The talking heads of financial visual media tried to create a circus around the new Fed Chair Yellen’s first official Congressional testimony. Yellen proved a worthy animal trainer and backed critics and supporters to their corners as she delivered very measured and COGENT responses to her inquisitors. The media was hoping for “red meat” but the Fed chair served up a vegetarian casserole full of nutritional value but nothing for the perpetrators of pabulum to sensationalize. It seems as though Yellen watched tape of Mario Draghi for she knew which Congressional posers needed long, drawn out answers so as devour their allowed five minutes of time. Well done Madam Chairman. This testimony of the Fed Chair, as mandated by Congress, has become about as relevant as the G-7 photo-op. If Congress has questions, put them in writing and establish a record of correspondence and thus a trail of responsibility to satisfy the dual mandate. It was reported that the House Republicans on the Finance Committee was to going to have a second hearing post Yellen’s testimony in which four invited guests would provide a rebuttal of the policy put forth by Yellen.
The four horsemen of today’s desired apocalypse were John Taylor (Stanford Professor), Dr. Marc Calabria (Cato), Abby McCloskey (AEI) and the previous Fed-Vice Chairman Dr. Donald Kohn (Brookings). I kept searching for the testimony of this group but as of this time have not found any report. I know that the first three would be critical of Fed policy for certain, but I have great respect for Donald Kohn even though he served under Greenspan. Dr. Kohn is a very measured and sensible policymaker. (If you inclined, go back and read some of his speeches when he was vice chairman.) The idea of this second testimony was a slap at Yellen and should never have been scheduled. By day’s end the markets had calmed and became comfortable with the new Fed chair. Now, about those underlying fundamentals. Especially as Yellen was asked about the impact of the stress in the emerging markets influencing Fed policy. And, right from the Mario Draghi playbook, Yellen said the dual mandate is about U.S. domestic policy. Now, on with the show.
***In tomorrow’s Financial Times there is an op-ed piece by the ex-head of the Swiss National Bank Philipp Hildebrand. The former chairman comments on the results of Sunday’s referendum victory by the radical right in Switzerland, which will limit immigration into the Swiss republic. Mr. Hildebrand notes that the Swiss vote was a wake up call to all Europe “… as the European project needs to be reformed lest it lose its democratic legitimacy.” The vote is a dangerous message for Brussels because there are anti-immigrant voices being hear throughout the EU and the victory of the far right in Switzerland will certainly empower the voices speaking out against the power grab by Brussels or the force labeled as euro skeptics. The backlash against the Eurocrats is a potentially grave force and Hildebrand warns, “Europe will dismiss the Swiss fears at its peril.” This piece by Hildebrand is even more poignant because of a piece in the FT on Monday. It never ceases to amaze me how the international visual financial media fails to report on the political economic issues that plague Europe and attempt to bring light to how financially disruptive the political machinations of the Euro elite can be to economies of the individual nations.
Alan Friedman had an analysis of “Monti’s Secret Summer,” detailing how the Italian technocrats and financial baron’s orchestrated the removal of Silvio Berlusconi as Prime Minister. The President of Italy moved to remove the democratically elected Berlusconi and have him replaced with the paradigm of a eurocrat, Mario Monti. Italy was in a deep financial crisis and the European elite wanted Berlusconi gone. As Friedman wrote: “All Italians still remember the smirk of skepticism on the faces of Angela Merkel, the German Chancellor, and Nicolas Sarkozy, the French president, when they were asked at a press conference in October if they had confidence in Mr.Berlusconi’s ability to cut the deficit or reduce the debt.”
By mid-November Berlusconi had resigned and the recently named Senator for Life by Italian President Napolitano was named Prime Minister although he had never won an election. Thus, Brussels at the behest of the European power elite basically parachuted in their hand-picked leader of Italy. (When Mario Monti actually had to stand for election in February 2013 his centrist coalition was crushed and ousted from power.) The orchestrated ouster of Mr. Berlusconi by Brussels will become an issue in this coming European Parliamentary election. Berlusconi has announced that he will be running on an anti-German platform. Most eyes remain on the emerging markets but those investors who remain complacent about the European situation are not being adequately rewarded for the risk they are taking.
As the Swiss referendum shows, there is a backlash to the arrogance of the anti-democratic forces making policy from the ivory towers. The Swiss vote was about the control of immigration, even from EU countries “… violating the terms of Switzerland’s treaty with Brussels.” And this is in a country that is the world’s wealthiest and has an unemployment of 3%. As Hildebrand notes in his op-ed and citing Alexander Hamilton: “Why has government been instituted at all? Because the passions of men will not conform to the dictates of reason and justice without constraint.” But as Mr. Hildebrand warns, “If governments consistently ignore the passions of men and women, they will ultimately be rendered impotent.” Keep the euro and the European debt markets in focus. The European elections are in May.