This week the diminutive Janet Yellen, by far and away the most powerful woman in the world, sent the macho and male-dominated financial markets into a hissy fit when she mused aloud that she may raise US interest rates early next year.
The new head of the Federal Reserve is different. In putting a potential date on economic policy changes she patently wasn’t playing the game.
The game between the Federal Reserve and the world’s financial markets has always been one that would be fairly familiar to someone from the North. Up the North, when anyone asks, “What part of Belfast are you from?” or “What school did you go to?” or whether “Yer man’s name is Mervyn or Seamus”, all is known, but never directly asked and never pinpointed exactly.
Sometimes the structure of an initial conversation in the North amounts to a weird ethnic GPS system – everyone plugs in the cultural coordinates and in no time, you’re home and dry without ever asking the question directly.
In his brilliant poem ‘Whatever you say, say nothing’, the late Seamus Heaney, summed up this form of communication and inquisition brilliantly. (It’s well worth watching his 1999 reading of the poem on Channel 4 News). As someone who is married to a Northerner, I can vouch for this strange form of relentless sectarian data mining.
The ethnic GPS approach to conversation is a form of communication whereby we all know more or less what is being said, and who is saying what about whom – but we can never be direct about it.
In central banking there is a similar game that goes on between the financial markets and the central bank. (In fact, come to think about it, Seamus Heaney on the strength of that poem would have made a brilliant central banker!)
For years the central banker skirted around the issue, offering signs and smoke-signals, but never quite nailing his actual intentions. The financial markets plugged these hints, nods and winks into their economic GPS to come up with a route map spelling out where the stock-market or gold or bonds were likely to go.
Indeed, my own time in central banking was one large exercise in knowing stuff, but never saying it clearly. In this Delphic world, my former boss, the then governor of the Irish Central Bank once told me, “You wouldn’t want to explain that too much . . . for fear of frightening the horses.”
The expression ‘frightening the horses’ comes from the trial of that other giant of Irish literature, Oscar Wilde, and also involves another Irish Nobel prizewinner, George Bernard Shaw. During Wilde’s trial in 1895 when Victorian Britain was up in arms against gay men, a society actress, Mrs Pat Campbell, was asked by some Victorian prudes about what it is ‘those gay men do.’ She responded calmly, “I don’t care what affectionate people do, so long as they didn’t do it in the street and frighten the horses.”
The tolerant Campbell went on to be the first actress to play Eliza Doolittle, in George Bernard Shaw’s Pygmalion.
Frightening the horses implies offering too much information either in word or deed.
This week, Janet Yellen, in what I regard as a refreshingly honest Federal Reserve testimony, frightened the horses, and revealed too much about the Fed’s thought and deed.
Maybe Yellen could have entered the Heaneyesque world of nods and winks at her press conference, but she didn’t bother. She spoke openly and said she thought she would raise US interest rates in March next year. The horses scattered all over the pen and the markets sold bonds and stocks aggressively.
There was much talk about whether Yellen meant to mention March, or whether it was a slip of the tongue. But I think financial markets who have spent the past two decades being weaned on the mother’s milk of cheap interest rates, QE and other schemes – which link the fortunes of Wall Street to the Federal Reserve – do not yet understand that they are dealing with a different type of central banker in Yellen. She meant what she says.
In the same way as Seamus Heaney comes from a tradition, so do all of us. That goes for Janet Yellen too. Sometimes, these echoes of those who went before us are very strong, and can be deep inside us without us even knowing – as if someone is whispering to us.
Yellen comes from a long and noble tradition of left-leaning, originally eastern European, Jewish intellectuals who are deeply concerned, as their parents and grandparents were, with social justice and inequality. In short, she is more interested in civil rights issues than rights issues – and Wall Street better get used to that.
In America there is a long tradition of Jewish thinkers being on the progressive Left, at the forefront of the civil rights movement, defending unpopular causes and fighting for gender equality – from Bob Dylan, to Betty Friedan and Alan Dershowitz.
Even now, 80 per cent of American Jewish people vote for the Democratic party. Yellen and her husband, the Nobel prize winner George Akerlof, are from this central European leftist tradition, as too is Paul Krugman and Jeffrey Sachs and many, many others.
For these economists the point of a successful economy is not to keep Wall Street rich, but to create a society that is more equal, where people have a chance and where wages are higher and unemployment as low as possible.
In many ways, Janet Yellen is to the bull market of 2014 what the former Federal reserve chairman, the patrician Paul Volcker was to the 1981 bear market.
