During her confirmation hearing Thursday, Janet Yellen, President Obama’s nominee to become chairman of the Federal Reserve, said she will pursue policies that hurt people who try to build up wealth, claiming that impoverishing savers serves the collective good of society.
“I understand that savers are hurt by this policy,” Yellen said under questioning from Republican Nebraska Sen. Mike Johanns about low interest rates.
Johanns told Yellen that her policies “are very, very hard on certain segments of our society.”
“You know, explain to the senior citizen who is just hoping that a CD will earn some money so they don’t have to dig into the principle,” Johanns asked, “what impact you’re having on a policy that says we’re going to — for as far as the eye can see or foreseeable future — keep interest rates low.”
“They are hurt by that policy,” the senator added.
Yellen said she agreed. “But you know, if we want to get back to business as usual and a normal monetary policy and normal interest rates, I would say we need to do that by getting the economy back to normal.”
Yellen avoided hard questioning from a Senate Banking Committee staffed mostly by believers in the Keynesian economics to which she subscribes. According to this belief system, excessive government spending can restore “equilibrium” to national economies. “Monetarism,” an outgrowth of the Keynesian creed, holds that central banks can plan economic activity by, among other things, creating more money — and thus more wage and price inflation — during slack periods.
Current Fed Chairman Ben Bernanke, a student of the Great Depression, responded to the 2008 real estate correction with a quadrupling of the U.S. money supply, mostly through the policy of “quantitative easing” which creates about $85 billion in new money per month. While the policy arguably prevented house prices from reaching their natural lows at the end of the last decade, it has also created the longest period of economic stagnation since the end of World War II.
Yellen was not called upon to defend these policies, which she has signaled an interest in maintaining and expanding. She also suggested savers should be willing to see their wealth eaten away for what the Federal Reserve considers the greater good of society.
She argued that savers “play many different roles in the economy” and if they “take into account the broader array of interests they have in a strong economy, they would see that these policies — even though they may harm them in one respect — are broadly beneficial to them as I believe they are to all Americans.”
Yellen’s commitment to devaluing the dollar has been a topic of considerable debate. Although all Fed staffers are committed to constant and effectively infinite expansion of the money supply, there are some variant sects within the institution. Traditionally, regional presidents are more cautious about inflation than the more politicized board members. Yellen has served as both a regional Fed president in San Francisco and currently as a board member. Her past comments indicate she will be more aggressive in creating inflation.
“They may be retirees who are hoping to get part-time work in order to supplement their income,” Yellen told the Senate Banking Committee. “They may be people who have children who are out of work and who are suffering because of that or [have] grandchildren who are going to college and coming out of college and hope to be able to put their skills to work finding good jobs and entering the job market when it’s strong.”
Yellen, the vice chairman of the Federal Reserve Board of Governors, made the comments during her confirmation hearing before the Senate Banking Committee.
If confirmed, Yellen would replace Bernanke and would be the first woman Fed chairman.