BusinessBusinessjanet-yellen-federal-reserveJanet Yellen

Janet Yellen Shames Congress For Austerity, Being Terrible

Janet Yellen Shames GOP For Austerity, Being Terrible
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Managing Editor, Business and Tech, The Huffington Post

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It looks like Janet Yellen will have no problem tackling one of Ben Bernanke's most important jobs: shaming Congress for ruining the economy.

Yellen reminded lawmakers of their sheer terribleness during a Senate Banking Committee hearing on Thursday about her nomination to replace Bernanke as chair of the Federal Reserve when his term ends in January. Republican senators moaned and groaned, as usual, about the Fed's extreme easy-money policies. Yellen reminded everybody that Congress has forced the Fed to act by constantly imposing harsh austerity measures on an economy still recovering from a financial crisis and deep recession.

"Fiscal policy has been working at cross purposes to monetary policy," Yellen said. "Some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and from demand, making it harder for the Fed to get the economy moving, making our task more difficult.

"We are worried about a fragile recovery, and a more supportive fiscal policy, or one that at least had less drag, that did no harm, would make life easier," she added later.

Yellen was referring to the austerity that has come out of a rolling series of debt crises instigated by Republicans in the past few years, including the deep budget cuts known as sequestration and this year's payroll-tax increase. Under pressure from Republicans, the federal government has cut spending at the fastest pace since the end of the Vietnam War. Government investment has tumbled to its lowest level as a percentage of GDP since 1948.

This belt-tightening has probably cost the economy nearly 2.5 million jobs, according to a recent study by the Center For American Progress, a liberal think tank -- one huge reason this has been the slowest job-market recovery since World War II. Economists on the right and left agree austerity has hurt economic growth, employment and consumer spending, with executives from Walmart and Cisco among the most recent capitalists to complain about it.

The sluggish recovery is also making income inequality worse, Yellen pointed out, depriving poor and middle-class Americans of more and better job opportunities.

"This is an extremely difficult and to my mind very worrisome problem," Yellen said of inequality.

Bernanke, himself a Republican, has made it a habit this year to complain about Congress at every Congressional hearing in which he appears. The Fed's monetary policy committee has mentioned the drag from fiscal policy in every one of its policy statements since March of this year.

So Yellen is just keeping up what has become a depressing Fed tradition: begging Congress for help. The problem is that Congress couldn't care less.

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Before You Go

11 Lies About The Fed
Myth: The Fed actually prints money.(01 of11)
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People commonly say that the Fed itself prints money. It's true that the Fed is in charge of the money supply. But technically, the Treasury Department prints money on the Fed's behalf. Asking the Treasury Department to print cash isn't even necessary for the Fed to buy securities. (credit:AP)
Myth: The Federal Reserve is spending money wastefully.(02 of11)
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Both CNN anchor Erin Burnett and Republican vice presidential nominee Paul Ryan have compared the Federal Reserve's quantitative easing to government spending. But the Federal Reserve actually has created new money by expanding its balance sheet. The Fed earned a $77.4 billion profit last year, most of which it gave to the U.S. government. (credit:Getty)
Myth: The Fed is causing hyperinflation.(03 of11)
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Someconservativeshave claimed that the Federal Reserve is causing hyperinflation. But inflation is actually at historically low levels, and there is no sign that is going to change. Core prices have risen just 1.4 percent over the past year, according to the Labor Department -- below the Federal Reserve's target of 2 percent. (credit:AP)
Myth: The amount of cash available has grown tremendously.(04 of11)
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Some Federal Reserve critics claim that the Fed has devalued the U.S. dollar through a massive expansion of the amount of currency in circulation. But not only is inflation low; currency growth also has not really changed since the Fed started its stimulus measures, as noted by Business Insider's Joe Weisenthal. (credit:AP)
Myth: The gold standard would make prices more stable.(05 of11)
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Rep. Ron Paul (R-Tex.) has claimed that bringing back the gold standard would make prices more stable. But prices actually were much less stable under the gold standard than they are today, as The Atlantic's Matthew O'Brien and Business Insider's Joe Weisenthal have noted. (credit:Getty Images)
Myth: The Fed is causing food and gas prices to rise.(06 of11)
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CNN anchor Erin Burnett claimed in September that the Federal Reserve's stimulus measures have caused food and gas prices to rise. But many economists believe global supply and demand issues are influencing these prices, not Fed policy. And there actually is no correlation between the Fed's stimulus measures and commodity prices, according to some economists Paul Krugman and Dean Baker. (credit:Getty)
Myth: Quantitative easing has not helped job growth.(07 of11)
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Some Federal Reserve critics claim that the Fed's stimulus measures have destroyed jobs. But the Fed's quantitative easing measures actually have saved or created more than 2 million jobs, according to the Fed's economists. In addition, JPMorgan Chase chief economist Michael Feroli told Bloomberg last month that QE3 will provide at least a small benefit to the economy. (credit:AP)
Myth: Tying the U.S. dollar to commodities would solve everything.(08 of11)
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Rep. Paul Ryan (R-Wis.) has proposed tying the value of the U.S. dollar to a basket of commodities, in an aim to promote price stability. But this actually would cause prices to be much less stable and hurt the U.S. economy overall, as The Atlantic's Matthew O'Brien has noted. (credit:AP)
Myth: Ending the Fed would make the financial system more stable.(09 of11)
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Rep. Ron Paul (R-Tex.) claims that ending the Federal Reserve and returning to the gold standard would make the U.S. financial system more stable. But the U.S. economy actually experienced longer and more frequent financial crises and recessions during the 19th century, when the U.S. was using the gold standard and did not have the Fed. (credit:AP)
Myth: The Fed can't do anything else to help job growth.(10 of11)
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Manycommentators have claimed that there simply aren't any tools left in the Fed's toolkit to be able to help job growth. But some economistshave noted that the Fed could target a higher inflation rate to stimulate job growth. The Fed, however, has ruled this option out -- for now. (credit:AP)
Myth: The Fed can't easily unwind all of this stimulus.(11 of11)
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Some commentatorshave claimed that the Fed can't safely unwind its quantitative easing measures. But the Fed's program involves buying some of the most heavily traded and owned securities in the world, Treasury and government-backed mortgage bonds. The Fed will likely have little problem finding buyers for these securities, all of which will eventually expire even if the Fed does nothing. But economists have noted that once the Fed decides it's time to unwind the stimulus, the economy will have improved to such an extent that this won't be an issue. (credit:AP)
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