- - Friday, February 14, 2014


The Great Snow of ‘14 freed Janet Yellen from her obligation to testify before Congress for a second day, and it’s just as well.

More talk would have been redundant. The gist of her tenure as chairman of the Federal Reserve, as she sees it, is clear.

Despite the desperate need for the Fed to jettison the “let’s print more money” policies of Ben S. Bernanke, it’s not going to happen. Ms. Yellen has no intention of rocking the Bernanke boat.

The question is whether she’ll keep inflating the money supply through “quantitative easing,” Mr. Bernanke’s scheme for the Fed to spend billions every month to buy bonds and hold interest rates at near-zero levels.

This has been going on since 2008, but despite talk that this reckless policy might be cut back or “tapered,” the damage has been done, as James Bullard, the president of the St. Louis Federal Reserve Bank, observes.

The combination of low interest rates and higher growth creates “a fertile environment for creation of asset bubbles in the future,” he says, and that’s a risk that Ms. Yellen herself conceded in testimony last week.

When interest rates are low, banks have access to cheap money, and this encourages them to lend to customers who can’t pay it back. The higher-risk loans fuel the asset bubble, just like zero-down-payment mortgages and other high-risk lending strategies led to the housing bubble that set off the Great Recession.

The Fed’s new leader demonstrates that she hasn’t learned much from the Fed’s contribution to the collapse of the economy.

Ms. Yellen did acknowledge the seriousness of the jobs situation, the declining labor-force participation rate and what to do about the 3.5 million Americans who have been unemployed for three years or more. Those caught in this unemployment trap won’t catch up for decades.

Ms. Yellen attempted to pass the blame for the declining labor-force participation rate on the graying of America. That sounds reassuring, assuming the birthrate revives, but it’s not true.

Keith Hall, the former commissioner of the Bureau of Labor Statistics and now a senior research fellow at the Mercatus Center at George Mason University, found that the decline in unemployment could be explained almost entirely by a decline in the number of Americans under the age of 55 who are looking for work. In fact, the share of older Americans in the labor force increased slightly.

So much for the graying. The Fed’s zero-interest schemes have decimated the value of savings and retirement accounts, and those living on a fixed income have had to postpone retirement or find jobs to make ends meet.

Ms. Yellen is accomplished in the dismal science, as is her predecessor. But no matter how smart the chairman of the Fed may be, such an official will never match the smarts of the millions who decide what’s best for themselves in the free market.

Every time the Fed assumes additional regulatory power, the market loses both freedom and intelligence. The net result is usually disaster.

The Fed has shielded itself from proper blame by avoiding scrutiny — from Congress and outside auditors. Since taxpayers will be on the hook for Ms. Yellen’s mistakes, they have a right to demand transparency and a change of course to enable the economy to get on with healing itself.



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