Same Kind of Different?

We recently wrote a 2 piece article about Janet Yellen being nominated as the next Fed chair. When we saw this masterpiece of photoshop this week we knew we had to write another article (if for no other reason than to share such an amusing picture!).

Like most good humor, this picture is laced with a little bit of truth – that’s part of what makes it funny. Janet Yellen is anticipated to follow in mostly the same path already laid by current Fed chairman Bernanke. If that is true, how will anyone be able to tell the difference between his policies and hers? Will Yellen’s tenure simply be a continuation of Bernanke’s policies? Was Yellen chosen because she was the candidate most likely to run things the same way Ben did?

It is important to remember that the last two Fed chairs have each been at the helm during significant bubbles. Greenspan presided over the dot.com bubble of 2000, and Bernanke during the housing bubble of 2007. Neither one of these guys saw those bubbles coming. In fact, let’s take a look back at an interview Bernanke gave back in July 2005 where he was specifically asked if he saw any possible problems in the housing market:

CNBC Interviewer:  What is the worst case scenario?  We have so many economists coming on our air saying, “Oh this is a bubble and it’s going to burst… They’re saying it’s a real issue for the economy and that it could cause a recession at some point.

Bernanke’s response: Well, I guess I don’t buy your premise.  It’s a pretty unlikely possibility.  We’ve never had a decline in house prices on a nationwide basis.  So what I think is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit… I don’t think it’s going to drive the economy too far from its full employment path though.

Here is the link to this interview as well as a compilation of others.

In Yellen’s confirmation hearing this week, she reiterated her viewpoints on the need for continued zero interest rates and continued QE. It appears the most dovish member of the current Fed board will not disappoint those who expect the printing presses to keep rolling! One specific comment Yellen made at the hearing really caught our attention: “It’s important for the Federal Reserve to attempt to detect asset bubbles.”

Bernanke certainly didn’t see the housing bubble before it burst… Will Yellen be able to identify the next bubble before it bursts? (By the way, we think it will be in bonds). Let’s all hope she can do a better job of that than her 2 predecessors… she’s coming to the plate with two outs and we certainly need to score a few runs.

Categorized in: Blog

This post was written by Conscient Capital