As expected, the hype over Janet Yellen’s qualifications as Fed Chair swells with every passing moment. This hype grows despite that she had no idea that the 2008 financial crisis was coming [read on OCR: “Janet Yellen Will Consume Our Economy with Fireballs from Her Eyes”]. Ben Bernanke didn’t see the crisis coming either (see this video). Since Yellen did not see the crisis coming, how can she possibly be qualified to be the next Fed Chair? Has she suddenly rejected her understanding of economics that misled her up to the crisis?
The truth is that no one is qualified to be the Fed Chair. It is an impossible position. The Fed is given two mandates: seek maximized employment and maintain stable prices in our economy. The Fed’s tool to accomplish these two mandates is simply to manipulate interest rates through the creation of new money out of thin air.
Here is the catch. There is no way for an individual or group of individuals to know what should be the proper interest rates in the economy. It is likewise impossible to know the proper amount of money that should be in an economy. The market is made up of billions of unique individuals and businesses with different preferences, motivations, and resources.
Interest rates are not some arbitrary number. They are a market creation determined through billions of transactions by individuals with diverse time preferences. The result is that the various interest rates set by the market coordinate a natural equilibrium between savings and consumption. An arbitrary interest rate set by some central planner like the Fed just destroys that natural coordination process. Likewise, a market’s money and its quantity are not random choices for a central planner. Money is also a market creation used as a medium to exchange various produced goods and services. An arbitrarily defined quantity of money just complicates and weakens the processes of production and exchange.
The reality is that the Fed cannot determine the proper rates of interest or the appropriate amount of money in the economy any more than former USSR economists could set the right prices for various goods. The economic result is the same: chaos.
Here is the unemployment rate for just the last 55 years.
Here is the consumer price index for just the last 55 years.
In what world, is the Fed achieving either of its two mandates? And this time-period ignores the 1929 financial crash and subsequent Great Depression that were the direct result of the Fed’s loose monetary policy!
Of course, the Fed’s job is not really to maximize employment and stabilize prices but to feed the banking industry and the state with endless money creation.
As a result, the Fed is the very source of unemployment and unstable prices. The Fed is responsible for a century of boom-bust cycles that have destroyed jobs, currencies, and prosperity [read on OCR: “Our Coming Economic Collapse, Part 4: Lessons from History”].
Asserting that someone is qualified to be the Fed Chair is the equivalent of asserting that a fox can guard a hen-house. It’s not possible for Janet Yellen or anyone else.
John Langenderfer is a practicing attorney with a focus in consumer and commercial law. He can also be reached on his Facebook page.
All opinions expressed belong solely to their authors and may not be construed as the opinions of other writers or of OCR staff.
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