Economy | - Part 30

Jim Grant on Yellen, Bitcoin

Jim Grant of Grant’s Interest Rate Observer comments on yesterday’s testimony by Fed Chair Janet Yellen and shares a few thoughts on the troubles of crypto-currency Bitcoin.

On the Fed, we are reminded of something that passes without a second thought these days:

The Fed has, in its hundred year past, manipulated interest rate before, but never, until now, has it treated the stock market as if it were a lever of national public policy.

The part on Bitcoin has been cut off for some reason. According to other reports, he said he favors gold over the new digital currency as the metal is “nature’s own Bitcoin”.

Highlights from the WSJ Yellen Live-Blog

The prepared testimony and question & answer session with new Fed Chair Janet Yellen awaits me on the DVR, but, somehow I don’t think I’ll get to it, particularly since the folks at the Wall Street Journal Real Time Economics Blog get paid to do that sort of thing.

Some highlights from an appearance that markets seem to like quite a bit:

Yellen8:30 AM – Her last public appearance came three months ago at her confirmation hearing. She showed Greenspan-like skill of allowing lots of words to come out of her month, while smiling, without ruffling any feathers. She’ll surely want to do the same thing today. The last thing she’ll want to do is start riling up House lawmakers.

8:48 AM – The first question from the Democratic side (from Rep. Maxine Waters) is a softball about the benefits of quantitative easing and the Fed’s plans for it. Hey big surprise: Janet Yellen supports it.

9:21 AM – “Yawn”—that’s the term UBS economists are using to describe Ms. Yellen’s monetary policy testimony. Why’s it such a snoozer in the view of economists? Yellen is basically affirming what was already know about the economy and policy outlook.

9:29 AM – Is the Fed’s QE a deficit enabler? Rep. Randy Neugebauer (R., Texas) wants to know whether the Fed buying up so much new Treasury debt is enabling higher deficits. He surely must know he isn’t going to get the answer he wants on this one. Yellen is really summoning her filibuster skills on on this one. Her bottom line: We have a weak economy and need low interest rates. Purposefully raising interest rates would create higher deficits in the long run, she says.

That’s it?

Shades of Alan Greenspan, a big “yawn”, and markets rocketing higher when there was no backing down from the Fed tapering their money printing. What’s not to like?

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Rising Prices and the Fed

Given the dearth of officially reported consumer price inflation in recent years, don’t look for this to be a major topic today when new Federal Reserve Chair Janet Yellen appears before the House Financial Services Committee in the first of two appearances on Capitol Hill this week to present the central bank’s semi-annual monetary policy report to Congress.

That’s not to say that it won’t be at some point in Yellen’s tenure…

Nevertheless, there is clearly an ongoing disagreement about how fast prices will rise as this WSJ story details the differing views on inflation between the experts and the laymen.

Predicting Prices

In short, Americans think inflation will be about twice as high as the Fed does, however, as noted in the article, there are fundamental differences in how consumers view current and potential price changes and how economists view them.

Also, kudos to Ms. Yellen who mentions the word “inflation” an impressive 11 times in her prepared testimony today. Somehow, I don’t think this will be quite enough to stop some Republicans from expressing their grave concern about it.

Economic Confidence and Politics

More evidence of a polarized nation comes via this Gallup survey data that combines economic confidence by state with a range of questions on political views. As has been seen in the detailed weekly confidence data in recent years, with the exception of scandals for the party in power, it seems nothing will boost the confidence of the the party not in power.

Economic Confidence Obama Disapproval

The flip side of this is that – and this should come as no surprise – most of the highest-ranking states in economic confidence are in the top 10 for presidential approval.

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