Treasury Secretary Janet Yellen certainly appears to have the support of “Big Boy” Joe Biden to remain in charge of the $25 trillion US economy.
White House officials continue to deny that Yeleni is planning to leave, despite persistent speculation to the contrary.
Ellen is getting a lot of media coverage for her continued role in the triumphant siege, helping Sleepy Joe shape economic policy, signaling that she wants to be around.
And yet, the speculation continues.
Wall Street executives with ties to the White House tell me he’s probably a goner. The question is not if, but when, the president will take what is shaping up to be a disastrous two years of politics leading to what many economists see as a 2023 recession.
You can’t pin all of the economy’s woes on Yellen, of course. But he is the best cheerleader for the economic dunderhead. Since his election in 2020, Biden has aimed to be more “transformational” (progressives love that word) than his old boss, the economic progressive Barack Obama.
That meant trillions of dollars in unnecessary spending that was rationalized as necessary because of the pandemic. As a reminder, the costs were mostly incurred in the waning months of COVID when business closures ended.
Yellen oversaw Biden’s push to strengthen the economic regulatory infrastructure at a time when post-closure supply chain bottlenecks were beginning to emerge, thus exacerbating them.
Combined with Fed money printing (also endorsed by Sleepy Joe and Yellen), the outcome could be predicted by anyone who has taken Econ 101 (and many sane beings who haven’t): Significant inflation, which is a heavy tax on the working class.
Yellen took more than just Econ 101, of course. But he has a lot of experience in government and academia (Fed Chair, etc.) with no real world experience.
And it shows. He spent months downplaying the inflationary threat as temporary until it was proven not to be. Ideological leftist economists like him often find a soft spot for spiral inflation because it usually accompanies growth and rising wages like we have today.
However, history shows that wage growth never keeps up with prices, leading to stagflation as people can’t afford the extras or, increasingly, the essentials. It can only be undone by pro-growth policies (deregulation that Biden and Yellen refuse to do) or if the Fed steps in, stifling inflation through higher interest rates, lower growth and a likely recession.
That is what we are facing now. The Fed has signaled under Jerome Powell that inflation, while falling, is still stubbornly high and wages are not keeping pace. There will be more rate hikes, regardless of how much the markets demand for the so-called pivot. Biden has shown no inclination to abandon the regulation. Under this scenario, the likelihood is that we are headed for a recession. it’s just a question of how deep a decline we’ll see.
Someone is going to have to take the fall for the economic turmoil that’s about to hit the nation, probably in the new year, and the bet in D.C. being passed around to top Wall Street executives is that it will be Yellen. The good news is that his replacements are all a step ahead in the kind of economic intelligence that is really needed.
Ellen, as I mentioned, has no real business chops. Now contrast the people who will probably replace him. I’m told the frontrunner is Commerce Secretary Gina Raimondo, a successful former governor of Rhode Island and an economic centrist who helped reform the state’s pension fund. He also worked in venture capital, creating a VC fund that established businesses in the state.
I’ll take it over Ellen’s poor textbook-based approach to economics any day.
Another leading candidate on the short list is Brian Moynihan, the chief executive of Bank of America, sources close to the White House tell me. Bankers are selling hard to powerful progressives like Massachusetts Sen. Elizabeth Warren, who has a say in Biden’s economic appointments.
But Moynihan took over BofA in one of its darkest hours after the 2008 financial crisis and brought it back to health. Today, the country’s second-largest bank is on solid footing by assets, having been stable over the past decade. Not a bad economic point if you expect a recession in 2023.
Could it be Gensler?
The dark horse in the race to succeed Yellen is Securities and Exchange Commission Chairman Gary Gensler, a favorite of progressives. He has steered the investor watchdog into the ESG culture wars with new proposals to force companies to disclose how they are reducing their carbon footprint.
He’s also arguably the worst of the three nominees and will likely generate the pushback he needs from Senate Republicans and Democratic moderates to win confirmation.
But his somewhat prescient warnings about the dangers of unregulated crypto, his background as a banker at Goldman Sachs, and his work in various government economic jobs are an asset.
One thing is certain. any of these three would be a huge improvement over what we have now.