Phillip  Bartling

It’s time to get to know the person who is virtually assured to be the new Chair of The Federal Reserve, Janet Yellen, and tag her with her new nickname.

This distinguished Economist hails from Brooklyn New York. The 67 year old Jewish Democrat and former Harvard professor has been working with The Federal Reserve for about 35 years—no fresh blood here.

Critics claim that in addition to being a bit too much on the “dovish” side of the spectrum, she also favors Quantitative easing too much and will continue to direct the Federal Reserve along its current trajectory, which will basically constitute more interventions into the free markets and a continuation of the Keynesian boom-bust cycle.

Let us look to her record of public speeches for clues for what to expect—and what her new nickname should be.

First, back in 2005 in a speech titled "Housing Bubbles and Monetary Policy" Yellen clearly recognized the looming housing bubble/crisis—and just as clearly completely underestimated its impact


"How, then, should monetary policy react to unusually high prices of houses?...in my view, it makes sense to organize one’s thinking around...questions. First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? (My answer) in the shortest possible form is no...it could be large enough to feel like a good-sized bump in the road, but the economy would likely to be able to absorb the shock."

Strike one for "Speed-Bump Janet"

The next year in a speech entitled "Economic Inequality in the United States" it's not the housing bubble she focuses on, but rather the growing gap between the wealthy and the workers.

"None of these factors provides a complete and compelling explanation for the rapid growth of real wages at the very top of the distribution, the top 1 percent, which, according to IRS data, doubled between 1972 and 2001”

Could it be possible that Yellen herself is the source of the incessant railing against the ‘one percent’ that exploded during the so-called ‘occupy Wall Street’ movement?

In this speech Yellen also cements her credentials as a master of the obvious;

“It’s clear that periods without earnings can be quite...costly for job losers.”

She concluded this speech with the highly disturbing statement “There are signs that rising inequality is intensifying resistance to globalization, impairing social cohesion, and could, ultimately, undermine American democracy.

Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people.”

Can anybody explain to me how it's "risky" to make our economy more rewarding for more of the people?

Strike two for Janet "One Percent" Yellen.

Having failed to foresee the effect of the housing bubble or help anticipate The Great Recession, three years later Yellen gives a speech titled "Linkages between Monetary and Regulatory Policy: Lessons from the Crisis where she argues that The Fed should expand its role beyond traditional influences on inflation and employment to check asset bubbles.


"These results suggest that monetary policy could play a role in restraining undesirable swings in leverage and, by extension, reduce systemic risk. In particular, interest rate cuts in a time of market disruption can be effective at stopping a deleveraging cycle from turning into an uncontrolled crash…This raises the broader—and very contentious—issue of whether monetary policy should seek to lean against potentially dangerous swings in asset prices. The answer is far from clear...(however) the crisis of the past two years has prompted many of us to reexamine the widely held view that monetary policy should respond to asset prices only to the extent that they influence the anticipated trajectories of inflation and unemployment."

In other words, having failed to anticipate the full negative effects of the last asset bubble, she doesn't like such bubbles, and favors a proactive central management approach to dealing with market cycles.

Strike three for "Bubble Buster” Jan

Of the three potential handles revealed by these speeches, I favor "Speed Bump" Janet. It has a nice ring to it, and will serve as a useful reminder of how badly she misjudged the consequences of the housing bubble prior to The Great Recession.


Phillip Bartling

Forex Investment Management LLC is run by Phillip Bartling.