The Darien Times published a concise but insightful article by Jim Rickards on the flaws of Janet Yellen’s approach to central planning. Rickards argues that the problems stem from the Federal Reserve’s dual mandate to manage US employment in addition to price stability.
“The original sin with regard to Fed powers was the Humphrey-Hawkins Full Employment Act of 1978 signed by President Carter. This created the “dual mandate” which allowed the Fed to consider employment as well as price stability in setting policy. The dual mandate allows the Fed to manage the U.S. jobs market and, by extension, the economy as a whole, instead of confining itself to straightforward liquidity operations. Janet Yellen, the incoming Fed chairwoman, is a strong advocate of the dual mandate and has emphasized employment targets in the setting of Fed policy. Through the dual mandate and her embrace of it, and using the dollar’s unique role as leverage, she is a de facto central planner for the world.
Like all central planners, she will fail. Yellen’s greatest deficiency is that she does not use practical rules. Instead she uses esoteric economic models that do not correspond to reality.”
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