The stock market’s reaction to the announcement that Janet Yellen is, as expected, Obama’s nominee to be Chairman of the Board of Governors sent stocks higher. Then they fell back. Then they rose. They closed higher.
Yellen is a dove. She is more of a dove than Bernanke. This means that QE3 is likely to continue under her leadership, which will begin on February 1.
A month ago, it was “all-taper, all the time” in the financial media. The experts got caught flat-footed when there was no taper. The talk of tapering is muted now. The focus is on the debt ceiling.
The Keynesian-dominated media are now predicting slower economic growth because of a temporary reduction in federal spending. This slower growth is now expected to justify Yellen’s position: more QE.
The Democrats in the Senate will confirm her. There will probably be tough questioning by a few Republicans, but this will come to nothing. She is a shoe-in. The investment world has always preferred her. It wants continuity, which means continuity of $1 trillion a year in newly created digital money to subsidize the federal government.
There will come a day when a reduction of this expansion will be required to reverse the effects of price inflation, but that day is not on the immediate horizon. The economy is stagnant. Unemployment is high. The FED is providing support for a bloated federal deficit. It is buying federal debt at low interest rates, which the government wants.
The fact that the official announcement of Yellen’s nomination was greeted with cheers from Wall Street indicates the extent to which Wall Street is dependent on QE3. The subsidies must continue if the stick market is to rise. The capital markets are addicted to the trillion-dollar subsidy.
This indicates how painful any return to stable money will be for investors. This is why talk of a taper is now subdued. The thought of a taper and a fixed debt ceiling scares Keynesians, who want more federal debt and more monetary inflation. The addict wants his fix. Yellen is going to be queen of the pushers.