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from Anatole Kaletsky:

Yellen looks toward a Keynesian approach

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This has been a banner week for the world economy, inspired largely by events in the United States.

In Washington, the first congressional testimony from Janet Yellen in her position as new Federal Reserve Board chairwoman reassured and impressed two notoriously petulant audiences: Tea Party congressmen, who had assembled a posse of hostile witnesses to attack the Fed’s “easy money” policies; and panicky Wall Street investors, who had spent the previous month swooning on fears that monetary policies might not be easy enough.

The significance of Yellen’s testimony lay not in the fact that she was a bit more “dovish” than former Chairman Ben Bernanke, or seemed more committed to the new central bankers’ fad for “forward guidance,” as opposed to “quantitative easing.” More striking, if subtle, was the change in economic philosophy that Yellen represented.

Bernanke, despite his radicalism during the financial crisis, was philosophically an orthodox monetarist, who followed his mentor Milton Friedman in believing that the main job of a central bank is to stabilize inflation. For monetarists, consistently hitting an inflation target is, in normal circumstances, a sufficient criterion of monetary policy success. They believe that using monetary policy for other economic objectives, such as stimulating growth or creating jobs, is doomed to failure and ultimately leads to galloping inflation.

from Nicholas Wapshott:

On jobs: Be bold, Obama

President Barack Obama’s State of the Union was all about jobs. He said the word 23 times, often congratulating himself on having helped create 4 million. He urged a “year of action” to make more jobs, raise wages and create opportunities for social mobility. Then he set out on a jobs tour to persuade large companies to start hiring and pay more.

But if we assume the Tea Party-dominated House of Representatives is not going to help him here and will block any new public borrowing for infrastructure projects, what is the president to do?

from Anatole Kaletsky:

A central banker’s ‘license to lie’

Federal Reserve Chairman Ben Bernanke, who retires this week as the world’s most powerful central banker, cannot be trusted.

Neither can Janet Yellen, who will succeed him this weekend at the Federal Reserve.

from Counterparties:

Morning Bid — The Minutiae of the Minutes

December’s last salvo before going into holiday mode was the surprise Federal Reserve decision to trim its monthly $85 billion in bond buying to a more modest (but still enormous) $75 billion, that helped balloon its balance sheet to north of $4 trillion.

Suffice to say, on some levels, there was a bit of a disconnect here: The Fed’s inflation outlook showed inflation not getting back to its 2 percent target for a long time (like, forever; several years out, it was seen as just sneaking its way over 2 percent, never mind what Charles Plosser of Philly says).

from Anatole Kaletsky:

Have markets finally received Bernanke’s taper message?

Thanks goodness it’s over. Financial market behavior ahead of last night’s announcement by Ben Bernanke on a gradual reduction in U.S. monetary stimulus has been tedious and irritating, rather like listening to whining children in the back of the car on a long journey: “Daddy, are we there yet?” In fact, impatient whining about when the Fed might start to “taper” has spoiled for many investors what should have been one of the most enjoyable financial journeys of all time, scaling previously unexplored market peaks and passing through unprecedented monetary vistas.

Imagine if everyone had simply taken Ben Bernanke at his word when he said in May that the Fed would continue buying bonds at the rate of $85 billion every month until it was absolutely confident that unemployment was on the way to 6.5 percent and that the scale of these purchases would only be increased or diminished if and when a change was clearly warranted by economic statistics. Investors would then have concluded, as I suggested at the time, that no significant changes in U.S. monetary policy were likely until the end of 2013.

from Nicholas Wapshott:

The strange convergence of Bernanke, Hayek and Bitcoin

Every time Federal Reserve Chairman Ben Bernanke opens his mouth, the markets move. But few could have guessed that in an offhand remark he would  add legitimacy to the Bitcoin, the virtual currency that competes with the American dollar as a reserve currency and an international trading medium.

Yet that is what he did when he held out a friendly hand to the notion of fantasy currencies in a letter to the Senate Committee on Homeland Security and Government Affairs. Understandably, this improbable endorsement from the guardian of the mighty dollar sent the value of the Bitcoin soaring.

from Nicholas Wapshott:

Hooray for inflation

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There have been some extraordinary headlines in recent days. Here’s the Economist: “The perils of falling inflation.” Here’s the Financial Times: “The eurozone needs to get inflation up again.”

For those with memories of hyper-inflation and “stagflation” in the 1970s, these cogent pleas for higher prices is heresy, an irresponsible clamor for the return of an ever-changing fiscal landscape that led to widespread misery and economic turmoil.

from The Great Debate:

Yellen vs. the Fed critics

The confirmation hearing of Federal Reserve Chairwoman nominee Janet Yellen on Thursday will be an opportune moment for Fed critics to air their grievances.  There is plenty of fodder for disagreement and debate -- ranging from the Fed’s supervisory track record, to the rules for tapering large-scale asset purchases, to the criteria for ending its zero-interest rate stance.

Yet, one sure criticism is sharply at odds with the facts: That the Fed’s crisis response was an insider affair, run by and for a handful of too-big-to-fail banks.

from Ian Bremmer:

An optimist’s view of the White House

What will the White House screw up next? Democrats have watched as one calamity after another has befallen what was once the most promising Democratic administration since John F. Kennedy’s. Obamacare, the NSA, Syria, heck, even the administration’s campaign foibles are back in the news with the publication of the new tell-all book Double Down.

Yet all is not lost. The Obama administration has not exactly bungled its way through five years of power. Until this year, in fact, Republicans were complaining that the press had been too kind towards Obama. With all the dour news, it is worthwhile to take stock of all the good things for which Obama can take credit. Bear in mind, some of these successes may not have been Obama’s ideal objective -- but the end results are victories regardless. These are the top eight achievements that not even Edward Snowden can take away, in descending order of importance.

from Anatole Kaletsky:

With hostage taking over, a Washington deal beckons

Nobody should be surprised that Wall Street hit new records this week. After all, the U.S. has just witnessed the end of a sensational hostage crisis that was threatening national security and undermining economic confidence -- and even more sensationally, this was the second such crisis in two months.

John Boehner was held hostage by Republican hardliners until last Thursday, when the U.S. Congress voted to continue pumping money into the U.S. government. The fiscal militants forced Boehner to endanger the U.S. economy with threats of a Treasury default. Boehner reluctantly paid this rhetorical ransom in order to preserve the appearance of party unity and therefore his own credibility as a political leader.

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