It is not that she doesn’t care about Wall Street and financial markets, but their reactions are not her primary concern and therefore, rather than play the game of Delphic nudges and winks, she calls it straight. Her message to the wolves of Wall Street, is something like: ‘Here is what I think, you guys go and figure out what that means to you.’
I sense that she is against QE because it makes rich people rich and exacerbates inequality. She will tell Wall Street what she is going to do, and as far as she is concerned whether the horses decide to be frightened or stay calm in response to her actions is really up to them.
Now this is a change and may go someway to undermining the Wall Street/Washington corridor which has dominated American policy making since Bill Clinton and his chief economic guru Bob Rubin dismantled Roosevelt’s 1930s banking regulation in the 1990s.
Come to think of it, Janet Yellen may well turn out to be more Bob Dylan than Bob Rubin, and that would constitute a proper transformation at the top in America.
David McWilliams writes daily on international economics and finance at www.globalmacro360.com
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“social justice and inequality”
Would love to think you are right, sadly for the ordinary people of America and the rest of the globe I think you are not.
Why are my comments being blocked?
Reality Check. Nothing is blocked. It just takes time to go through! What you think this is Turkey and Twitter?
D
Hi, A superb and very weighty piece. The thought occured to me when reading this in the SBP that there are manny in the Knesset who could take lessons from this Lady on how to be a top end exponent of the Jewish faith. It appears that Janet Yellen is doing what no one thought would happen which is putting American Citzens first and rewarding savers rather than speculators. If she continues with this policy wouldn’t it be great if she could shift the US from being a borrow and spend economy to a save and spend economy like Germany.… Read more »
Draghi is Yellen to Mattie McGrath stating that Ireland has benefited from the ‘eurosyetem’ and has been extraordinary in recent years and that Irish Banks have ‘outstanding issues’ ../ ….a higher interest rate will make those outstanding issues ….more outstanding …how better does it become ?
I don’t know anything about Janet Yellen but if she’s from the same stable of Jewish intellectualism as Betty Friedan or Naomi Klein, I doubt if I’d share her views on what constitutes equality. In fact, I’d be rather worried for the planet.
Here is a link to Yellen’s full speech:
http://blogs.reuters.com/felix-salmon/2014/03/19/janet-yellens-first-fomc-statement-annotated/
David quoted from it: “She spoke openly and said she thought she would raise US interest rates in March next year.”
Forgive me David but where did she say that? Am I missing it somewhere?
I have a reputation for being blunt, I usually say what I think with a very short filter, not a good thing to do in Ireland, gets me in a lot of trouble if I am honest. I find that I have had to live by this quote a lot: “It has always been the prerogative of children and half-wits to point out that the emperor has no clothes. But the half-wit remains a half-wit, and the emperor remains an emperor.” but it looks like in Janet Yellan’s case, she do do more than talk, she can stop QE so… Read more »
‘ the diminutive Janet Yellen’….old desert saying .’.he ( she) who is nearest to the snake …fear the most’ …….just do not tell the wife .
Janet Yellen may well mean what she said but there is not a snowball’s chance in hell her intentions will come to fruition. Reality will overturn her intentions to a U-Turn, expect Janet Yellen to increase QE and lower interest rates. I hope though she does have conviction because it will make for very interesting times sooner than we expected.
“I sense that she is against QE because it makes rich people rich and exacerbates inequality.” …. Dear David, being against QE is similar to being against Ireland in the Euro. We are in it. QE happened. It’s all in the past. The question now is how to address the mess. Yellen has as much chance as nobody of draining away the massive liquidity created since 2008. The tsunami of QE is permanent and I suspect she’ll attempt nothing, her egalitarian proclivities being irrelevant in any case.
My question is, what happens if interest rates go up? And go up by how much? As someone who cound never afford a mortgage-resorted to saving- I would assume that it would be in my interest to see ‘historically high’ interest rates?too much to hope for?
