By John Ransom
Monday, September 16, 2013
While the withdrawal of Larry Summers from consideration
for the top job at the Federal Reserve Bank is good news for those of us who
are hoping for some sanity from the Fed, the battle is not over.
“Summers, widely regarded as a brilliant economist and a
shrewd and decisive policy-maker,” reports Reuters, “was considered to be the
front-runner for the position to replace [current Fed Chair Ben] Bernanke,
whose second term expires in January. However, Summers was dogged by
controversies including his support for deregulation in the 1990s and comments
he made about women's aptitude while president of Harvard.”
So now that Summers is gone, the big question lingers:
Will we never exhaust the endless supply of brilliant, shrewd, liberal
economists who know how to do only one thing, namely, print more money?
No, probably not.
Because after Larry Summers, then there is Janet Yellen,
who now appears the front runner for the top job at the Federal Reserve Bank.
Yellen, like Ben Bernanke—and Larry Summers-- is known to
be accommodative when it comes to monetary policy. That means that Yellen, like
Bernanke—and Larry Summers-- favors quantitative easing efforts.
Brilliant!
So prepare to keep the printing presses going boys… and
girls.
Maybe. Just maybe, not definitely.
Increasingly, I have been getting the impression that
even dovish bankers, like Yellen, are looking at the QE printing presses with a
more skeptical eye.
This, perhaps more than any single thing, was the reason
why Obama favored Summers over Yellen.
Yellen, as Fed Chairman, will do what her cold,
brilliant(!) economist, misguided, liberal heart tells her to. Summers on the
other hand would bend purely to politics over policy. Summers is more a liberal
politician; Yellen is more a liberal banker.
Summers, for example, would continue the quantitative
easing program in perpetuity as long as it allowed the White House to say that
the recovery is moving along just as they planned, regardless of the risks to
the economy.
But I get the sense that there’s a rift between the White
House and the bankers, like Yellen, and that in part is the reason why Ben
Bernanke, who is also purely a banker-- even if an academic one-- did not get a
shot at a third term as Federal Reserve Chairman.
Okay maybe not so much of a rift as a disconnect.
“Strategists have said markets are now pricing in a
decision by the Federal Reserve to start scaling back its bond purchases when
it concludes a two-day policy meeting Wednesday,” says MarketWatch. “In fact,
much of the back-and-forth among financial forecasters in the past week has
centered on how much the Fed will reduce initially.”
That the debate centers on how much tapering the Fed will
do rather than will-it-or-won’t-it taper is bad news for the White House.
And one only need look at the 10-year Treasury to
understand that the market is of one mind on the “end of QE.”
It’s coming whether the White House wants it or not.
The interest rate on the 10-year Treasury has almost
doubled since May. This at a time when the Federal Reserve was trying to keep
interest rates at zero.
Even the not so free-market in Treasury securities,
manipulated by the largest bank in the history of mankind, eventually becomes
the victim of reality.
The market, in other words, is telling the Federal
Reserve that QE is over… whether they like it or not.
The bankers believe they’ve done all they can with any
easing efforts as a substitute for fiscal policy. There’s a record amount of
money in our system today thanks to QE. There’s a record amount of inactivity
with that money in our system today as well thanks in part to the fig-leaf of
QE.
Brilliant!
That inactivity is the result of political decisions that
have been postponed from time to time, and obfuscated mostly, and deranged,
mangled, and warped.
“Don’t worry about a thing,” says the Obama White House.
“They’ll keep printing money.”
The White House wants QE to continue forever because then
they don’t have to submit a budget, pass any laws, cut any departments, battle fraud
in government programs, or in any wise act as a responsible government.
The wealth effect of quantitative easing, which seems to
infect only the top folks in our society and on Wall Street, will continue
papering over any missteps, flaws or fallacies that the liberals want to foist
on a trusting public.
As long as the market keeps going up, then all is well
for the Obama White House.
But with the withdrawal of the brilliant (!) and shrewd
(!) Larry Summers from the race for Fed chairman, we could, once and for all,
put an end to the brilliant strategy brought to us by QE of doing the same
thing and getting the same result year after, year after, year after, year,
after year.
Maybe. Just maybe, not definitely.
But in that event liberals will then have to think up
better ways of producing the worst jobs recovery since the end of the Second
World War.
But I have no doubt liberals can accomplish it, because
after all, they’re brilliant… year after year after year after year after year.
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