The debate over who should be named the next chairman of the Federal Reserve, Janet Yellen or Larry Summers, continues to heat up.
Veteran economist David Rosenberg has come out with a glowing endorsement for Yellen.
In his latest Breakfast with Dave report, he writes that when she was president of the San Francisco Fed, Yellen was one of the only ones who saw the crisis coming.
“Imagine if the leadership at the Fed would have heeded her warnings instead of lining up at the Kool-Aid stand. She deserves the head job just based on this alone, let alone her CV, which, frankly, is much more applicable to the Fed Chairman role than that of Larry Summers, who was has the grand total of zero experience in the realm of monetary policy decision-making. Yellen does, and at the highest level.
“See her musings …at those FOMC meetings when she took on her colleagues over the housing bubble (the one that Greenspan and Bernanke never saw) — plus she absolutely nailed the recession call in late 2007, a time when almost every economist on Wall Street was publishing about ‘soft landings’.”
Here are some warnings from Yellen back in 2007. We’ve drawn on the sections that Rosenberg emphasised:
FOMC meeting (March 20 – 21, 2007)
“As we discussed in detail two years ago, an asset price bubble inevitably leads to unsustainable imbalances in the economy and a misallocation of resources. The extraordinary run-up in house prices in recent years led to construction and sales booms that couldn’t last.”
FOMC meeting (June 27 – 28, 2007)
“In terms of risks to the outlook for growth, I still feel the presence of a 600-pound gorilla in the room, and that is the housing sector. The risk for further significant deterioration in the housing market, with house prices falling and mortgage delinquencies rising further, causes me appreciable angst.”
FOMC meeting (August 7, 2007)
“In terms of risk to the outlook for growth, the housing sector obviously remains a serious concern. We seem to be repeatedly surprised with the depth and duration of the deterioration in these markets, and the financial fallout from developments in the subprime markets, which I now perceive to be spreading beyond that sector, is a source of appreciable angst.”
FOMC meeting (December 11, 2007)
“My modal forecast foresees the economy barely managing to avoid recession, with growth essentially zero this quarter and about 1 per cent next quarter. I expect growth to remain below potential throughout the next year, causing the unemployment rate to rise to about 5 per cent, much like in the Greenbook. …I should emphasise that I do not place a lot of confidence in this forecast, and in particular, I fear that we are in danger of sliding into a credit crunch. Such an outcome is illustrated by the credit crunch alternative simulation in the Greenbook.”
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