Today at 5:30pm, the four people who have done more to shape the U.S. and global economy in the past four decades more than anyone else, will sit down to discuss their respective philosophies and explain how they see the present and future of the world. At that time, Janet Yellen will appear with her predecessors Ben S. Bernanke, Alan Greenspan and Paul Volcker for a round table discussion. The event at the International House marks the first time the four Fed chiefs have gathered for a joint public appearance.
According to the event organizers, “the Chairs agreed to appear because of International House’s population of millennials – our future leaders from 100 countries who are involved in all fields of endeavor. The Fed’s work impacts all of us, whether or not one’s field is economics or finance, or one’s nationality is American. This event is a rare, humanizing window into a fundamental driver of society that can appear opaque or mystifying, or only understood by experts, but is actually central to our lives.”
Of course, anyone who has followed the sequential booms and busts of the past 30 years is well-aware of this.
That said as Bloomberg warns, anyone hoping for a glimpse into the future of U.S., or global, monetary policy will be disappointed: “former chairmen of the central bank tend to avoid giving policy advice in public forums to the current holder of the job. What the event may instead offer is a glimpse into the evolution of the century-old institution and the philosophies of the people who have run it since 1979.”
One thing that will surely be touched upon is the difference in styles. Here is how Bloomberg qualifies the transformations:
When Volcker took the helm of the Fed in August 1979, he immediately declared war on inflation that was headed toward postwar records. He hoisted interest rates to 20 percent, producing an economic shock that propelled unemployment to levels not seen since the 1930s. Credit-starved farmers expressed their anger by blocking Washington streets with tractors. Inflation tumbled to a two-decade low in response to Volcker’s aggressive approach.
Greenspan steered the Fed through a series of economic crises during his 19-year tenure — the first, triggered by a stock-market crash, just two months after his appointment in August 1987. But it is his policy toward the end of his chairmanship that is regarded as most controversial today. An extended period of low interest rates following the Sept. 11 terrorist attacks is blamed in part for creating the subprime mortgage crisis that started just months after his departure.
Bernanke piloted the U.S. economy through the recession that followed the collapse of Lehman Brothers Holdings Inc. in 2008, the biggest since the Great Depression, which he studied extensively throughout his academic career.
It’s during his reign that policy making changed most significantly. With interest rates at zero, the Fed was forced to revert to a greater range of tools, some of which are still in use. The central bank also became more communicative and transparent, offering observers more information about its decision-making process.
When Bernanke passed the baton in 2014, growth, inflation and unemployment were on a gradual path of improvement and the Fed was headed toward an exit from crisis-induced policy.
No easy challenge for Yellen, who still took almost two years to raise interest rates. Her predicament: Tighten borrowing costs too quickly, choke off the recovery and be forced to add stimulus again, or keep rates low, run the risk of stoking inflation and overheating an economy already close to full employment.
A far simpler summary is a relentless, debt-driven expansion, one where every incremental dollar of debt generates less and less economic growth.
An expansion, which ever since the start of the 1980s has benefitted only the top 1% of earners as shown in the following chart of income growth, while keeping a lid on the economic prospects of the rest of the population:
An expansion which has fanned two burst stock market bubbles and which has pushed the current market into its third unprecedented, and this time, global bubble which this time requires global coordination among all central banks to the next another worldwide market crash, and which also saw China’s debt grow by over $20 trillion or 200% of GDP in just the past decade.
This explains why with every successive Fed chair, US rates have been dropping progessively lower and lower, as the interest expense on that mountain of debt can only be serviced if interest rates, and thus inflation, decline with every passing year in order to avoid a debt crisis, leading in the case of many nations, to the now infamous negative rates.
All of this means the US is now on an unsustainable path, thanks largely to the efforts of just the four people in the image on top. We doubt, however, that anyone will ask any pointed questions or cast stones, literally or figuratively. After all nobody wants to be the next Pedro da Costa, blacklisted for daring to ask inconvenient questions.