Yellin' for Yellen: We Must Have Fallen Asleep And Woken Up In 2006

Tyler Durden's picture

Submitted by F.F.Wiley of Cyniconomics blog,

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. Justin Wolfers’ endorsement of Yellen was typical:

Yellen is quite simply more qualified for the job than any of her predecessors. She’s an imaginative and technically adept economist possessed of a brilliant and precise mind. … Tonight, I feel reassured that my daughter’s economic future is in good hands.

With such enthusiasm on display, it’s worth turning back the clock and remembering attitudes about Fed leadership in the Alan Greenspan era. Here’s an example from outgoing Chairman Ben Bernanke’s legendary idol, Milton Friedman, writing in 2003 (emphasis mine):

Fifteen years ago … I wrote, “No major institution in the U.S. has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public recognition.” [T]hat judgment is amply justified for the first seven decades or so of the Fed’s existence. I am glad to report that it is not valid for the period since … Sometime around 1985, the Fed appears to have acquired the thermostat that it had been seeking the whole of its life.

And here’s Bernanke in 2004, concluding a speech about the so-called Great Moderation:

I have argued today that improved monetary policy has likely made an important contribution not only to the reduced volatility of inflation … but to the reduced volatility of output as well. … This conclusion on my part makes me optimistic for the future…

We heard sentiments such as these repeatedly until 2008. Outside of recessions and financial crises, economists have shown a habit of complementing the Fed’s leaders (self-congratulations for those at the Fed), while they rally around the story that contemporary policies are:

  1. A major improvement on past failures
  2. A huge success in stabilizing the economy

Another feature of the public discussion was a disregard for dangers that eventually shattered the Great Moderation. Greenspan stated in 2004 that “outright declines in mortgage debt seem most unlikely.” Bernanke argued in 2005 (with more than a little ignorance of housing market history) that house price declines were a “pretty unlikely possibility … we’ve never had a decline of house prices on a nationwide basis.” We heard similar dismissals of credit and asset market risks right through the housing boom.

In hindsight, Friedman’s picture of successful, post-1985 central banking was a chimera. Whatever analysis prompted him to condemn the Fed’s first seven decades should rightly yield the same conclusions about more recent decades.

That’s worth thinking about for a moment.

The intellectual father of the Fed’s easy money and asset inflation policies was grossly mistaken about their effects, and yet, now we’re told to feel “reassured” once again by the Friedman/Greenspan/Bernanke approach. Or, more precisely, a mutated version that’s staunchly supported by über-dove Yellen and characterized by ZIRP, QE, forward guidance, tapering, untapering, potentially retapering and more.

We’ve presumably entered a brand new period of policy acumen, just after Friedman’s assessment of the Fed’s poor performance stretched from seven decades to over nine by any objective analysis.

Does anyone else see something wrong with that picture?

Galbraith may have said it best

You may wonder, as I do, how to understand exuberance about the Fed’s future leader.

We can turn to the late John Kenneth Galbraith for one possibility, based on personal incentives. Galbraith argued: “In any great organization it is far, far safer to be wrong with the majority than to be right alone.” He may have been referring to somewhat centralized organizations, but the same thing can be said of economists in general. I’m reminded of a 2009 investigation by the Huffington Post, in which Ryan Grimm concluded:

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession.

In other words, the Fed’s vice-like grip on economics may be just as powerful as the C-suite of any corporation. And economists pander to the Fed’s leaders just as naturally as corporate managers brownnose their superiors.

Too cynical an explanation for Yellen’s welcome, you say? Okay, let’s walk it back slightly. I’ll accept there’s no way of knowing if economists’ comments are heartfelt or not. I suspect they probably were in Wolfers’ case, although not in all cases. In any event, I don’t feel any better about the latest instance of economics groupthink.  And once again, there’s a Galbraith quote that may explain my unease, this one a shortened version of his argument above.

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.”

