If the Shoe Fits

Who is Janet Yellen? A recent Huffington Post article asked people wandering the streets this question, and the results were quite scary.

This is Janet Yellen

48% of them believed she was from a cartoon show (Scooby Doo was the most popular).

42% thought she was the person that had the affair with former President Bill Clinton.

Only 10% of the 1,000 people polled knew that she was the new chairwoman for the Federal Reserve.

That’s pathetic.

But when you further examine the 10% who knew who Janet Yellen was, their opinions of her were quite grim.

Over 70 people believed that since Yellen was a woman, she would not be able to do a proper job as the head of the Fed, arguing that women are unable to keep up with D.C., politics, and the world.

I don’t know what’s worse: the public perceiving Yellen as Scooby Doo’s sidekick or the public’s lack of faith in her ability to head the Fed.

So, Can Janet Yellen perform well as the head of the Federal Reserve even though she is a women?

Yes, her gender makes no difference, Janet Yellen will be a perfect fit to leadership of the Fed because of her three major ideals: bond bands, the happiness principle, and regulatory issues.

What is The Federal Reserve, you may ask? The Fed is the central banking system for the United States that establishes monetary policy, which includes things like setting interest rates and inflation levels. Basically, The Fed controls money in the U.S. and tells other banks what to do. In the long run, The Fed has three main goals which are:  stabilize prices, maximize employment, and keep interest rates low.

Previous chairpersons of the Fed, like Ben Bernanke, found it difficult to accomplish these three goals because of the delicate balance required. While Bernanke failed at the top three things on his to-do list, he was still able to develop somewhat decent monetary policy. His successor, Janet Yellen may lack in her monetary policy, but she has the toolkit to fulfill the three main goals of the Federal Reserve.

First, Yellen makes palatable attempts to stabilize prices. In 2003, the United States sold roughly $500 billion in bonds (Government bonds is the way the US borrows money) to China, when the Dollar to Yuan conversion was $1= 3 Yuan. In 2008, just before the stock market crash, China sold these bonds back to the United States for a little less than $1.3 trillion. The United States had to pay more than double of what the original value of the bonds were worth for two reasons. The first reason falls on the shoulders of China. China during this 5 year period has purposefully devaluated their currency by 100%. With the 2003 transaction being done at a ratio of $1= 3 Yuan, 5 years later it was completed at a transaction of $1= 6 Yuan. In the end China was able to double of their returns by purposefully devaluing their currency. However, the second reason is the United States’ fault. Prior to the 2008 bond trade (and even today) the United States Federal Reserve has failed to make a basic monetary policy: that all transactions will be done in Dollars. The reason why this is crucial is because the Dollar is the most stable currency in the world and thus is the baseline currency in which trading between nations, even not involving the United States, follow! With Janet Yellen as the Federal Reserve she vouched in her confirmation speech for tighter trading monetary policy so that if a nation’s currency fluxuates by more than 5% a fiscal year (China’s fluxuated by 20%) then they will not be allowed to buy United States bonds, but also that all transactions with the United States must occur in Dollars so the United States will not fall victim to money manipulation again. Thus this in return helps with the fundamental goal of stabilizing prices in the bond market not only for the United States, but world as a whole.

Second, Yellen’s happiness principle will help maximize employment. It’s simple: the more you pay someone the happier they will be. The happier an employee is, the more efficient they work. To achieve this, she has mandated that all federal employees must be paid over minimum wage. More money, more happiness, more efficiency. She furthers this principle by stating that maximized efficiency means more people will have to be hired since the production rate can skyrocket, and this effect from the federal level will trickle down to the private and public sector. With the federal government being able to employ and increase efficiency there will be more people able to essentially perform daily actions and purchase necessary goods which will stimulate the private and public sector. The essence of trickledown economics is utilized by Mrs. Yellen in this scenario of initiating the happiness principle and to hopefully maximize employment and fulfill the second goal of the Federal Reserve.

Third, Yellen seeks to combat regulatory issues. It is a well-known fact that the 2008 stock market crash has to do with the banking industry, but to what extent many people don’t understand. In the 2008 stock market crash we witnessed a rather fraudulent practice. Investment banks were borrowing money from savings banks in order to invest the money into “promising” foreign markets. But when those foreign markets crashed, the money that was taken from savings banks was essentially gone. The reason why the investment banks had the opportunity to even invest the savings bank money was because the two were merged together. In 2008, the investment and savings banks were united and thus the cash for both were sitting in the same place. Janet Yellen is striving to implement monetary policies combating regulatory issues and is pushing Congress to reinstate the Glass–Steagall Act. By implementing the Glass-Steagall Act, investment banking and savings banking would be separate and the opportunity for the banks to crash in the same way they did in 2008 would be significantly less possible.

Regardless of the policies, principles, and ideals that Janet Yellen is bringing to the Federal Reserve as its new head it is crucial that you as an individual make the decision of whether she will be a good fit or not. Disagreement with her beliefs and policies are reasons to discount her; her gender, however, is not.