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The idea that stimulation, even if only in form but not reality, can be withdrawn without draconian economic results is simply false.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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booboo's picture

Two of the biggest crime syndicates in recent history joined forces to make the baddest assed nut kicking action flick of the decade. The Chicago Machine and The Federal Reserve in "SNAKES ON A MOTHER FUCKIN FLYING MOB OWNED ATM"

Coming to a theater near you October 2016

Malachi Constant's picture

A war is absolutely necessary right now to keep the top of the pyramid intact.

Reaper's picture

It's the stupid delusion of sheeple that either benevolent masterminds exist and/or the government can chose them. What are the credentials for a Fed Chair or voting member? At what school are these credentials earned? Would the ability to print and give away billions of dollars be corrupting? Does the Fed chair put on a magic cloak? What has Yellen ever done to show she has ability to succeed? Does delusion foster success?

EggSlayer's picture

The funny thing about the people who use the word "sheeple", is that they are normally the sheep.

Tall Tom's picture

The funny thing about the people who use the word "sheeple", is th at they are normally the sheep.


What is even funnier is when those sheep begin to detonate easy to construct BOMBS at the Oil Refineries...and shoot down the Lear Jets at the Regional Airports by targeting the engines.


Nobody will leave the party early. They will kill transportation. Then the Gated Communities will burn. They make for a good captive audience on audience participation night. The Middle Class is not as stupid as the ghetto dwellers.


Go ahead with your name calling.  Please continue.


Go autofellate spineless man.

EggSlayer's picture

SPINELESS!!! Funny. As I am the only one to challenge you people.

Tall Tom's picture

Reply to my questions about P = (1 + r)t .


Enjoy this video about how to blow airplanes out of the sky...




Of course I am not stupid as to be onboard. But there are other ways with a plethora of materials which are more easily available...FOR GROUND TARGETS.

ramacers's picture

... and now Mad Max looms.  well deserved lads and ladies.

DFCtomm's picture

Jim Sinclair imagines that there is a way to escape, and techically he may be right, but there is absolutely no political will to follow his advice. Those that attempt to will be replaced the very next election.

bardot63's picture

If you believe replacing democrats with republicans [and vice versa] will solve any problems, you don't understand the problems.

DFCtomm's picture

How many Austrian school democrats are there?

A Lunatic's picture

Tylers, check your spam filter.......

gwar5's picture

Greenspan got out before the SHTF in 2008.  Bernanke did the same thing to Yellen as was done to him.  Obamao  and Ol' Yeller are going to take the blame for the coming 'Greatest' Depression. 


Notsobadwlad's picture

If Janet Yellin is committed to full employment, then she has to be the most ignorant person in this world or the most duplicitous. She could not have failed to see that teh Fed prior actions did nothing to increase real employment.. clearly by design. That being the case, if she is actually committed to full employment then she must have deceived the handful of psycjhopaths ones who put her in her position. Her history would indiate she is not stupid ... or ingorant.

People should not be looking at the words of the Fed bosses or politicians and instaed look at their actions and the consequences of their actions. One should not assume that they are bumbling idiots who just can't get it right. It must be assumed that they are the best and brightest of this world and therefore everything is going according to plan.

There are no accidents. There are no black swams ... only swans that a corrupt group of cronies are claiming are black. 

DFCtomm's picture

I guess giant hunks of rock never hurtle out of the sky either. It's just another false flag operation, to start a war with the asteroid belt? When you speak in absolutes and deny the existences of random events you just make yourself look like a nut. 

El Gordo's picture

I sense the underlying assumption that someone somewhere in governmet wants to do the right thing to begin to restore this once great nation, but that they are just uncertain what to do or how fast to do it.  I happen to be in the camp that thinks government wants to do the right thing to complete the destruction of this nation's economy and it's middle class and to generally level the playing field.  If that is the case, and all the actions taken thus far would seem to indicate that it is, why would the Fed decide it's time to do something right?  It won't. 

TheAnswerIs42's picture

I happen to be in the camp that thinks government wants to do the right thing to complete the destruction of this nation's economy and it's middle class and to generally level the playing field.

At this stage what other course of action is possible? Leveling the playing field means reducing the standard of living so the country can compete with other third world nations.

Seems to be going according to the plan. Massive debt to keep the lid on the pot, eventually the frogs will boil to death and not even notice.

In the meantime, things will digress and the new normal will be accepted without the requisite revolution. That will take another generation or so.

It is absolutely amazing that this has continued as long as it has, but they do seem to be getting away with it.

Manipulating the MSM and buying your own government does help  though.

Enjoy the circus.


EggSlayer's picture

I don't get this hate for Bernanke. What the fuck else would you suggest that he had done? Your talking about a guy who dedicated his life to studying a great depression. Do you really think he didn't have the best intentions in mind?

DFCtomm's picture

I have no problem with that, but now he should admit that all he has been taught, and believed up to this point has been wrong. Nothing is going to change until they give up Kaynesian economics and modern money theory.  One of these guys is going to have to be brave enough to say everything we believed is wrong, and if Bernanke knows that but refuses to say it then he deserves all the criticism he gets.