(Note – I can’t help defending Paul Volcker’s chairmanship from Friedman’s criticism. Friedman’s griping during Volcker’s 1979-87 stint at the Fed was well off the mark, as shown by a remarkable string of forecasting errors not to mention his flawed conclusions about post-1985 policies.)

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LawsofPhysics's picture

"The key to destroying a currency is not letting folks know that you are going to destroy the currency.  At least not until you have secured your own private island first." - Ben Bernanke.

VD's picture

here is the sane view on this insane fucking central bank and the new money printing sociopath chairwoman:



Zer0head's picture


i now understand the expression marbles in your mouth


AlaricBalth's picture


Speech to the First Annual Conference of the Risk Management Institute
By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco
For delivery July 5, 2007,


"To sum up the story on output, real GDP appears to have advanced at a modest rate in the first half of this year. My best guess is that the pace will pick up a bit in 2007 to a rate just below potential, as housing’s negative effect eases up enough to offset the expected modest slowdowns in consumption and exports."

And we all know what happened a couple of months after she gave this speech. The Great Recession officially started in Dec 2007. Yellin made many similar speeches on the run up to December.

I understand that the people have been propagandized into believing that "no one saw it coming". But many good analysts including a few featured here on ZH did see it coming. Therefore, if she is the best that can be offered to head the Fed, we are severely screwed.  

I have frequently said that ivory tower economists are not scientists, but high priests of a monetary religion.  Now I feel I must elaborate and amend that belief.  It is more than a religion.  It is a cult. A  "a deviant religious organization with novel beliefs and practices, but often without a clear or consistent definition."

Manthong's picture

Dante wrote a poem about where we have woken up.

.. and here is where their "religion" of science, control and prediction started:

AlaricBalth's picture

"Because the usurer holds to another course, he denies Nature, in herself, and in that which follows her ways, putting his hopes elsewhere."

Dante's Inferno Canto XI:94-115

TeamDepends's picture

No man is an island, Ben.  These scum-suckers are counting on the masses rioting and pillaging when fiat goes tits up.  But can you imagine the infighting when these cockroaches scurry underground into their bunkers?

Theta_Burn's picture

 "The appropriate policy response is not to bridle financial intermediation with heavy regulation. That would stifle important advances in finance that enhance standards of living. Remember, prior to the crisis, the US economy exhibited an impressive degree of productivity advance......Adequate capital and collateral requirements can address the weaknesses that the crisis has unearthed."

Alan whatdidIjustsay Greenspan

LawsofPhysics's picture

Mind if I have a look at the collateral motherfucker?  Tick tock bitchez...

MilleniumJane's picture

I wonder if she'll be giving a 60 Minutes interview like Bennie-Boy did after the crash.

Public relations, ya know?

Bearwagon's picture

Well, 2006 we were heading right into a well known crisis - so this could be about right.

asteroids's picture

If this woman is such a genious then why didn't she vote against the Maestro and the bearded wonder eh? It takes integrity and guts to stand up for your principals. It appears she has neither. At the first sign the FED makes a policy mistake, they'lll be on her like a pack of dogs.

HelluvaEngineer's picture

I'm delighted because it means all of this bs will crash and burn sooner rather than later.

Spastica Rex's picture

Wasn't she in the original Star Wars?

ParkAveFlasher's picture

That's one freaky-deaky Star Trek-class galactic 70's witch.  Get me an amber ashtray and a cocktail, and a lava lamp.

NoDebt's picture

In the bar scene?  Sounds like a job for WB7.

Shizzmoney's picture

Monetary Policy wise, she is the same as Larry Summers.  The only reason why Larry was favored over her by Wall St is because Larry also loves him some corruption and fraud.


Eireann go Brach's picture

Yellen's confirmation ensures that QE will be in place for Obama's whole presidency, thus ensuring his presidency is nothing but a fucking illusion, where everything has been papered over and hidden by printed money!

If there is any justice in the world, the whole house of cards will tumble down before the end of his reign, so the world can see the fucking con artist for who he is!

