Janet Yellen Is Caught Between A Rock And A Hard Place

Tyler Durden's picture

Via Monty Pelerin's World blog,

“Caught between a rock and a hard place” is a colloquialism meant to convey that there are either no options or at least no good options left. That describes quite nicely the position that Janet Yellen has been put into.

The US (and world) economy are not growing. Ben Bernanke and his counterparts in other countries pumped like mad to hide the dysfunction. Flooding with liquidity did nothing to heal the distortions and made them worse.

In his last meeting, Bernanke began to “taper.” Ms. Yellen came into this no-win situation, made worse by Bernanke’s parting shot. I suspect Bernanke was attempting to mitigate his role in the inevitable disaster that lies ahead. He will likely claim that the economy was doing fine when he left and that was why he began to reduce QE.

The implication Bernanke hopes to convey is that the economy was just hunky-dory when he departed. If this interpretation is correct, then Bernanke is truly a loathsome person. If, on the other hand, Bernanke truly believed that the economy was fine, then loathsome is an improper description. However, that brings “stupid” into play as it is just another in a long line of examples that suggest Bernanke had little to no understanding of what was happening.

Perhaps his most famous prediction was believing the housing market was fine prior to the crash. Silverunderground reported:

In January of 2007, Ben Bernanke said, “The housing market has looked a bit more solid, and the worst outcomes have been made less likely.” His view was that the fundamentals in housing were improving, thus reducing the risk of a crash.

The graphic below provides other examples (click image to enlarge):

There is no way to stop infusing liquidity into the economy without creating a massive recession/depression. The withdrawal process is much like that of a heroin addict. It is hell, but if you get through it, you will regain your health. Jim Sinclair explains:

The idea that stimulation, even if only in form but not reality, can be withdrawn without draconian economic results is simply false. Chair Yellen is truly dedicated to full employment and is going to go into shock over the next few short months at the divergence between her economic modeling, the behavioral economic projections and the degree of economic contraction in the US. She will revert to her long standing dovish viewpoint of the mandate of the Federal Reserve and move this hyper stimulation (4 trillion) into a higher gear than before.

Mr. Sinclair is correct in his conclusion. Whether his timing is correct will be known soon.

Bernanke, attempting to avoid historical comparisons to John Law, left Ms. Yellen holding this smelly bag. His exit does nothing to absolve himself from the blame. He and his predecessor Greenspan created the monster that will devour the economy. Regardless of whether Yellen is a hawk or dove, there is no avoiding what is coming. The Bernank is to blame, although Ms. Yellen will likely make matters worse in an effort to avoid the politically unpalatable outcome.

Political reality (Obama and Democrats plummeting in polls and likely to get slaughtered in the next election) suggest that Ms. Yellen has little time to continue the pretense of tapering. Her message from the last Fed meeting suggests she is laying the groundwork. The hard red line of 6.5% unemployment has been removed and replaced by some amorphous judgment call pertaining to economic conditions.

Ms. Yellen’s reversal will be hot on the heels of the first set of bad economic data. Markets, if they can hold out until then, will probably continue to rise after the policy change becomes public.

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LetThemEatRand's picture

Yellen -- hmmmm, do I print and give money to my banker overlords, or...  Yeah, that.

prains's picture

I wonder if he owns a Nail Gun?

Osmium's picture

I sure hope he does, if not, he can borrow mine.

SAT 800's picture

Yeah, I have one he can use too. Really the title says it all for this article. Either way they blow it up; it'll be good for gold and silver; which is why they're so interesting as the main savings mechanism for a family or a person.

free_lunch's picture
The truth is out: money is just an IOU, and the banks are rolling in it.
The Bank of England's dose of honesty throws the theoretical basis for austerity out the window: http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-ban...
Kirk2NCC1701's picture

Scary visual, but Yellin might be caught between Ben's... _ock and a hard place.

Now matter which way she moves, she's screwed and we get stuck with the mess.

toys for tits's picture

Explain again how she suffers.  


