Janet Yellen Reminds Me of My Mother and What That Suggests to Me About Yellen as a Fed Chair

Janet Yellen

Federal Reserve chair nominee candidate Janet Yellen reminds me of my mother. From a distance they seem to have very much in common. They even  look a bit alike. They dress about the same and seem to have a similar competent, non-daring, boring personality. Neither my mother nor Yellen are likely to pull an Angela Merkel.

Angela Merkel

But where they really seem to be similar is in their work ethic and honesty. My mother is a very honest person, as Yellen appears to be also. She once testified this way. Via NYT (my bold):

Ms. Yellen told the Financial Crisis Inquiry Commission in 2010 that she and other San Francisco Fed officials pressed Washington for new guidance, sharing the problems they were seeing. But Ms. Yellen did not raise those concerns publicly, and she said that she had not explored the San Francisco Fed’s ability to act unilaterally, taking the view that it had to do what Washington said. “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” Her startled interviewers noted that almost none of the officials who testified had offered a similar acknowledgment of an almost universal failure.

That's my mother, a complete straight shooter. My mother is also a detail person, she taught 4th grade and always had her lesson plans prepared well in advance and whatever else the school administration asked of her. She did what she was supposed to do on time, ahead of time. It appears that Yellen is the same way. I have criticized Yellen for her lack of forecasting ability. But while she didn't have a clue as to what was going to happen next, as far as the economy heading into the financial crisis, she did know what was going on right in front of her, which is more than can be said about the Fed chair Ben Bernanke, as the crisis developed.

My mother was also never one for political in-fighting at work. She didn't get it. She didn't do it. Yellen seems to be the same here. I have seen a few people promoting her for Fed chair, which might have been her allies, but most of the attack on Larry Summers, the other top candidate for Fed chair until his recent withdrawal, appears to have come from the feministas. They were out to get Summers and it was all the better that a female was standing in the wings, but I think it was more of an anti-Summers campaign then a pro-Yellen one.

So what would a Yellen Fed chair era look like, if we use my mother as a sort of template? For the most part, it is going to be a pretty boring place, at the start. But then there will be surprises.

Many, many years ago, as these things happen, through no doing of her own, pressures circled my mother in a way that caused her to lie in a specific situation. It was a complex event and she did what she had to do, given the pressures around her.

This I suspect will be part of the fate of Yellen, but to a much greater magnitude. Although a person of integrity under almost all circumstances, the twists and turns of the business cycle, interest rates and future price inflation will result in pressures on her where she will lie about the true fears she has about the economy. She will do her detailed homework and see the problems but she will not tell the public about what she sees. The pressures will just be too great to admit the dangers.

Further, because she is a straight arrow mainstream person, like my mother, who dares not tread in radical territory, she will be guided by faulty popular mainstream Keynesian economic theory. As the problems of a declining economy, soaring interest rates and climbing price inflation take hold, her Keynesian theory will fail her. She will be buffeted from all sides. Wall Street will want her to print money, while she will study the data and understand the creeping price inflation. It will not be a pretty place for a woman who likes certainty and everything in order. I can't imagine how she will react at that point. It's going to be an impossible economy  to deal with, though going in she certainly thinks she will be able to handle it and doesn't have a clue as to how bad it is likely to get.

The Fed is really an institution designed to be led by blowhards like Greenspan, Bernanke and Summers. The game is to con the public and keep the banksters happy. It's not designed to be led by someone like Yellen. The Fed is an evil institution, she is not going to change it, the institution will change her.

Bottom line: A Yellen era at Fed will be a fascinating period to be a  Fed watcher, as long as your funds are in gold and it is not your mother at the Fed trying to run the train wreck.