Keynesian Phillips-Curve Disciple, or more bluntly….dovish Contrary to hawkish, Yellen is a dove, notwithstanding her intellectual background, she can apply hawkish policies of course. When QE ends, the FED will own bonds worth 22% of GDP. Essentially, the US are bust, the EU is bust too. We found another one totally bust, the Ukraine, and pump billions into that bottomless pit as well now. Rightwingers at the helm? Who cares, social democrats don’t hesitate sitting at the same table with Svoboda leaders. What a picture that was! EU jabbers about sanctions, parroting US foreign policy, kicking Russia out of G8,… Read more »
http://www.jsmineset.com/2014/03/24/chair-yellen-to-get-a-shock-of-a-lifetime-in-the-next-few-months/ “The only asset to survive and appreciate in the period of the great leveling now in progress in the West is Gold. That is understood at a level of POLICY here in the East. Gold is not being bought here in the physical market as an investment decision but rather as a policy decision. It is clearly understood that gold is for saving and not for speculation as the eventual failure of the paper gold market will prove. As we move out of the Great Leveling 2016 into the Great Reset of 2020 gold will have preserved the buying… Read more »
“Items we “need versus want,” of course, will continue to rise in price until the fiat regime inevitably collapses. To that end, I just received my new homeowners’ insurance quote for 2014 – up 21% from last year’s level, and 110% from when we bought our house seven years ago. However, the expanding recession will continue to eat away at prices of everything else, putting thousands of companies out of business; yielding expanded layoffs, increased demand for government entitlements, and reduced government tax revenues – in turn, yielding expanded deficits, increased borrowing needs, and ultimately, more QE to fund such… Read more »
Add to above And again, we cannot emphasize enough that such issues are global; with perhaps the worst of all worlds currently unfolding in Europe. With record unemployment, exploding debts and expanding civil unrest, it’s only a matter of time before the ECB launches the long-awaited OMT, or Outright Monetary Transaction, QE program. This event will be matched in desperation only by the inevitable expansion of Abenomics – likely this summer, after the national sales tax increase obliterates what’s left of the Japanese economy; and ultimately, the initiation of “Yellenomics” here in the States, when the last vestiges of hope… Read more »
Deco, if you are there, you were talking about the $19 billion Facebook purchase of WhatsApp, on the last article.
Now, King Digital Entertainment, creators of Candy Crush are supposedly going to raise $5 billion on the New York Stock Exchange when they float.
This is just bananas stuff.
So negative interest rates on the horizon for ECB together with debt monetization to the tune of 60 billion a month or more just like the good old USA. http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100026946/monks-recant-bundesbank-opens-the-door-to-qe-blitz/ Twenty years ago when mortgage rates were 10.5 -12% I proffered the opinion that the total debt scenario would result in negative interest rates as we go poof to extinction with this monetary system. Did not think it would take 25 years though. They will charge to deposit and pay you to borrow. Money is worth nothing. Fiat that is. Get land and gold. Don’t yell at me for being… Read more »
And no Yellin at me either.
competitive devaluation urged for Britain. That should increase debt and lower interest rates.
http://www.telegraph.co.uk/finance/currency/10716848/Devalue-pound-to-boost-economy-says-JML-founder.html
China unloads US dollars for gold. Plus China has stopped buying US debt.
This will devalue US dollars. another facet of competitive currency devaluations.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/3/22_Maguire_-_Goldman_%26_Media_Full_Of_Shit_When_It_Comes_To_Gold.html
“Russian President Vladimir Putin warned earlier this month that sanctions against Russia threatened to cause mutual damage in the modern, integrated global economy.”
http://en.ria.ru/business/20140321/188628529/Visa-Mastercard-Freeze-Customer-Cards-at-Russian-Bank.html
Russia can wreck the US economy by dumping US treasuries and hold Europe hostage by withholding oil and gas.
no amount of diminutive Yellin can alter that.
WSJ article on ECB negative interest rates
http://online.wsj.com/news/articles/SB10001424052702303725404579461191077796078
I guess Mr. bonbon and his buddies achieved their aim in the end by seriously inhibiting debate on this site.
They are most likely off trolling elsewhere now.
Oh well, life goes on.
Adam and Tony: I was speaking to the basic issue raised by you Adam: what is it that is “seriously inhibiting debate on this site”.
The problem appears to me to be that people like bonbon and Tony continually use the site to hammer away at their favorite gripe, the repeal of Glass-Segal in the case of bonbon and the lack of sound money in the case of Tony. IMO that is what is driving people away.
I hope that clarification helps.
Tony: you are right, you do not “jump in to everyone elses thread” as bonbon did. My only criticism of you is that you should respect DMW’s request that we keep our comments relevant to the subject he chooses. After all it is his site. I also agree with you that David is constrained by commercial considerations but I can forgive him for that as we all have to make a living. It is one of the fundamentals of economics :). The fact that I do not respond to the issues you raise (“The current money system is the issue… Read more »
Thanks Pat
A lot of what you say makes sense.
However I too am aware of the theme and only use my “hobby horse” if I can connect with the theme. One is able to do this more often than than I thought.
however if there were more discussion on this topic then more would be educated to the reality and then there is a grater chance of getting something done about it.
Silence on the matter is not a solution.
Thanks for the chat Pat,