She has a highly paid job and will be wealthy forever... unless she doesn't convert some of her paper for PM's anyway.

prains's picture

she suffers from migraines as her face transplant onto a giant q-tip has not completely taken

Waterfallsparkles's picture

Better than stuttering, stuttering, crooked finger, with hands always in a praying position. Or the quivering lip blue beard.

RafterManFMJ's picture

It's quite strange how all out upper echelon Politicos and such do 'speaking tour' of the Kindom of Saud where they are paid hundreds of thousands, or even millions for their valuable speeches.

But none dare call it treason.

UselessEater's picture

treason, treason, treason - I'm so sick of reading the "they're-stupid-don't-know-what-their-doing line", it crops up everywhere and distracts people from the fact these appointees have considerable intellect and resources to make informed decisions, instead they are conspiring to impoverish the many for a small few.


mvsjcl's picture

It's such a transparent ploy--also the "autobiographies" and "memoirs"--as to be truly sickening.

SAT 800's picture

That picture of Benny is really something. What a character; it looks like he's trying out for a "what me worry" cover for MAD magazine.

Waterfallsparkles's picture

If you look closely it looks like he has a gold tooth in the back.  Who said he does not like gold.  He hides it well in his teeth.

drendebe10's picture

"There ain' nuthin uglier than an old white woman."  Fred Sanford 

Event Horizon's picture

Michael Pento complteley erased form a CNBC segment... 


Pento: “First, let me just say this is the first time such an event has ever occurred.  But I’m confident about this, the idea didn’t emanate from CNBC’s headquarters.  It had to come from those who have an interest in maintaining power by making sure the public is kept as uninformed and apathetic as possible.  

But to answer your question, I think it was the fact that I laid out the math behind a sovereign debt collapse in both Japan and the United States.  I think so much of the quiescence in yields in the bond markets in both America and Japan depends on confidence.  



ATG's picture

Almost too late to fix America by impeaching DC


prains's picture

the solution is about as far from political as Barry is from winning a shirts off game of basketball.

ATG's picture

What is your solution then?

prains's picture

I'm not sure but I'd like it to involve BBQ sauce and nipples

SAT 800's picture

really. guts on the doorknob and brains on the windows.

Tall Tom's picture





Finance and Economics are both MATHEMATICAL DISCIPLINES.


Most Math Problems have NO SOLUTION. This is especially true in the fields of higher Mathematics.


THERE IS NO SOLUTION. In any way, method, manner, shape or form this system collapses.


We are cooked. We sit and write the requiem for a dying Nation.


So you are concerning yourself with that which cannot be fixed. You cannot DO anything about it.


But you can take measures to minimize the fallout and be optimally set up to even prosper from it. That is what you CAN DO.

Dick Buttkiss's picture

Not it you're talking about freedom.

prains's picture

I've been married 25 years so the concept of freedom varies for me

Dick Buttkiss's picture

Freedom is a means, not an end.

You apparently thought mariage was, too.

prains's picture

at the time i thought there'd be snacks, it wasn't a difficult decision

Dick Buttkiss's picture

Hunger dulls the mind. 

Hence, children.

prains's picture

Hunger dulls the mind. 


tell that to the zombies

Dick Buttkiss's picture

All they are is hunger. That's why you can't tell them anything.

Tall Tom's picture

Dissolution it just a euphemism for death...whether it be concerning a marriage or a Nation-State.


Why not give the message as cold and harsh as it deserves to be?


The Nation has bought the farm.


It is ready for the Dirt Nap.


It is as dead as someone on life support with failing kidneys and a heart that is too weak to maintain a Diastolic Pressure needed for dialysis...thus slowly poisoned.


The goose is being cooked. No more Golden Eggs are going to come from that goose.




(They are just too dense otherwise.)

buzzsaw99's picture

That yellenator is out there...

kaiserhoff's picture

This seems to be equal opportunity for idiot articles on ZH day.

The Fed has signaled a phase out of QE, and they really have no alternative.  Bubbleiciousness is showing up everywhere, and it has scared the crap out of them.  They still appear to be messing around in the repo market to hold rates down, but this too shall pass.