Billy Sol Estes's picture

Circle Jerk, much like academia.

Jim B's picture

Agreed, a complete media echo chamber!

Stoploss's picture




kito's picture

the u.s. debt will be swellen with yellen!!!! 

Atlantis Consigliore's picture

EZ Janet, shes our guy, print it print it, AY YI YI!!!

anybody wanna buy any houses, bonds....?   ANYONE. 

Iam Yue2's picture

Justin Wolfers - what a tosser.

The overwhelming endorsement of Yellen represents nothing more than a fanfare for the incompetent, tame and compliant, highbrow, chattering classes, who seek to compensate for their own lack of courage, insight and
acumen, through projecting their own aspirations, hopes and dreams upon a fellow economist. If they all shout, collectively and loud enough, then we all might just be fooled into believing them.

The ship is heading for the rocks and there is going to be sweet FA that Janet Yellen can do about it. But, sssshhhhh, don't want to be seen to be railing against concensus opinion.

As for Wolfers, he knows about just as much as Yellen does about markets. Wasn't he they guy who told us all over a five year period that prediction markets were going to save the world?

RaceToTheBottom's picture

When does economics get taken over by Austrians?

Zer0head's picture

nailed it

her voice is that Star Wars Character

Jar Jar Binks


Janet Yellen


also has some facial resemblance

polo007's picture

According to Macquarie Research:

FOMC Minutes reflect optimistic growth view

Tapering remains unlikely until 2014

- Today’s FOMC minutes do not alter our view that a tapering in the pace of asset purchases is only likely to commence in March 2014 (cons = Dec. 2013). We continue to believe this will be a gradual process likely concluding in early 2015.

- While our view was not impacted by the minutes, headlines are likely to focus on an excerpt that some may interpret as suggesting tapering may commence sooner. This line reads “most participants viewed their economic projections as broadly consistent with a slowing in the pace of the Committee’s purchases of longer-term securities this year and the completion of the program in mid-2014.”

The minutes assume an optimistic 2H13 growth trajectory ...

- First, when interpreting this line and the minutes more broadly, however, it is important to keep in mind some context on the growth outlook. As we indicated in our 18 September note, Taper Delay, at the September meeting, the implied median of FOMC member annualized growth forecasts for 2H13 was ~2.5%. This was well above our own forecast at the time (1.9%) and consensus (2.2%). Since that time, however, the government shutdown has likely weighed on activity, with consumer confidence taking a significant downturn (Gallup’s measure recorded its largest weekly drop since the Lehman bankruptcy filing in 2008).

- With the Fed having already been optimistic in September and the government shutdown over the past two weeks increasing downside risks to the near-term growth outlook, reaching the FOMC’s ~2.5% growth rate for 2H appears increasingly unlikely. Given the ‘data dependency’ of the policy trajectory embedded within Fed communications, it thus appears unlikely that the committee will have the evidence needed to taper before the end of 2013.

... and do not differentiate between voters and non-voters

- Second, the minutes treat all members of the FOMC (both voting and non-voting) as equal, making it a slightly misleading signal for future policy. In particular, in the current year voting members have been far more dovish than non-voting members. Focussing on voting members’ views yields a more dovish implied policy trajectory than what the minutes indicate. On top of this, both current Chairman Bernanke and his likely successor, Janet Yellen, have consistently expressed views that reside on the dovish side of the broader committee.

- Ms. Yellen in particular indicated in a speech last March, which we summarized in a 6 March note Yellen from the rooftops, that when evaluating the trajectory of the unemployment rate the source of the decline will impact her policy preference. This matters in the current context as the entire decline in the unemployment rate since December 2012 has been driven by a reduction in the participation rate. This suggests that Ms. Yellen is more inclined to provide greater accommodation for longer, making a taper just in advance of her likely assumption of the Chair less likely, in our view.

polo007's picture

According to BMO Capital Markets:

Yellen Gets The Nod….Business As Usual

Bottom Line: It should be business as usual under new Chair Janet Yellen in 2014, with the Fed focused on returning the economy to full health. When the time comes to mop up the stimulus, however, we would expect her to be as equally determined to restrain inflation as Bernanke would have been.