EggSlayer's picture

All I ever read on here is people bitching about "Kaynesian economics", yet I have never read one comment with an actual alternative to the TARP other than a complete collapse of the financial system. I agree that QE may have not left us with great circumstances, but I just dont get people who say that Bernanke and Yellen are lying somehow. Come back with an actual alternative to what Bernanke did and I will consider your opinion.

DFCtomm's picture

Iceland. You're either down with this whole free market thing or you aren't.

EggSlayer's picture

I am down with this free market, but I am also down with living the rest of my life not having to fend for my life or scavange to eat. Nobody knows what would happen if America suffered a crisis like Iceland. The dollar is the fucking reserve currency of the world. We owe I dont know how many fucking trillions in debt. & if you dont understand the systemic importance of the firms that were bailed out you don't deserve to be commenting on this issue.


Whats wrong with trying to save what we have left and live decent lives until the shit actually does hit the fan? I mean, even if you don't make a bankers salary, I'd bet that you probably still live a pretty good life here in America. Everyone who doesn't understand the possible consequences of an American financial collapse seems so willing to throw everything they have away.

DFCtomm's picture

I do have sympathy for you. You at least realize we have a problem most don't, or don't want to know. Have you thought that the more we spend to hold off the inevitiable correction the worse it will be? 

EggSlayer's picture

Yes, but isn't it also true that if we let 2008 run its course that it could have been the end of America as we know it? If you don't understand that, then again, you do not deserve to comment on this issue.


DFCtomm's picture

It's still 2008 for the purpose of this conversation, and that's what you don't seem to be getting, but now we're trillions of dollars more in debt.

prains's picture

did you recently pull a muscle eggflayler, say in the last two weeks?

Angry White Dude's picture

Reasonable minds can disagree on whether a collapse would or would not have happened and whether it should have been allowed to.

But, FUCK YOU for saying anyone does or does not deserve to comment. I hope you get eaten by wild dogs.

prains's picture


I thought in a rah rah we're number one capitalist society the idea was to create accurate price discovery through unfettered access to the market without intervention of any kind and any twiddling of the monetary knobs led to malinvestment, misallocation, corruption, cronyism, market distortion and criminal behaviour led buy a small group of insiders.


did you see what i did there?

CrashisOptimistic's picture

I went back and upticked eggslayer guy.

There weren't a zillion options at the time.  However, of course, with my focus on oil scarcity my perspective is no action would have been effective.  So it's an easy uptick bar to get over.

Besides which, I've never seen his name here before and if it's your first time at fight club, you HAVE to fight.

EggSlayer's picture

I'm starting to like this place.

Tall Tom's picture

Ready for Project Mayhem?

css1971's picture

Well now, how do you describe America as you know it? TARP essentially defines America as a cryptofascist plutocracy.

Raging Debate's picture

Eggslayer - 2008 was the end of America as we know it. Bailing out criminals (banker and politician) especially at such magnitude finished off the rule of law that had been eroding for awhile. And so what if the banks had failed? Lending to all the wealthy, the corporations (more hot money into China) were all parties that didn't need it. So now we have a country that isnt going to grow for a good long time. Calitalism means reward for success, shuttering the doors when fail. "Compromising capitalism to save it" was a crock of shit. We're fascists now and the criminals run the plantation.

I am more of a rip the band aid off kind of guy myself. But I felt this way in 2008 because America has so many resources and talents, a couple of harsh years would have gone by fast as would have the reorganization. The people tend to take care of one another (less so now after slamming moral hazard up the populations wazoo). Now every other person is a criminal. The fish rots from the head down. Banks and trading platforms can and are being replaced and automated by software these days. America can print its own currency. Perhaps one's disposition is whether one personally benefitted from the bailouts and looting...
As for my disposition it is simple: The law must apply equally to all. I am not alone in this complaint, pretty much everybody now knows in the middle and upper classes the law doesn't apply evenly. So perhaps it is not surprising the population is beginning to also decide what laws to abide by. After all, who has time to know who is exempt and who is not from Obamacare for example? Have time to read and decipher 3,000 page bills written by insurance companies and bankers?

This argument is about the powerful raping the little guy. Those in power are supposed to be referee's not moving markets by dictation and creating laws to crush competition for the big. There is no such thing as a systemically important bank, that only is an argument for those that run them and wish to keep fleecing the global population.

Errol's picture

EggSlayer, I'm aware that yours is not a popular position on ZH, but it sure deserves a hearing and debate.

I'm pretty sure that if the collapse in 2008 had been allowed to turn into a good 'ole 19th century Panic, world-wide trade would have been impacted negatively.  For better or for worse the US made itself keeper of the world's reserve currency by setting up the Petrodollar system, and so made itself the shepherd and conservator of the global logistics/Letter of Credit system.  In order to enable the system that the average American sure as hell enjoys benefitting from, the US was pretty much obligated to run big trade deficits and issue a lot of treasury paper (liquid collateral) in order to provide dollars to finance world trade on its present scale.

