What's all the Yellen About?
Richard Duncan* details what he thinks the likely next Federal Reserve Chair Janet Yellen will do in office, how this will affect the financial markets & the economy .. on Quantitative Easing (QE), Yellen believes QE is working & she thinks it should 'continue until there is a substantial improvement in the outlook for the labor market in the context of price stability' .. considering the next debt ceiling debate just a few weeks after she is nominated plus a weak U.S. job market, it is likely that there will be no tapering until at the very earliest March .. "If that view is correct, and I believe it probably is, then the near-term outlook for the stock market is very bullish. QE will continue to pump fresh money into the economy and that money will drive up asset prices, particularly the price of stocks." .. Duncan thinks that Yellen & her colleagues at the Federal Reserve will not likely increase the Federal Funds Rate (which as been 0% for a few yrs now) until well after QE ends & most probably not until 2015 .. Duncan: "Such abnormally low interest rates are storing up serious problems for the future by encouraging investments to be undertaken now which will become unprofitable when interest rates return to more normal levels. If this kind of 'malinvestment' continues, the size of the eventual losses are very likely to be such as to cause another very costly systemic banking crisis in the not too distant future .. I do not envy Janet Yellen. She is walking into what looks like an impossible job. If she stops QE and returns interest rates to a normal level any time soon, the stock market and the property market will crash and the economy will be threatened by a new depression; but, if she continues to create massive amounts of fiat money and to hold interest rates at 0%, then the U.S. (and the global) economy will become SO distorted by malinvestment that a new depression may become unavoidable in any case."
LINK HERE to the essay 
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