Will Janet Yellen create a bubble with QE infinity?

BROOKINGS, Ore. - Oct. 17, 2013 - PRLog -- It is becoming increasingly likely the Fed will keep its stimulus program in place longer than many expected. Since September 2012 the Fed has been buying $85 billion in bonds each month in an effort to lower longer-term interest rates. Many economist once though the Fed would start gradually reducing that program this year in a process that has come to be known as “tapering”. But now some are saying the Fed may wait until April or May 2014 to begin fazing out the purchase of bonds.

When the Federal Reserve next meets on October 29-30, it may not have enough data on either unemployment or the inflation to change its current policy. With a Fed leadership change in January, and the possibility of Janet Yellen being confirmed as the new Fed Chairperson, Deutsche Bank’s Joe LaVorgna believes the Fed may hold off any major decisions at it January meeting and wait until March instead.

Fed officials who focus primarily on squashing inflation are known as hawks, and those who give a higher weight to boosting employment and GDP through monetary stimulus are known as doves. Presidents tend to appoint Fed Chairman who are doves disguised in hawk’s clothing or someone who has sufficient credibility with the markets to maintain the central bank’s inflation-fighting credibility. Janet Yellen appears to be a Democrat dove in dove’s clothing. She is arguably the most dovish figure to head the central banks since Marriner Eccles appointed by F.D.R. in the Great Depression.

Despite some gains in the housing market and an all time high in stock prices, the over-all rate of economic expansion has remained stubbornly modest. Financial advisor Marc Faber fears that Janet Yellen, “will make Bernanke look like a hawk”. Faber believes Yellen will enter into a QE-unlimited with an easy money policy into infinity. He believes printing money benefits those owning stocks and commodities, but harms pensioners on a fixed income, and those earning fixed wages.

Ms. Yellen received her doctorate at Yale University and was a disciple of Keynsian economist James Tobin. John Maynard Keynes was the leading advocate of the purchasing power doctrine which advocates vast governmental expenditures and deficit financing as a means of getting full employment. Keynsian economists, such as the late James Tobin,  believe printing money will increase consumption, which leads to full employment.

Classical economists accept Say’s law, which states production creates its own demand. The great producing countries are the great consuming countries. If we could double the productivity of a country we could double its purchasing power. Doubling a countries money supply might provide a temporary stimulus, but would result in an inflation bubble and an eventual crash. Shakespeare said that “a rose by any other name is still a rose“. Quantitative easing is another name for currency debasement, which devastated the economies of Greece, Rome and France.

The “Keynesian Revolution” has provided the intellectual rational for the transformation of the State from primarily an administrator of law and order (as the Bible teaches) into an economic manager with broad, open-ended powers to redistribute wealth and power. Keynes identified the 19^th century advocacy of laissez-fair economics with the Christian worldview, which he opposed. He felt the Christian religion influenced Adam Smith and Frederic Bastiat, who saw an all-powerful God governing the affairs of men. He rejected free enterprise and accountability to a God.

At the core of many of Keynes’ writing was an obsession with the subject of savings or thrift. He felt the virtue of savings was related to the Christian worldview. The act of saving points to a cause and a purpose beyond oneself. It indicates a “purposiveness” to live. And this purposiveness points inescapably to a source of values and ultimately to a transcendent God as the only true source of purpose.

As a homosexual, Keynes believed an individual’s concern for the future of one’s grandchildren was a disgusting morbidity, and semi-criminal. He believed self-denial was bad and self-indulgence good. He believed consumption would lead to prosperity. He believed what stands in the way of economic paradise and prosperity was not scarcity of resources, but the inhibition to consume. The solution was government spending and credit creation. Janet Yellen apparently believes in the Keynsian worldview.

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