The following is an alternative address that Janet Yellen, chairwoman of the Federal Reserve, could give to graduating students of New York University today. She is free to borrow from it or use it wholly. — Diana Furchtgott-Roth
“Graduates of New York University, thanks for the warm welcome. I'm glad that I'm chair of the Federal Reserve, rather than Managing Director of the International Monetary Fund Christine Lagarde, or you might not have let me speak today.
“Don't tell anyone, but I have more power than Christine Lagarde. I handle most of the decisions at the Fed myself. My fellow governors don't usually dissent at the Fed's public meetings, and I get to control the budget and the staff, plus the budgets for the 12 Federal Reserve regional banks. If any of the other governors want to use the resources of the Fed for research, they have to get my permission. And it's not automatic. I'm the decider.
“Your professors have told you that you can grow the economy by pumping out dollars and stimulating demand. At the Fed, we've been trying it for five years now. We're still trying, actually. We have one of the slowest recoveries in history, and GPD growth last quarter was only one-tenth of 1%. Still, we believe in perseverance — just as all of you should — and we are going to continue to try until it works.
“Your professors shouldn't worry — they won't have to toss out their Keynesian class notes that they've used for the past 50 years. We'll keep pumping until all of you have jobs. Yesterday, New York Fed President William Dudley said it would be “a considerable period of time” between the end of asset purchases and the first interest-rate increase.
“Your professors would feel right at home at the Fed, because we have a real collegiate atmosphere, heavy on professors. I came from Berkeley, my predecessor, Ben Bernanke, came from Princeton. Daniel Tarullo came from Georgetown. Jeremy Stein came from Harvard. Jerome Powell is the exception — he came from the Bipartisan Policy Center, following a stint at the Carlyle Group, a private-equity firm.
“Right now we have three vacancies, and we'll have four at the end of this month, because Gov. Stein, who joined us in 2012, is returning to Harvard. You see, even though his term ends in 2018, if he stayed for more than two years, he would lose his tenured professorship, and nothing — not even serving as a Fed governor — is more important than that.
“We like to keep the Fed pure, and we prefer academics as Fed governors. We believe in diversity, just as you do. We like male academics, female academics, black academics, Latin academics. The Fed regulates the banking sector, but we wouldn't have anyone with banking experience on the Fed. The Fed is responsible for full employment, as part of its dual mandate, but we would not ask anyone to be a governor who ever had to manage a payroll. None of those corporate types.
“This is why one career path I suggest is getting a doctorate in economics and then coming to the Federal Reserve to help us manage the economy. The economy is really just a machine, after all — you put in some loose monetary policy here, buy some mortgage-backed securities there, and hope it recovers.
“Another great thing about the Fed is that it is independent. Congress has no control over us. It's in the Constitution, just like the right to privacy and the right to a car and a yacht. Congressional oversight is just for little people, like IRS officials and secretaries of state. No one tells us what to do or how much to spend.
“Congress gets to spend a few trillion dollars every year, debated between Democrats and Republicans and hashed out in budget and appropriations committees. We get to spend whatever we want.
“We are not going anywhere anytime soon, so the Fed offers stable employment prospects. We make it easier for the federal government to borrow money by keeping interest rates low so the government has strong incentives to keep us happy.
“We're pursuing a strategy called quantitative easing, or QE. What that means is that we pump out easy money and keep rates close to zero. Whenever we want to go out and buy some mortgage-backed securities or Treasury bonds, we just go out and do it. No approval needed from anyone, not Congress, not President Obama. Last year we were buying bonds and mortgage-backed securities at a rate of $85 billion a month. Now we're down to $45 billion a month. Go figure.
“At the end of 2013, our assets were $4 trillion, up from $3 trillion at the end of 2012 — but who's counting? We don't have to use these assets for anything, such as winding down the deficit.
“Our ‘dual mandate' means that we look at inflation and the unemployment rate. That gives us freedom to do whatever we want. In 2012, my predecessor, Ben Bernanke, said that the Fed would start to raise interest rates when the unemployment rate declined to 6.5%. Well, it is below that now, but so what? We have a lot of long-term unemployed, and many Americans have dropped out of the labor force. So we're just going to go on pumping — even though inflation indices jumped last month.
“Another thing I get to do is regulate banks. That means I get to say which banks get to merge and which ones do not. In order to prove that banks are good citizens and get to merge, they have to show that they give money to community organizers, such as ACORN. Banks have given hundreds of billions of dollars in loans and grants to community groups over the past 20 years to get approval for mergers.
“Under Dodd-Frank, I even get to regulate financial entities that are not banks. Congress has given me the power to regulate some large insurance companies as though they were banks, even though I have never regulated them before and their structure is different from banks.
“The Fed is not perfect. We make mistakes. It's possible that, without QE — without the Fed, actually — you could have had a bright future. So far QE has not worked, so you will be saddled with debt, face dim job prospects and, when you do get a job, your pay will no doubt be lower than in the previous generation. But we are going to continue to pump and hope that it works eventually.
“Persistence is the message for you graduates to take away. You're going to need it as you try to make it in this Fed-managed economy.”
Original Source: http://www.marketwatch.com/story/yellen-should-really-say-this-to-college-graduates-2014-05-21