The President’s nomination of Vice Chair Janet Yellen as head of the Fed was widely anticipated, and there was only a muted market response. She is widely expected to pass the Senate’s confirmation hearings, allowing her to step into Bernanke’s shoes on February 1. The news removes one source of uncertainty for investors buffeted by the fiscal impasse. Though sporting dovish credentials, Yellen is considered a pragmatic policy maker with an above average record in forecasting the economy. This should come in handy during these particularly uncertain times. Brian Belski, our Chief Investment Strategist, believes the Yellen appointment will be viewed as a seamless transition, one that should provide stability to equity markets.

While Yellen hasn’t spoken publicly about policy in months, it is widely believed she is still a strong supporter of the Fed’s QE program and forward guidance. The unprecedented stimulus is aimed at keeping long-term rates down until the economy strengthens and is closer to full employment, provided that inflation doesn’t rise much above the 2% target. Like Bernanke, her near-term focus is to reduce unemployment. However, this doesn’t preclude slowing asset purchases as the economy strengthens. Assuming the fiscal impasse ends in the next couple of weeks, we still lean towards a December tapering. (Bernanke will chair one more meeting after that on January 28/29.) Still, the Fed is unlikely to stop purchasing assets until next summer and probably won’t begin raising the funds rate until the second half of 2015.

We don’t believe Yellen’s dovish reputation is entirely deserved. She led the push to establish an inflation target in 2011. Her support for aggressive stimulus in recent years was likely warranted by the economy’s lackluster performance since emerging from the Great Recession, and by the equally subdued behavior of inflation. In other words, being “dovish” in the past four years has been the same as being “right”. When the economy eventually normalizes, she will likely refocus her attention on defending both sides of the Fed’s mandate of full employment and low inflation. As a supporter of open communication and transparency, Yellen will need to “lean toward the center” as a leader, to ensure that a solid majority of the other 18 policy makers support her views. This will be especially important when the time is ripe to unwind the unprecedented stimulus, as underscored by the rout in Treasuries ahead of the September meeting amid growing expectations of a mere slowing in stimulus.

Should the fiscal impasse continue and lead to prolonged economic disruptions, the new Chair may consider different tactics to offset the shock. This might include lowering the unemployment rate threshold that would trigger a potential rate hike (currently at 6.5%), or establishing an inflation threshold that would preclude tightening so long as inflation remained below it. Although expanding the size of asset purchases (from the current $85 billion monthly rate) could also be considered, this option seems to be losing favor, even among several Governors on the Federal Open Market Committee who are worried about longer-term risks to inflation and financial stability.

As one of the few policymakers to ring the alarm bells before the 2008 financial crisis, Yellen will likely take the Fed’s expanded regulatory role to heart. The last thing she wants is a credit crisis/asset bubble under her watch.

polo007's picture

According to CIBC World Markets:

Enter Yellen: What a New Fed Chair Could Mean for Policy

The nomination of Janet Yellen as Fed Chair, to be announced today according to the White House, and likely to be approved early in 2014, does not usher in a new era of more dovish policy for the Fed as some in markets may fear. Yellen’s FOMC voting record has matched Bernanke’s and her speeches have largely echoed the themes of her predecessor. Bonds may see a temporary boost on the appointment of Yellen to the helm (pending Senate confirmation), given her support of the Fed’s overall dovish stance. However, assuming an amicable passing of the current debt ceiling and budgetary deadlock, we see longer-term risks of a sell-off as the drag from fiscal policy eases in 2014, giving even a Yellen-led Fed justification to scale back bond-buying by early next year.

Profile: Vice Chair of the Federal Reserve, formerly Chair of the White House Council of Economic Advisers under Clinton and President of the Federal Reserve Bank of San Francisco.

