Step on the gas, then the brakes. Repeat till Gentle Reader grows dizzy or the whole jerry-built vehicle falls apart. Just as it did during during the Great Recession of 2007-09, when 9 million Americans lost their jobs and/or houses. Then came the not-so-great recovery, which left the chairwoman of the Federal Reserve System, Janet Yellen, to devise not-so-great explanations of her less than steady policies. Naturally she did so in the most elevated terms, as in this great big helping of econospeak, a lingo in which she is fluent:
"The United States, through coordinated regulatory action and legislation, moved very rapidly to begin to reform our financial system, and the speed with which our banking system returned to health provides evidence of the effectiveness ..." and so forth and so on, yakety-yak. So now the Fed has devised volumes of arbitrary, changeable and immediately outdated regulations that go under the rubric of Stress Tests, which mainly test the ingenuity of this kind of stop-and-go driving to devise not reasons but rationales for it. If what is desired is stability and clarity in the economic marketplace, why not just return to the refreshing simplicity, clarity and brevity of the Glass-Steagall Act of New Deal days? Or would that be unthinkably simple, clear and brief?
But will the Fed and its ever-wavering chief ever learn? Even now she's suggesting that the Fed is open to little toe-tapping changes in speed and wobbly little shifts in direction that do more to unnerve investors than assure them. Or as Chairwoman Yellen put it in her ever more complicated but always defensive way: "Any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years."
Unlike a Fed chairman named Alan Greenspan who spoke his own impenetrable tongue, Janet Yellen speaks plain, and where she's headed is all too familiar: a micro-managed economy with a jittery hand at the wheel, for she's clearly afraid of going too far in one direction yet capable of swinging back in the other in the face of oncoming traffic or even rainy weather. Her policy could be summed up as: Unsteady as she goes.
Her speech at Jackson Hole gave no hint of any policy underneath all her equivocations. This may have been her farewell address, such as it was, as Fed chairwoman, for the much less conservative Trump administration seems to be champing at the bit for a dramatic change in economic policy, which has a way of leading to dramatic disaster. Something says Chairwoman Yellen is going to look good compared to any Trumped-up successor this high-energy, low-thought administration might choose as the next head of the Federal Reserve System.
Chairwoman Yellen kept as mum as the Sphinx on the subject of just what economic policy she would favor down the unpredictable road ahead, but did hint that she would be open to fiddling with the Volcker Rule, which itself was a much-diluted form of the time-tested Glass-Steagall Act, which each generation of economists seems to think it can improve. Just how improve on perfection goes unexplained. But it's clear -- for this moment, anyway -- that the Fed might be ready to ease restrictions on smaller banks and let them trade in their own investments, the first step down a treacherous path that led right over a financial cliff back in the (all-too) Roaring Twenties.
"Her underlying message is clear: Don't forget the lessons of the past." So wrote one one economic guru, Harm Bandholz. "The next crisis is coming, and we need these stronger rules to stay in place." He's the chief American economist at UniCredit Bank AG in New York, and part of his job is to advise clients on which way the market is going. Which is nowhere good if policy keeps changing and the rule of whim takes the place of the rule of law. If this country's central bankers want to speculate in stocks, bonds, hedge funds and all the other more and more sophisticated instruments now available to them, then by all means let them do so -- with their own money and not We the People's.
It was Henry David Thoreau of all historic figures -- the naturalist and student-in-general of the peculiar species known ironically as Homo sapiens, Man the Thinker -- who may have offered the best counsel when it comes to economic as well as other affairs: Simplify, simplify, simplify. That he should have felt obliged to repeat his message testifies to how stubbornly men will stick to making the same errors of judgment again and again, including the urge to solve problems long ago solved. Why reinvent the wheel every time when all that's needed is to let it roll along instead of putting one stumbling block after another in its way by rewriting rules and regulations that have been in place for decades? They just need to be followed, not "improved upon" by another generation of dilettantes.
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