I think its a VERY real posibility that the folks at the top understand VERY well the implications of a continuing worldwide decline in per capita net energy available.  Despite all the propaganda to the contrary, fracking is NOT going to make the US energy independent, it is literally scraping the bottom of the barrel.  Paper wealth is imaginary wealth; the whole industrial edefice runs on energy, not paper.  Declining net energy per capita compels a continuing economic strangulation from now until the economies of scale no longer work, then a fast collapse.

The US government at this point does indeed have a dual mandate:

1.  Slow the contraction (fiscal and monetary stimulus) to allow time for people and systems to slowly adapt.

2.  The US military's job is to make sure that the EROEI decline-induced contraction is uneven; ie, it comes to the US last.

While the disposition of tribute within the US is not uniform, the Fed is part of a system consciously trying to keep the tribute flowing from the periphery to Manhatten as long as possible.


EggSlayer's picture

Agreed, I understand that my views are probably not a popular one here at ZH. Someone's gotta say it. You went off on bit of a tangent there with fracking. I'm not all firmiliar with the benefits/ costs of fracking so I can't really comment.

Errol's picture

EggSlayer, I'm sorry the reference to fracking seems off topic; it's kind of shorthand for the whole energy problem.

As I understand things, high-quality cheap energy permits a high-tech industrial system.  That industrial system MAYBE could survive a decline in the quantity and increase in cost of that energy IF it wasn't burdened by debt with compounding interest.

Energy is the ability to do work, as energy gets more scarce and expensive, less work can be done.  That's the real crevice between a rock and hard place humanity is stuck.

oddball's picture

Your views are of the assholes "saving" this fake system.  Your views are of the assholes who sit in their offices pretending to instruct a real world skill.  Your views are of the status quo, the looting of Americas future. 


What are they saving, this 'better than theirs' police state?




StychoKiller's picture

Sorry, but despite the best intentions of the Lizard People, millions, if not billions are gonna die due to their piloting the Titanic straight into the iceberg.

hairball48's picture

You must be a troll for Krugman.

epobirs's picture

Read David Stockman's book. He makes it very clear that TARP was completely unnecessary. It just would have been a bad year for the TBTF and some pain for everyone. If allowed to take its course it would have long been over and done with.

EggSlayer's picture

I don't believe that at all. There is a reason why they are called "TBTF", and its not just so that these central bankers could promote their secret agenda of widening the income gap. To everyone: I understand we have artificially inflated markets with TARP and QE, and that at some point in time we are going to have to face reality. What I am arguing is that Bernanke and the FSOC were pressed with an unprecedented issue with an extremely limited amount of time to get it done.

If all of you are such geniuses then why isn't anybody who shares your views in office? Why doesn't ANY prominent figure support your opinions? It is because there are minds who try to do the best they can given the circumstances. There are people who study actual financial trends and real world economics.

I would be interested in hearing what Stockman had to say though.

marathonman's picture


The big banks could have taken a trip to bankrupcy court, been nationalized, had their stock holders wiped out, their CEO's jailed for fraud, and the system reset.  Instead, they propped up the Ponzi scheme to make its eventual unwind even more Hellish.  There's a big depression baked into this turd cake either way.  Better that Dimon, Blankfein, and the other TBTF CEO's had eaten most of the turd sandwich.

hairball48's picture

Egghead, Did you forget a /sarc?

NihilistZero's picture

A humble and politically palatable option would have been to use QE as a negative income tax the last few years while at the same time pushing through mortgage cram down legislation combined with credit rating forgiveness for those that voluntarily expediated their foreclosure process.  That would have put more $ in the hands of consumers to prevent demand cratering, sped up the housing crash getting it over with and giving new home buyers a greater chance to benefit from the downturn as the foreclosure velocity would kill the flip game.  Not saying this was necessarily the right thing to do, but if he was gonna flood the market with trillions in liquidity it would have certainly got us better results than his billionaire welfare program.  hell, Any Austrian or Chicago school economist could have reluctantly supported such a course.

EggSlayer's picture

Are you suggesting that instead of spending the QE money on MBS and treasurys that it should have been "payed" to taxpayers? The point of QE in the first place was provide liquidity to banks, and the whole point of TARP was to relieve systemically important firms. Your suggestion would still end in a financial collapse. & "mortgage cram down legislation" was a necessity either way, which was actually done through Dodd Frank.


I could see if they used some of the money as tax credits or a "negative income tax". But, still yet to see a viable alternative.

DFCtomm's picture

You're talking like TARP worked. It didn't, the problem is still here. We've just been pushing the pause button with trillions of dollars, and as soon as we run out of dollars that collapse is going to hit, but magnitudes worse.

EggSlayer's picture

The TARP may have worked. All I know right now is that economic conditions do not point in that direction. Considering the stock market, obviously were in for some kind of correction soon.

I don't really have an opinion about how were going to get out of debt. I guess we could inflate the currency, but I don't know enough about it to have an opinion.

All I can say is that I really don't see an alternative to TARP. And until someone comes up with a viable alternative I will think the same. I would actually be excited to hear of one. But still, in my opinion the bull market has only been due to the Fed pumping and once the focus is back to company fundamentals then well see some kind of correction.

prains's picture

you may need to lie down I think you've poached yourself

EggSlayer's picture

You're funny prains, I'll give you that.