No Perma-Dove: A look at Yellen’s speeches may lead some to believe that the next Fed Chair is a staunch monetary policy dove. Her emphasis on the destructive nature of long-term unemployment and the cyclical drivers of higher joblessness has highlighted the need for continued easy policy. She has also stated that the Fed’s growing balance sheet is not a roadblock to an eventual smooth exit from QE, and that there is no evidence that asset
purchases are harming financial market functioning. And as Chair the FOMC Subcommittee on Communications, she has been a driving force in formulating tools, including threshold guidance, which have been used to reinforce the Fed’s easing.

But Yellen is no easy-money ideologue. With the Fed facing the greatest downturn since the Great Depression, Yellen’s dovish views and speeches have simply hewn closely to the Fed’s overall dovish stance. A look at her voting record shows votes cast in line with the FOMC majority, including Ben Bernanke, with not a single dovish dissent since the onset of the crisis. Her lack of concern about inflation has been vindicated by the facts, with annual CPI trending below the 2% mark. And she hasn’t always been the voice for more monetary policy accommodation on the Fed. There have been episodes in her career when she has taken a more hawkish tilt, including the May 1996 FOMC meeting where she pointed to the “…need to be nervous about rising inflation”, later that year describing labour markets as “undeniably tight”.

Yellen’s Preferred Employment Indicators: One factor explaining Yellen’s support of the Fed’s easy policy is the continued stagnation in the jobs market. In a March 2013 speech, Janet Yellen identified her preferred indicators for gauging whether there has been a substantial improvement in the labour market outlook justifying a tapering in Quantitative Easing.

- Hiring as a share of employment (Chart 1, left)

- Job quits as a share of employment (Chart 1, right)

- Nonfarm payrolls (Chart 2, left)

- The pace of spending growth (Chart 2, right)

Only the quit rate, which could signal that workers are more optimistic about finding new jobs, has been trending stronger in recent months, with the remaining measures of job market health either flat-lining or softening relative to earlier in the year. So rather than a hawkish/dovish ideological slant, the cold hard fact that the US jobs market has yet to show signs of measurable improvement is likely the key factor motivating Yellen’s support for continued QE bond buying.

For now, fiscal uncertainty continues to cloud the outlook for US economic growth. But if policymakers in Washington are able to extend the debt ceiling and agree on a fiscal deal without new cuts to 2014 spending, an easing fiscal drag could see a 3%-plus pace of US growth next year. That substantial improvement in the outlook for economic activity and hiring could see the Fed begin to scale back the pace of its asset purchases by early 2014, to the surprise of many in markets who may be erroneously expecting more caution from a Yellen-led Fed.

Bay of Pigs's picture

One post with three links would be sufficient pal. None of us want to read what Banksters like CIBC think anyway.

Much like Yellen, they are all liars and theives themselves.

y3maxx's picture

Ben is too young to retire....what will he do next?

Joe Davola's picture

So many honorarium to pocket, so little time.

roadhazard's picture

MO FREE MONEY fo da "Capitalists", Yo. 

orangegeek's picture

So this Yellen is going to keep printing.  Really?


110% of GDP in debt and Yellen wants to hit the accelerator?  Really?


The Fed already buys over 30% of the debt (used to be 20%) - unless rates go higher, Yellen is going to be buying a helluva lot more that 30% of offerrings.


What a fucking shit show.  S&Ps up 1.5% on shit macros and declining earnings rates - but EPS goes up on share buy backs - accounting is bullish.  FAWK!!!!

NihilistZero's picture

Sigh...  Yellen, Summers, it made no difference.  When all roads merge into the "Multi Decaee Debt Bubble" freeway, the destination is always "Deflationary Collapse".  You can change lanes all you want (increase QE, decrease QE) you're still about to run out of road.

Mi Naem's picture

Interesting Rickards' interview on Yellen:

Rickards on Fed & Yellen: Here Comes the ‘Helicopter Money’