com/watch?v=kGCTZsvp6lU

Sun, 12/08/2013 - 19:09 | Link to Comment Manthong
Manthong's picture

..more like "cooked goose" from the moment she waddles in.

Sun, 12/08/2013 - 20:26 | Link to Comment OutLookingIn
OutLookingIn's picture

Everyone is so busy dancing around and around to the music, while keeping their eyes on everyone else, that they don't notice that there are NO CHAIRS! When the music stops it will be time for everyone to pay the band.

Do NOT follow this link or you will be banned from the site!