California And Janet Yellen Will Drive the Next Round of QE

Janet Yellen is the Vice-Chairman of the Federal Reserve. Ms. Yellen is from California. In California no economic recovery is taking place. This Spring, the Federal Reserve will need to decide on a continuation of QE. To guide the FED on further QE, I believe Ms. Yellen is already looking at charts–such as the kind displayed below. Updated with fresh data today for December 2010 it shows that California’s total employment has, from a crash bottom, increased by 79 thousand. The very small recovery in jobs seen in the first half of 2010 has now been turned back. | see: California Employment in Millions 2000-2010.

FED observers are quite aware of Vice-Chairman Yellen’s recent theoretical presentation, in which she asserted that quantitative easing would create 3 million jobs in America. Yellen marked this objective to the year 2012, which is now just a year away. If we take Yellen at her word, that she truly believes FED asset purchases will create jobs, surely she would not be willing to exempt her own state–our largest state–from the magical, job-creating powers of the Federal Reserve. Accordingly, it’s now a fair bet that Yellen will use her new position at the FED to argue the case for an extension of QE this Spring.

-Gregor

Data: Labor Force and Unemployment Data page via State of California.

  • http://biophilic.blogspot.com/ Burk

    Hi, Gregor-

    Do you understand the basis for this QE claim? My understanding is that the program in essence drives down long-term interest rates, just as the Fed otherwise drives down short-term rates. But companies are not generally short of cash, and nor are banks lending much, no matter what the interest rate. So I frankly don’t really understand how QE could be thought of as terribly effective in any way. Not that I think it is dangerous- Yellen is correct there.

    All this seems to me to be marking time and dithering, where what is needed is more direct fiscal spending, not to mention aggressive remediation of the foreclosure mess. And the Fed should have the courage to say so.

  • Anonymous

    QE is just extend and pretend. The jobs are not coming back. Gregor is correct. Then again, I think he is in Max Keiser’s camp like myself. Also ZeroHedge.

    All these buzz words like QE, POMO, inflation, despression, etc, all make up what is currently happening, which is the Fourth Turning. BTW, Peak Oil and Global warming are also a part of the Fourth Turning. I would say Peak Oil is a big part.

  • aoeu

    Not Dangerous????? Try living on a fixed income with interest rates down.

  • http://kotybear.com Kinsey_barnard

    Amen to that!

  • Jenrent3

    If you in High Tech, things are definitely looking much better on the Job front. San Jose and OC or SD what kind of jobs

  • gregor.us

    No doubt. If one is in an Export business like coal, wheat, capital goods, or port infrastructure, things are looking better too. But, as always, it’s a question of scale. CA has 36 million people, and the US has more than 300 million. SV cannot turn around CA employment, and neither can US exports do the same for the country.

  • gregor.us

    That’s right. The provision of new credit, replacement capital, or lower interest rates does nothing unless there are actual economic flows that are either started, or sustain themselves. As we can see, asset reflation helps the balance sheets of pension funds but much of this accomplishment will be taken away by food and energy inflation. There are no solutions that the present status quo would be willing to try. For example, the present administration has invested heavily in the auto-highway complex, which of course makes a mockery of the claim that the Democratic party is pro green energy. This is just more wasted capital down the black hole of the system that has no future. Again, just keeping the status quo alive–until we can’t.

    Reality however finds its porthole, and it appears the States–which cannot print money–are about to have a date with destiny.

  • gregor.us

    The basis for the claims of QE, and of overall FED policy, is rooted in 20th C economic theory which holds that the natural world, natural resources, are a subset of the economy and not the other way around. Therefore, all that is required to restart collapsed systems is to provide fresh credit, fresh capital, and that this will bring forth production, resources, and demand for labor. The Federal Reserves operate on the idea that Financial Capital has primacy. That, in my view, is the basis for the claim that interest rate policy, provision of credit, or a special program like QE can revive an industrial economy.

    HTH.

    H

  • http://blog.competitivefutures.com/ ericgarland

    Quantitative easing will create jobs, ABSOLUTELY. And in other news, my purchase of $175,000 of vintage guitars on a credit card has improved my family’s prospects immensely, not to mention made my wife JUST THAT MUCH HAPPIER!

    When you say things like this, it makes them so. Gosh, and I thought economic analysis was hard.

  • Anonymous

    Note that she isn’t just saying QE will create jobs, but that most of the 3 million jobs have already been created. “It concludes that private employment is currently 1.8 million higher than it would be without the purchases.”

  • But What Do I Know?

    Why not another QE? I mean, if they stopped now it would be like admitting they were wrong–and nobody in power wants to do that! The Fed has hundreds of economists on staff who can prove that QE made interest rates go down, lowered unemployment, decreased the deficit, or took the Steelers to the Super Bowl–that’s what they’re on staff for, after all. Facts to the contrary are just facts–if they contradict the thesis then you can always claim that the condition in question would have been worse without QE.

    These guys really don’t have a clue and they’re prepared to do anything to avoid admitting they were wrong.

  • Rv1938

    If QE drives down interest rates, how come the bond has fallen since it began? Shorting puts on TBT is my new moneymarket fund. Of course one could say that QE2 has kept the bond from falling further. That’s kinda like saying stimulus didn’t create jobs but it saved jobs.

    QE is dangerous because someone will have to be found to buy the treasuries when the FED tries to tighten. Of course that won’t happen until the economy is roaring or real cuts come in spending.
    Just my opinion but I did not take comfort in Bernanke’s 60 Minutes interview. He was scared to death from the look of it.

  • gregor.us

    Yes, everything that’s happened with regard to the expansion of the credit bubble and its inevitable burst has trumped the persistent theoretical views of post-war economists and central bankers.

  • gregor.us

    Indeed. I see very few options for Yellen, just on a level of theory and the claims she’s making, when she’s called upon to explain herself 12 months from now. It will just be plain that she was wrong.

  • http://pulse.yahoo.com/_NEEM56UT7YFTCJJAUTCUD5J67Q Roy Bi

    I support it and I’m fully aware of the heat Bernanke is taking from abroad as the commodity prices soar. Hey, whatever is good for my country, goes!

    GO Yellen!