Yellen vs. Bernanke

Yellen’s tenure as FED chairwoman was far worse than B-53 Bernanke’s. At least Bernanke’s money-printing insanity was misguided by his credentials as a lame so-called scholar of the Great Depression and the mistaken conclusion that the Wall Street meltdown of September 2008 was another prelude to such an occurrence. IMHO the Great Depression of the 1930’s was caused by way too much FED-nurtured foreign borrowing on Wall Street during the roaring 1920’s. They stimulated a massive and unsustainable boom in US exports, soaring domestic CapEx in order to expand production capacity and then a stock bubble which in turn fueled a massive consumer-spending boom in cars, appliances and other durable goods. Therefore, when the Wall Street bubble burst in October 1929, foreign borrowing literally dried up, US exports and CapEx crashed and spending on consumer durables fell off a cliff.

·        This was likely the main cause of the massive recession/depression in 1930 -1933, which took the GDP down from $95 billion to $58 billion in dollars of the day.

·        By contrast, the crash likely had nothing to do with Milton Friedman’s crashing M-1 (money supply), which was a consequence of unavoidable and necessary bad debt liquidation by the banking system.

·        Nor was it the result from any lack of credit availability to solvent borrowers, as demonstrated by market interest rates that remained ultralow (under 2%) throughout the recession/depression.

The depression of 1930–1933 was not owing to the tightfistedness of the FED, which actually expanded their balance sheet by 72% between August 1929 and early 1933. Consequently, Bernanke’s lame and reckless move of flooding the system with fiat credit during 2009 - 2013 was a significant mistake.

Now fast forward a few years when Yellen became Fed Chairwoman in February 2014, there was no plausible excuse at all for keeping B-52 Ben Bernanke’s extremely bloated FED balance sheet in place or continuing to keep interest rates at or near the zero bound. If there was ever a chance to normalize Bernanke’s significant mistaken depression-fighting policy, it was during the 48 months of Yellen’s tenure. Needless to say, Yellen’s FED did no such thing. After 50+ years of dedication, and devotion to the BS” Keynesian theory of full employment economics, Yellen kept real interest rates buried into the cesspool during the entirety of her term.

During the sweet spot of the longest manipulated and FED intervened upon business cycle expansion in history; from month 55 to month 103 when the economy should have been left to expand on its own merits without massive “stimulus” from the central banking branch of the state, Yellen kept real money market rates pinned at historic lows. The justification for such economic insanity was the claim that the US economy was not at its full-employment level (pure “BS”) as measured by the very dubious U-3 unemployment rate and that the job of the central bank was to keep injecting “demand” into the economy until the system was briming over and at 100% of “potential GDP” was attained. Potential GDP and full-employment labor markets are purely “BS” lame Keynesian hogwash. In a economy in which domestic labor competes with China’s price for goods, India’s price for internet-based services and Mexico’s price for manufactured goods assembly, full employment cannot be measured by the headcount metrics of the BLS, nor can it be achieved by injecting massive amounts of credit into the bank accounts of Wall Street dealers who in turn use it to foster their accounts and stock market positions.

With total outstanding credit now standing near $81.8 trillion, or 384% of GDP, the FED’s liquidity injections never really leave the coffers of Wall Street. The result is increased speculation on Wall Street and accelerating massive inflation of financial asset and commodity prices. Money markets do not finance the working capital or fixed asset investments of business, nor do they fund consumer borrowing for homes, automobiles, and other durables. Instead, short-term money markets are where Wall Street dealers finance their inventory and where speculators fund their positions in the options markets or via margin and repo credit against stocks and bonds held outright by Wall-Street and the TBTF-bankers.

These real negative real interest rates were and are the mother’s milk of financial speculation and the resulting massive asset bubbles. Yellen’s stupid policies constituted an epic monetary mistake that has fueled bond and stock market bubbles that are basically off the charts!  Yellen (our new Treasury Secretary) sowed the wind of monetary excess, and now we are reaping the whirlwind of a gargantuan bubble that is a clear and present danger to the economic future because it will crash, and the resulting financial and economic damage will be biblical. Ironically, Yellen likely will be sitting in the captain’s chair when the most violent and destructive financial storm in history finally blows ashore.