Obama will appoint economics professor Janet Yellen, the Godmother of Inflation, to be the new head of the Federal Reserve System. Experts expect her to continue and even expand Bernanke’s Quantitative Easing program in an attempt to spur economic growth. The problem: cheap money creates future inflation. And, Professor Yellen, from UC – Berkeley, will likely try to create lots of cheap money.
The problem of course is that Bernanke’s Quantitative Easing has been tried and found ineffective. More cheap money is likely to raise the risk of future inflation even higher.
According to Ambrose Evans-Pritchard:
We now know where we stand. Janet Yellen is to take over the US Federal Reserve, the world’s monetary hegemon, the master of all our lives.The Fed will be looser for longer. The FOMC will continue to print money until the US economy creates enough jobs to reignite wage pressures and inflation, regardless of asset bubbles, or collateral damage along the way.No Fed chief in history has been better qualified. She is a glaring contrast to Alan Greenspan, a political speech writer for Richard Nixon, who never earned a real PhD (it was honorary) or penned an economic paper of depth.She has pedigree. Her husband is Nobel laureate George Akerlof, the scourge of efficient markets theory. She co-authored “Market for Lemons”, the paper that won the prize.So there we have it. The next chairman of the Fed is going to track the labour participation rate. Money will stay loose. Markets have been spared again. The Brics can breathe easier.This leaves me deeply uneasy. We are surely past the point where we can keep using QE to pump up asset prices. My view is that emergency stimulus should henceforth be deployed only to inject money directly into the veins of the economy as an adjunct to the US Treasury, by fiscal dominance, as deemed necessary.That would take an intellectual revolution. Is Janet Yellen game for such incendiary ideas?Perhaps.
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