Janet Yellen is known to favor fed's easy money policies and she is extremely well qualified having been through the financial crisis of recent. With her at the top there's no doubt QE will continue until a sure economic recovery.
I'm not in favor of Yellen because I hold her partly responsible for the fiscal crisis. The period leading up to the crisis was a bubble very similar to all past bubbles, including the great depression. Her credentials would have one think that she should have been taking steps to mitigate the destruction long before it occurred.
Leading up to just before the calls they got from the treasury department that the economy was about to fail, both Yellen and Bernanke were handing out forecasts of a great economy as far as the eye could see. Does everyone so easily forget the rant by Cramer in late 2008 that the Fed had no idea what they were doing? Just to be clear, he was talking about Yellen and her boss.
I guess everyone wants to appoint another bubble maker. A truly qualified Fed Chairman will do what is best for long term stability. Bubbles increase both the highs and lows. You prop things up with cheap money and you end up paying for it with deeper recessions. Is that what we really want? I perfectly understand why a drug addict wants this because they can't help themselves but for the economy I think us sober folks would want more moderation as it is less painful over all. Of course if you are a masochist maybe pain isn't something you try to avoid. But I don’t think that most of us crave pain but would rather avoid it, even if one cannot get as high. It seems to me that bubbles can be addictive as I have observed a lot of additive behavior toward wanting them. Maybe we need bubble anonymous where bubble seekers can get group therapy.
The best leading indicator of an economic recovery is the 10 year rate, which is approximately equal to the inflation rate plus the growth rate. Both are now about 1.5% each, giving us a 10 year of about 3%. To the extent that QE boosts the economy, it pushes the 10 year rate up, and the book value of AGNC down; whereas, moderating QE by a substantial amount will hold interest rates steady.
If treasuries were always equal to the inflation rate then TIPs would always pay about 0 percent interest. But before 2009, 10 year TIPS averaged about 2%. Historically 30 year fixed rate mortgage rates have run about 1.5% to 2% higher than 10 year treasuries. But occasionally the difference gets as low as 1% or as high as 3% but it does not persist there for long. Right now 30 year fixed rates are at about 4.6% and treasuries are at about 2.8% resulting in a spread of about 1.8%.
The real interest rate is the stated rate minus inflation. So basically the Fed is giving away money now days because at near zero percent interest they are charging negative real interest or in other words they are paying people to borrow money. Thus they are injecting money into the economy indirectly and thus debasing the dollar. If this continues it could threaten the status of the dollar as a reserve currency since no one would want to hold a currency that is continuously being diluted in value. Yellen would enable this to happen.
If the US loses reserve currency status then what will happen to us is what happened to the British Empire when the pound lost reserve currency status. It was very ugly.
Wrong, don't you guys do any due diligence. She believes in using FED policy and so does Obama to rebuild the middleclass, the evidence is overwhelming. Ben Bernanke was Bush's guy and he took care of the BIG BANK, BIG WALL STREET to bail them out and made it look like he was trying to create jobs. There are actually less jobs now than before QE, unemployment is down from people dropping out of the work force. The Big Ben game is over, Obama could not stop it until the banking system was out of all those bad Mortgages, and the M-REIT's helped out by socializing the MBS on the public. NOW THE GREAT REBUILDING OF THE MIDDLE CLASS STARTS, here is the recipe:
1. Higher Inflation
2. Higher Interest Rates
3. Less Government Spending
5. Wealth Destruction of the top 20% who will see their asset values drop over time by 50%.
6. Middleclass asset values will rise double digits, as those 3% mortgages will leave alot of
cash available to pick up lower asset price values with higher yields, it the 1970's all over again, it is coming, along with flared trousers and floral hawaiian #$%$.