The Honorable Dr. Janet Yellen, Chair of the
Federal Reserve, testified before the Senate Banking Committee yesterday
in a ceremony that her predecessor, Dr. Bernanke, must have come to
dread towards the end of his tenure.
Of course, towards the end, Dr. Bernanke’s
tenure had been marked by the largest economic downturn in memory for
most and he found himself shouldering much of the blame. Bodies such as
the Senate Banking Committee often took the opportunity to grill
Bernanke on the latest financial headlines or the direct complaints from
their constituents stemming from various financial debacles that had
unfolded during his tenure. Be it Lehman Brothers, MF Global, or the
troubled housing market, Bernanke could count on questions ranging from
the dangerous to the ridiculous from committee members who were, in many
cases, further removed from reality than Dr. Bernanke himself.
So it was that Yellen took the hot seat that
her predecessor had dreaded yesterday before a new set of faces in order
to explain what she sees in her economic crystal ball.
From what could be gathered from the mostly
scripted exchange between the parties, there seems to be a range of
lingering worries in the minds of policy holders as to the health of the
US economy, which recently clocked in at an underwhelming 0.1% annual
growth rate in Q1 of 2014. The worries, which are no doubt rooted in
recent history, range from the continued drop in labor force
participation rates and what many see as a stalled out recovery in the
housing market.
The US Q1 GDP number can be summed up in a
phrase that Red Green was fond of, “It is winter.” Housing markets
invariably slow down over the winter months, which are generally a drag
on GDP as households recover from the Q4 holiday spending binge.
Labor market participation, which surfaced as
a primary concern during yesterday’s hearing, is a much more complex
problem, for deep down it validates the fears of nearly every thinking
economist, that the US is following in the footsteps of Japan’s
demographic and economic precedent.
The real problem with the US economy was not
addressed directly at this hearing, nor is it likely to ever be
addressed in such a forum: The extraordinary measures employed by the
Fed back in 2008 in an effort to prop up the international banking
system have forever altered the mode of transmitting credit into the
economy. This has caused a broad based reset of the banking food chain
at a time when the US economy could least afford for such a change to
occur.
These extraordinary measures will be with us
until the US Dollar hits its breaking point, and the inevitable currency
reset begins to pick up steam. When this occurs, Dr. Yellen and the
Senate Banking Committee are likely to be the last to know.
