{"id":1717,"date":"2013-11-20T04:06:50","date_gmt":"2013-11-20T04:06:50","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=1717"},"modified":"2014-02-09T00:06:15","modified_gmt":"2014-02-09T00:06:15","slug":"janet-yellen-the-pink-dream","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2013\/11\/janet-yellen-the-pink-dream\/","title":{"rendered":"Janet Yellen, the \u201cPink Dream,\u201d and a Coming Economic Nightmare – Article by Joseph T. Salerno"},"content":{"rendered":"
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\"The<\/div>\n<\/div>\n
Joseph T. Salerno
\n<\/big><\/big><\/strong><\/span><\/div>\n
November 19, 2013<\/big><\/span><\/div>\n
Recommend this page<\/a>.<\/strong><\/div>\n
******************************<\/div>\n
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On Monday, former Fed official Andrew Huszar publicly apologized<\/a> to the American public for his seminal role in executing the Quantitative Easing (QE) program, a program he characterizes as \u201cthe greatest backdoor Wall Street bailout of all time,\u201d and \u201cthe largest financial-markets intervention by any government in world history.\u201d While this is a momentous admission from an insider (Mr. Huszar is also a former Wall Street banker), perhaps Mr. Huszar\u2019s most revealing statement concerned the results of QE\u2019s \u201crelentlessly pumping money into the financial markets during the past five years.\u201d He referred to the spectacular rally in financial markets and expressed agreement with the growing belief among expert observers that market conditions had become \u201cbubble-like.\u201d<\/p>\n

In a paper just released by the American Enterprise Institute<\/a>, another former policymaker, resident fellow Desmond Lachman, formerly deputy director of the International Monetary Fund\u2019s Policy Development and Review Department, warns that QE and other \u201cunorthodox monetary policies\u201d are having \u201cunintended consequences.\u201d Among other consequences, Lachman sees signs of incipient bubbles forming throughout the world:<\/p>\n

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An important aim of the QE policies pursued in the United States, the United Kingdom, and Japan has been to encourage risk taking and to raise asset prices as the means to stimulate aggregate demand. The question that now needs to be asked is whether these policies may have given rise to excessive risk taking, overleveraging, and bubbles in asset and credit markets. In this context, one has to wonder whether historically low yields on junk bonds in the industrialized countries now understate the risk of owning those bonds. . . . One also has to wonder whether yields on sovereign bonds in the European periphery have become disassociated from those countries\u2019 underlying economic fundamentals and whether global equity valuations have not become excessively rich.<\/p>\n<\/blockquote>\n

The markets for gems and for collectibles have also become very frothy of late. Yesterday, new records were set for a gemstone <\/a>and for an Andy Warhol piece of art sold at auction<\/a>. The \u201cPink Dream,\u201d is a 59.60 carat vivid pink diamond, which is the highest color grade for diamonds, and the purity of its crystals is ranked among the top 2 percent in the world. The record setting price was $83 million. Not coincidentally, the DJIA set an intraday record shortly before the auction. The new record price for the Andy Warhol piece was $105.4 million. The auction\u2019s combined $199.5 million in revenues was also a record for Sotheby\u2019s. During Sotheby\u2019s Geneva fall auction season, records were also set for the prices of an orange diamond and a Rolex Daytona watch.<\/p>\n

While the Austrian insight that super-accommodative Fed monetary policy may be causing a recurrence of asset bubbles is making headway in policy circles, it has not yet dawned on Janet Yellen. Nor is such an epiphany likely. Ms. Yellen wears the intellectual blinders of the mainstream macroeconomist which force her to focus narrowly on arbitrary and increasingly irrelevant statistical averages and aggregates like the CPI, the unemployment rate, and GDP and to ignore what is going on around her in real markets.<\/p>\n

This was clearly revealed in remarks prepared for her confirmation hearing<\/a> released yesterday. Ms. Yellen noted that the rate of increase in the CPI index was less than the Fed target of 2.00 percent and that the labor market and the economy were performing far short of their potential (based on the meaningless concept of \u201cpotential GDP\u201d). She thus reiterated her commitment to continuing monetary accommodation and \u201cunconventional policy tools such as asset purchases.\u201d It is true that in her testimony before the Senate committee<\/a> on Thursday she did concede that it is \u201cimportant for the Fed to attempt to detect asset bubbles when they are forming.\u201d However, she blithely dismissed concerns that recent record highs in asset markets reflected \u201cbubble-like conditions.\u201d With Ms. Yellen\u2019s confirmation highly likely, we can look forward to the Fed blindly fueling asset bubbles to a fare-thee-well. With the financial system still on shaky ground, this will lead to another financial meltdown and a U.S. government takeover of the financial system, the likes of which will make the last Wall Street bailout appear to be a minor intervention.<\/p>\n

Joseph Salerno is academic vice president of the Mises Institute, professor of economics at Pace University, and editor of the Quarterly Journal of Austrian Economics<\/a>. He has been interviewed in the Austrian Economics Newsletter<\/em><\/a> and on Mises.org<\/a>. Send him mail<\/a>. See Joseph T. Salerno’s article archives<\/a>.<\/strong><\/p>\n

This article was published on Mises.org<\/a> and may be freely distributed, subject to a Creative Commons Attribution United States License<\/a>, which requires that credit be given to the author.<\/strong><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Joseph T. Salerno November 19, 2013 Recommend this page. ****************************** On Monday, former Fed official Andrew Huszar publicly apologized to the American public for his seminal role in executing the Quantitative Easing (QE) program, a program he characterizes as \u201cthe greatest backdoor Wall Street bailout of all time,\u201d and \u201cthe largest financial-markets intervention by any government in world history.\u201d While this is a momentous admission from an insider (Mr. Huszar is also a former Wall Street banker), perhaps Mr. Huszar\u2019s…<\/p>\n

Read More Read More<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,5],"tags":[2617,1007,1696,1695,339,234,236,2509,1089,1090,235,686,17,2321,1054],"class_list":["post-1717","post","type-post","status-publish","format-standard","hentry","category-economics","category-politics","tag-bubbles","tag-central-bank","tag-consumer-price-index","tag-cpi","tag-fed","tag-federal-reserve","tag-inflation","tag-janet-yellen","tag-joseph-salerno","tag-joseph-t-salerno","tag-monetary-policy","tag-money","tag-prices","tag-qe","tag-quantitative-easing"],"_links":{"self":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/1717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/comments?post=1717"}],"version-history":[{"count":1,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/1717\/revisions"}],"predecessor-version":[{"id":1718,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/1717\/revisions\/1718"}],"wp:attachment":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/media?parent=1717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/categories?post=1717"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/tags?post=1717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}