Federal Reserve Chairwoman Janet Yellen participated in a roundtable with three of her predecessors: Ben Bernanke, Alan Greenspan and Paul Volcker, Thursday in Manhattan.
To begin with there was no disagreement between the four Fed chiefs, which represented 37 years of Fed leadership, which is 1/3rd of the history of the private institution.
The one glaring aspect that most of the panelist agreed upon: Strong dollar does not equal strong US economy.
While history shows that US Treasury secretaries are the ones to defend the strong dollar, it appears the Fed chiefs believe a strong dollar is detrimental to the global economy, which then weakens the US economy.
Bernanke said the benefits of the US dollar being a the global reserve currency are generally overblown and that there are costs that go along with that status.
Yes, but being the global reserve currency allowed the Fed to increase its balance sheet by $3 trillion during the crisis. Some of the costs associated with King Dollar is the amount of money used to bail out European and Asian banks during post-crisis, that is now put on the backs of US taxpayers.
Most of the conversation involved theory, but the theories they brought up don’t seem to be working anymore, except for one they did not mention.
In a debt-ridden economy, more debt will not spur growth. That is an axiom that no one on the panel would talk about.
Yellen spoke about if the US is growing, then the global economy should be doing better. We can’t drive growth, since we can only achieve anemic growth ourselves.
“When the U.S. is doing well, it tends to be a plus for the global economy,” Yellen said.
No one on the panel thought the US was on the cusp of a recession, despite calls of that on the campaign trail from both Republican candidate Donald Trump and Democratic contender Bernie Sanders.
“I don’t see any particular reason to believe a recession is any more likely in 2016 than it was in 2015 or 2014,” Bernanke said.
Chair Yellen said, “We certainly don’t see those imbalances,” in comments on expansion of private sector debt.
Perhaps she is missing the equity market run up on the back of companies borrowing money to fund stock buybacks?
All in all it was an otherwise historic event bringing the panel together, but the discussion seem to be more pep rally for Yellen’s policies than constructive talk.