Janet Yellen Is Close to Making History in Two Ways

By Elliott Wave International

Janet Yellen just moved closer to her place in history when the Senate Banking Committee approved her nomination to lead the Federal Reserve. The full Senate is expected to confirm. If so, she will be the first chairwoman in the central bank's 100 year history.

But when her term concludes, gender may be secondary to the narrative about her time at the helm. The larger focus could be that Yellen was at the helm of economic disaster.

Here's what Robert Prechter said in the October Elliott Wave Theorist: Economists and journalists are taking Janet Yellen's approaching stint as Chairman of the Fed at face value and opining what she will bring about for the economy. Our socionomic point of view prompts a different tack and makes us ask what social mood will bring about for her.

...Social mood is a powerful regulator of public perception. Consider this contrast: Nixon lied to protect his buddies, and his career and reputation were ruined. Clinton lied to a grand jury and the nation to protect his own hide, but he makes six figures a speech. What made the difference? The answer is that social mood was deeply into a negative trend in August 1974, when Nixon finally resigned and entered retirement in disgrace; whereas it was soaring in a positive trend in 1999, when Clinton survived impeachment and went on to become perceived as an elder statesman. The stock market had been falling for over eight years in Nixon's case, and it had been rising for over eleven years in Clinton's case. This is why society condemned Nixon but forgave Clinton.

The coming negative trend in social mood will cause Yellen to fail at her job. When bond investors become more cautious -- as they will in a negative-mood trend -- the image of central-bank potency will begin to dissolve. That will neuter the Fed's presumed jawboning power. As for its ability to force inflation, the bond market, not the Fed, is ultimately in charge of interest rates. Investors' demands for higher rates will negate the Fed's inflationary activity. As rates on Treasury bonds move up, the values of existing bonds will fall, lowering the total value of money+credit, thus neutering the Fed's inflationary policy. Finally, when bond buyers begin demanding 4%, then 6%, then 10%, then 20% interest for assuming the risk of owning a Treasury obligation, both the government and the Fed will face ruin. ... Indeed, 10-year Treasury note yields stand near a two-month high.

Moreover, bond yield spreads have widened: The difference between the yields on two- and 10-year notes widened to 2.54 percentage points, the most since August 2011 as investors demand more to own longer-term securities ... A report showed producer prices fell last month, suggesting inflation is tamed. The Treasury sold $13 billion of 10-year inflation-protected securities at the highest yield since July 2011.

-- Bloomberg, Nov. 21

Worried bond investors may well demand even higher yields down the road. Bond yields skyrocketed during the Great Depression; the October Theorist also said that the Yellen era will likely have a parallel with former Fed chair Eugene Meyer, who presided over the central bank during the Great Depression.

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This article was syndicated by Elliott Wave International and was originally published under the headline Janet Yellen Is Close to Making History in Two Ways. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

7 thoughts on “Janet Yellen Is Close to Making History in Two Ways

  1. Hmmm

    A female version of helicopter Ben. Just another in a long line of Rothschild Zionists. A banking "yes women who won't think twice of selling the Average American worker even further down the drain in the name of profits for the 1/10 of 1%...........It is fascinating to see how the media tries to get the American people fixated on her sex instead of her credentials and work history. Her sex is totally irrelevant in the context of the job at hand. The American people needed someone like Liz Warren who puts it on the line for the average American and isn't beholding to the Rothschild banks. Instead we get an insider who has aided in the betrayal of America for decades...........

  2. I think Robert Prechter is correct in so much as the health of the economy is huge in determining the success of a President. However the Nixon v. Clinton analogy is just plain wrong. Nixon was guilty of serious CRIMINAL acts performed within the scope of his Presidency while Clinton just cheated on his wife. Please there is just no comparison. However, Prechter does present a real possibility that a stock market crash and economic crisis would definitely be created if the Federal Reserve lost control of Bond Market rates.

  3. There may be some sense to Prechter's views, but the analysis of the difference between Nixon and Clinton clearly misses the point. The American public obviously thinks that wire tapping is a threat to its democratic institutions but not unsolicited blow jobs, regardless of the prevarications Clinton made in trying to cover up his wrong doing.

  4. Robert Prechter was right big time once in 1980s. And since then he keeps calling the end of the world. Statistically, he
    would be right again but NOT during his life time. Take it easy, Mr.Precheter. !!!

    1. Prechter with his details and history sells his own story which seems so thoughtfull, but reality is different.

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