Saturday, November 8, 2014

Janet Yellen Admits the Fed is Clueless When It Comes to Correct Economic Theory and Other Stunning Admissions

By Robert Wenzel

On Thursday, Federal Reserve chair Janet Yellen delivered a speech at the  International Symposium of the Banque de France in Paris, France.

The speech is quite noteworthy since she pretty much admitted in the speech that the economic data that the Fed watches did not offer any clue that the 2008 financial crisis was developing:

Prior to the global financial crisis, inflation rates in the United States and other advanced economies were near their target levels and most of these economies appeared to be operating close to their potential. Policy interest rates were similarly in the vicinity of levels considered to be normal.
Fiscal deficits also appeared to be under control before the crisis.
Got that? Just prior to the crisis everything looked pretty much "normal" in terms of the data. Was the Fed watching the wrong data? It appears so. As I detail in The Fed Flunks: My Speech at the New York Federal Reserve Bank, I called the financial crisis in real time by closely monitoring money supply growth, which appears to be something that the Fed pays little attention to at the present time.

When Ben Bernanke was Fed chair, he appeared to just give money growth a casual passing glance. Under Yellen, the focus seems non-existent.

As I have pointed out previously, since Yellen has become Fed chair, there has been no mention of money supply in FOMC minutes or Fed monetary policy statements. Further, she has yet to utter the words "money supply" in any of her speeches or at press conferences.

This, of course, doesn't mean that she won't open up the monetary floodgates when the economy goes into panic mode. She, also, admitted this during her Paris speech:
When the crisis hit, its global scope and severity were exceptional. Central banks in the United States and other countries responded by rapidly and sharply reducing their policy interest rates, lowering them in many cases to near zero. In addition, in their role as lenders of last resort, central banks acted rapidly to provide liquidity to help stabilize the financial system and support the flow of credit to households and businesses, in some cases creating new lending facilities. These extraordinary and creative responses showed that monetary policymakers had internalized the lessons of the Great Depression.
TRANSLATION: Yes, the Fed has learned that when the economy goes into convulsions because of our earlier money pumping manipulations, the only thing we can do is "act rapidly to provide liquidity," that is, print money more aggressively.

One more point with regard to Yellen's Paris speech, she mentioned economic "headwinds" several times:
Even so, the recovery in most advanced nations has proceeded more slowly than policymakers would have hoped. This sluggishness has been due in part to the severity of the financial shock associated with the crisis and the persistent headwinds to recovery in its aftermath.
Considering the headwinds that continue to weigh on growth, employment, and prices, this situation is hardly ideal.
What are these economic "headwinds" that allegedly weigh on the economy? She has used the term often, the Paris speech is not the first time. But she never explains what the "headwinds" are. Yet, it is clearly an important part of her view of how the economy works, since she brings these headwinds up so often.

What Yellen is doing here appears to be what Friedrich Hayek objected to in his important book, The Counter-Revolution of Science:
[A]n attitude which is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those which they have been formed.
To be sure, the term "headwinds" has a very specific meaning in some sciences, aeronautics for example. But its use in the science of economics, without a very technical definition similar to the type that can be enunciated in the field of aeronautics, suggests very muddled thinking, thought that does not get close to the essence of the situation.

And so, what Yellen has revealed to us in her Paris speech is that she is a muddled thinker and that, on top of this, the data she watches will never clue her in, early on, to any developing crisis. All that said, it further appears that in her confused state, she views even more money printing as the answer to, of course, battle the headwinds.

Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics


  1. Criminality By US Fed

    Dr. Roberts: “Eric, it’s clear, this is the Federal Reserve protecting the value of the dollar from quantitative easing and the massive increase in the supply of dollars and dollar-denominated debt. Normally when a central bank creates 4 trillion new dollars the currency collapses....“It’s not worth anything in terms of rubles, euros, yen, or (even) pesos. This hasn’t happened (yet). ...But it’s very obvious what they (the Fed) are doing. And the consequences of it are also very dangerous because essentially what it means is that gold is being driven out of the West, into the hands of the Chinese, Indians, and the Russians.

    But when the fiat currencies in the West get in trouble, there is nothing to back them with because all the gold is in Asia. So the Fed, trying to save four big banks, it increased its balance sheet $4 trillion, and national debt in the United States increased 7 or 8 trillion dollars. This puts pressure on the dollar. The pressure shows up in the gold price and so they suppress the gold price. That’s the story. I’m convinced there is no other explanation.

    Apparently these (agent) banks can print gold futures contracts in unlimited amounts, just as the Federal Reserve can print U.S. dollars in unlimited amounts. And then in the space of a minute, two, three, or four minutes, dump the equivalent of 20, 30, 40 (or more) tons of gold as represented by these paper claims to gold into the futures markets during periods of essentially no trading. The favorite time is around 3 o’clock in the morning EST. It’s almost always when the Asian physical markets are closed.

    That’s exactly what’s going on. It’s illegal. It’s not merely unethical -- it’s strictly illegal. But it’s being done by the authorities, or with their permission.”

  2. This woman is either lying or ignorant. I'm not sure which is worse for a person with a monopoly power on the creation of our currency.

    Either way, we're looking at some very interesting times ahead.

  3. These people are nothing more than chart and number watchers. They (Positivists/Keynesians) have no clue when it comes to fundamental economic thinking/reason/logic.

  4. She's probably dissing the Fed to setup a future IMF takeover of the US. The Fed knows its days are numbered, everyone is hip to their scam. So they're starting the propaganda campaign to make it look like they agree, the Fed should be abolished so when the shit hits the fan the IMF can swoop in to save the day. The clueless public will actually cheer the IMF like a new messiah not knowing its an even worse monster, a mutated monstrous mega version of the Fed, which they will have even less control over than the old Fed. IMF, the new tyranny.