Even though she was the first woman ever to head the US
Federal Reserve or FED in its 100-year history is Janet Yellen’s appointment to
head the FED happed at a very bad time?
By: Ringo Bones
Even though it was established back in December 13, 1913
with the enactment of the Federal Reserve Act in response to the series of
financial panics – particularly the severe “panic of 1907”. In its 100-year
history, no women had ever assumed command in leading the FED until now. Though
the announcement came back in January 6, 2014 by President Obama that Ben
Bernanke will be replaced by Janet Yellen – the first woman ever to head the US
Federal Reserve – in its 100-year history Although she won’t be doing her
duties until sworn in on February 3, 2014 after it was earlier announced, was
Janet Yellen appointed into what will be a very bad time for the FED?
Even though a majority of senators approve of the president’s
appointment of Yellen because she’s an advocate of the quantitative easing that
started back in 2008 that prevented the collapse of America’s major financial
institutions, Yellen plans to taper back the stimulus from 85 billion US
dollars a month to 75 billion US dollars a month. Sadly, this is the very
measure that made her appointment to head the FED “at a very bad time”.
From 2010 to 2013, the net worth of the word’s bond
borrowing market was worth 999 billion US dollars when the FED’s economic stimulus
package was still in full swing. When Janet Yellen takes over the FED by
February 1, 2014 and the economic stimulus tapered down, this would mean that
the net worth of the world’s bond borrowing market will start to worth a little
less over time. Sadly, tapering down the FED’s stimulus package by 10-billion
US dollars is no financially trivial matter devoid of consequences
Emerging market policymakers are now starting to blame the
FED because its economic stimulus package had made their respective economies
addicted to cheap borrowing costs – i.e. low interest rates – that an abrupt
tapering off would result in an economic hard landing for emerging economies
around the world. And thus emerging market policymakers started blaming the US
Federal Reserve for its short-sightedness that made them too dependent on cheap
borrowing costs.
But International Monetary Fund managing director Christine
Lagarde says that emerging markets should have “first put their houses in order”
and plan for the future given that cheap borrowing costs from the FED will
someday end. Because of this the FED’s tapering of their economic stimulus –
however gradual – will surely have an impact on the currencies of emerging
markets - primarily affecting the purchasing power of the low to middle class
citizens.
Since the FED’s economic stimulus began, established
companies in the United States and the European Union had been heavily using
this cheap money to invest in emerging economies and those “poorer countries”
neighboring those emerging economies. And this reached its peak back during
2010 to 2013. Looks like Janet Yellen – like President Obama – had assumed her
post at a really bad time indeed, despite Yellen being the first woman ever to
head the FED in its 100-year history. Hopefully, Yellen has been known to “thrive
in adversity” when she was still serving as the vice chair of the FED under
Bernanke from 2010 to 2014.
