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Posts Tagged ‘Federal Reserve

It’s all about her background, stupid

There is a long and interesting profile of Janet Yellen, the head of the Federal Reserve, in the latest issue of the New Yorker. As you might expect from this longstanding voice of the liberal New York elite, it paints her in a  sympathetic light, and usefully draws attention to how and where her views about the role of economics and the central bank were formed.  Here is a short extract, in which the author picks up on the fact that her first official public appearance after succeeding Ben Bernanke in the job was carefully chosen to send a message about her priorities:

She had gone to Chicago a few weeks earlier to speak at a conference for neighbourhood revitalisation organisations – not the venue a new Fed chair wouuld ordinarily choose for a maiden speech. Yellen was sending a signal. As she put it that day “Although we work through financial markets, our goal is to help Main Street, not Wall Street”. More than five years after the financial crisis, historically high numbers of Americans are still out of the labor force, working part time when they’d rather be full time, or unemployed for more than six months. Yellen spoke mainly about unemployment, and told the stories of three blue-collar Chiacagoans, two black, one white, who had lost their jobs in the recession. Her staff had found these people for her, and she had spoken to them on the phone before her speech. Two of the three – from Chicago’s desperately poor West Side – had criminal records.

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Written by Jonathan Davis

July 28, 2014 at 4:21 PM

Emerging markets: an accident that’s been waiting to happen

Stern words today about the roots of the current emerging markets crisis from Stephen Roach, the former chief economist at Morgan Stanley now less stressfully ensconced at Yale University, where  he is a senior Fellow. You can read the full broadside here, but this is a short extract, highlighting how the huge destabilising capital flows into – and now out of – emerging markets can be directly traced back to the policy of quantitative easing. The countries now suffering most are those, such as India and Indonesia, which have run large current account deficits and/or have failed to make necessary structural reforms during the good times:

A large current-account deficit is a classic symptom of a pre-crisis economy living beyond its means – in effect, investing more than it is saving. The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad. That is where QE came into play.

It provided a surplus of yield-seeking capital from investors in developed countries, thereby allowing emerging economies to remain on high-growth trajectories. IMF research puts emerging markets’ cumulative capital inflows at close to $4 trillion since the onset of QE in 2009. Enticed by the siren song of a shortcut to rapid economic growth, these inflows lulled emerging-market countries into believing that their imbalances were sustainable, enabling them to avoid the discipline needed to put their economies on more stable and viable paths. Read the rest of this entry »