Washington & Wall Street: Rand Paul Right to Oppose Janet Yellen

Washington & Wall Street: Rand Paul Right to Oppose Janet Yellen

“Janet Yellen would be a perfect candidate for running the Post Office.” 

-James Grant

Financial markets are trembling. Senator Rand Paul (R-KY) is threatening to put a hold on the nomination of Janet Yellen to chair the Federal Reserve, CNBC reports. Paul is insisting on a vote on the Fed transparency bill first proposed by his father Ron Paul (R-TX). Senator Paul has apparently informed the Senate leadership of his intentions, according to Steve Liesman of CNBC, and the sheep who inhabit Wall Street are stampeding.

“As part of Senate consideration of the Janet Yellen nomination to be Chair of the Federal Reserve, I will request a vote on my bipartisan Federal Reserve Transparency Act, S. 209. The American people deserve transparency from the Federal Reserve and the federal government as a whole,” Paul said in a statement following the reports.

While it is notable that Senator Paul is willing to use the Yellen nomination to the push forward his proposal to audit the central bank, the fact is that conservatives in the Senate who want to see job creation and growth restored in the US should be opposing Yellen’s nomination in general terms. Auditing the Fed is a good idea, but what we really need is pro-growth policies at the central bank.

In their new book “Code Red,” co-authors John Mauldin and Jonathan Tepper note that in 2005 Janet Yellen was an unapologetic apologist for former Fed Chairman Alan Greenspan’s inflationist policies. She explicitly supported Greenspan’s decision not to deflate the housing bubble created by the Fed via easy money starting back in 2001. 

“In 2009, after the Great Financial Crisis, Yellen changed her mind,” note Mauldin and Tepper, quoting Yellen as saying that “not dealing with some bubbles can have grave consequences.” Yet the authors note that she remains completely enamored of the reckless pro-inflation, pro-bubble monetary policies of Greenspan and the rest of the Federal Open Market Committee. 

“With central bankers, you always have to watch what they do, not what they say,” Mauldin and Tepper observe. “And what she says and does may soon be important. As we write, she is the odds-on favorite to be the next chairwoman of the Federal Reserve.”

Senator Paul is not the only member of the Senate who opposes the Yellen nomination. U.S. Sen. Bob Corker (R-TN), in an earlier interview with CNBC, said he is likely to oppose the nomination of Yellen to become Fed chairman. But the moderate Republican still expects she will still likely be confirmed by the Senate. 

Corker, a member of the Senate Banking Committee, opposed Yellen’s nomination to the Federal Reserve Bank in 2010 because of her support for easy monetary policies at the Fed. Corker wants the Fed to end its $85 billion-a-month bond buying program, which he worries is pumping too much money into the economy and risking a resurgence of inflation or an economic bubble.

The real problem with Yellen and most of the other members of the FOMC is that they persist in believing that low-interest rates by themselves will help to restore job growth to the US economy. In fact, the Fed’s zero-rate policies are actually encouraging deflation in terms of real wage levels, imposing a vicious tax on consumers, the elderly, and business alike. Meanwhile, the Fed’s zero rate policies are encouraging asset bubbles in the US and around the globe.  Nations from China to the EU to the developing world are importing inflation from the US, setting the stage for terrible market disruptions as and when US monetary policy is changed.

If Yellen is confirmed, US consumers and companies will continue to labor under the financial repression of the FOMC, which essentially imposes a tax on savers in order to subsidize big banks and other debtors, like the US Treasury. Yellen and the other social engineers on the FOMC will continue to print money and impoverish all Americans via a steady increase in the cost of living. Yet even though it is clear from the past decade that the pro-inflation policies of Greenspan, Fed Chairman Ben Bernanke and soon Yellen are not working to boost employment or consumption, the twin goals of neo-Keynesian socialism, the progressive left is strongly in favor of Yellen’s appointment.

Most so-called progressives are in favor of Yellen not because she is competent or will actually achieve good results, but because she is a woman. National Organization for Women’s president Terry O’Neil is one of Yellen’s most outspoken supporters. But one wonders whether O’Neil or other female Yellen supporters, like former FDIC Chairman Sheila Bair, understand the horrible damage being done to families and women by the Fed’s current policies.  

Just look at the fact that real consumer income is steadily falling and then tell me why we want to continue current Fed policies under Janet Yellen. The greatest irony of all is the Fed policies of quantitative easing and zero interest rates so strongly supported by Yellen and other members of the FOMC are a gift to the wealthy, all paid for by the shrinking real incomes of working people and middle class Americans. How is that a progressive policy stance?    

I have been a strong critic of Larry Summers and his political sponsor, Robert Rubin, for many years, but the sad fact is that Summers as Fed chief would probably have been a far better outcome in economic terms for women and low-income Americans. Under Yellen, the only thing of which you can be certain is that we will all become poor under the relentless erosion of real incomes by inflation.  Zero interest rates will not create jobs or raise consumer purchasing power–quite the opposite. That is why the Senate should reject the appointment of Janet Yellen.