As Ben Bernanke’s term as Chairman of the Federal Reserve approaches its end on January 31, 2014, speculation about his successor is rampant. At Economic Prism, we are indifferent to who takes this position, yet the unfolding drama holds a certain fascination. The unknown captivates us, much like a child marveling at a circus performer who skillfully balances a grocery cart on his chin.
There’s an undeniable madness surrounding a role that arguably shouldn’t exist at all. Why do we need bureaucrats to control the value of money? Certainly, the world would benefit from less distortion caused by their interest rate manipulation. However, we reside in a reality shaped by existing systems rather than idealized possibilities. Thus, with a spirit of playful mischief, we add our thoughts to the ongoing discourse.
Todays’ discussion focuses on two individuals poised for appointment: Larry Summers and Janet Yellen. Neither seems well-equipped to restore faith in the dollar.
Cold Breakfasts at Harvard
“People know Larry Summers, and Larry Summers is someone who tends to say what he thinks, who thinks he is the smartest person in the room, and that makes market participants very nervous about what he would do at the Fed.” – Julia Coronado, chief economist at BNP Paribas and former Fed staffer.
It’s almost inconceivable for someone without smarts to squander enormous sums of money. The ability to lose vast amounts of others’ money typically belongs to those who believe they’re the brightest in the room.
For instance, while a fool might recklessly blow their inheritance at a casino or through failed relationships, it takes a certain level of “genius” to lose $2 billion due to poor bets on interest rate swaps. This is the realm of someone like Summers.
While serving as President of Harvard University, Summers engaged in risky maneuvers with the university’s operational funds—money derived from tuition, grants, and endowment payments. His reckless investments resulted in over $2 billion in losses and forced significant budget cuts, including the elimination of hot breakfasts for students as noted by Naked Capitalism.
Clearly, we don’t want someone who is so capable of losing even the basics, like hot breakfasts, managing our monetary policy. But is Janet Yellen any better?
Beardless Ben and Bad Bet Summers
Janet Yellen has been a part of the Federal Reserve’s operations for over two decades, though her exact contributions remain unclear. At the very least, she is complicit in a period characterized by unparalleled Fed activism.
Yellen has spent years analyzing aggregate demand and devising strategies to manipulate monetary policy to stimulate demand. Notably, we do know she views monetary policy through a moral lens.
In a Federal Open Market Committee meeting in 1995, Yellen advocated for tolerating inflation beyond established targets for ethical reasons.
“Ms. Yellen told the committee that ‘the moral’ of all this is ‘that the Fed should pursue multiple goals,’” the Economic Policy Journal recounts. “She suggested that, when faced with conflicting goals, a wise and humane policy might involve allowing inflation to exceed targets.”
It’s crucial to recognize that inflation acts as an insidious tax on savers, eroding their purchasing power. Ask any retiree relying on a fixed income or a prudent individual saving for retirement. Inflationary policies are neither moral nor humane; they are deceptive and amount to theft.
However, for adept money printers like Yellen, it seems more important to save banks than to protect savers. In practice, should she ascend to the role of Fed Chairman, a currency crisis is practically inevitable.
In conclusion, we find ourselves faced with a stark reality: our choices are between Bad Bet Summers and Beardless Ben. These selections are reminiscent of choosing between two inadequate candidates in a prior presidential election.
Sincerely,
MN Gordon
for Economic Prism
Return from Beardless Ben and Bad Bet Summers to Economic Prism