Mr. Yellen has no choice.  Look out below for stawks, housing, commodities and the lot.  Back to Mr. Market.  Enjoy the ride.

buzzsaw99's picture

Tapering goes out the window the first time stocks go down 10%.

kaiserhoff's picture

Could be Buzz, but what are the consequences?  The Median House costs $1 million with $10.00/hour wages?

Bernanke and Greenspan never had the balls to admit they were wrong.  Yellen doesn't have that baggage.

One thing I'm sure of, if they back off the taper they have lost all credibility and probably all control.

chubbar's picture

The consequences are dire either way. The U.S. is running a trillion dollar deficit and every country (except apparently Belgium) is either divesting US treasuries or running a deficit themselves and not in a position to buy them. Who do you think is going to have to step up to buy these? If they taper, as you indicate, what happens to the interest payments on 17 trillion in debt paper the US gov't owes on AND what happens to the housing market/economy with the sharply higher rates (not to mention interest rate swap derivatives)? We are all fucked thanks to this ponzi scheme, and taper or not isn't going to make a bit of differnce. One of the paths they take will bring us to the scene of the crash a little faster is all, not sure which one though.

CrashisOptimistic's picture

How can there be consequences?  Nearly the entirety of total QE resides as excess reserves deposited at the Fed for 0.25% return.

The Money Never Got To The Economy.  So what if they taper it.  All it will do is reduce the collateral the banks have for funding derivatives trading.

Equities may fall, but rates don't have to go up unless the economy becomes explosively powerful.  Anyone see that happening?

SAT 800's picture

You don't understand. You're talking about rates that are controlled by Central Bankers. They only partially control, or influence would be better, some rates. Other, very important closely watched rates they don't contol at all. There are not only Bank Runs in this world. but Bond runs, and currency runs; we have seen all these things before. When, rather than if; sufficient numbers of people start selling their Federal Paper it's price will go down; which is usually commented on as a "rising interest rate"; the interest rate moves inversely to the price; and the Central Bank has absolutely no control over this at all. A failing economy would be an excellent trigger for this scenario. The Dollar/ fiat currency program / is a confidence game. LIterally, and precisely that; and nothing else but that. When the confidence goes; it's game over. You might say of the Fed., for instance, "our most important product is optimism". When their sunny anouncements aren't responded to by the audience; you will see consequences.

NihilistZero's picture

+1000 Kaiser. Couldn't have said it more succinctly myself!


the question's picture

But you have to consider the possibility that they continue to monetize the debt, but just not tell us.

Tall Tom's picture

One thing I'm sure of, if they back off the taper they have lost all credibility and probably all control.


One thing that I am sure of. They have already lost all credibility and all control.



css1971's picture

I think they are going to manage the decline. The big banks have been saved and that's what the fed exists to do.

Tall Tom's picture

Let me see...Can they control China? Can they control China's Shadow Banks? Can China control China's Shadow Banks?


How are they going to "manage the decline" when they have lost control?

NihilistZero's picture


I've thought the same for some time Kaiser.  Why would the Big 4 banks destroy the fiat dollar system that empowers them?  Everytime someone brings up things like quadrilions in derivatives I laugh. What does a promise on a promise of a contingency mean in the real world?  I  think this is why you see the world retreating fork globalization WW3 is going to be an economic war with counter party risk and energy concerns coming to the forefront. Everyone seems to be retreating to or solidifying through exspansion their trading blocks because everyone knows ALL the sovereign debt will be moot.

kaiserhoff's picture

Yes, the derivatives are toast. 

Buzz has been right about bonds for four long years.  My point here is fairly modest.  This experiment has been run.  We know what QE does.  It destroys living standards and price discovery, all to save a few corrupt mega-banks that could be easily replaced at a tiny fraction of the cost.  It also allows politicians to kick the can and avoid the hard choices.   Being in a position of "power" is going to be a lot less fun;)

SAT 800's picture

It's not a rational roposition. "Why would a six year old destroy himself and the house he lived in while playing with dynamite and caps?". They'll destroy it through ignorance and a kind of divine insolence that comes from decades of insulation from reality.  They're very, very, foolish, and very, very, greedy; and way-way too big. It's not a stable situation.