There Is No Excuse For Janet Yellen’s Complacency
Janet Yellen has been reported by Reuters as saying in London yesterday that “she does not believe that there will be a run on the banking system at least as long as she lives”:
“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said at an event in London. “Fed’s Yellen: Not another financial crisis in ‘our lifetimes’”
The only word I can use to describe this belief is “delusional.”
The only way in which her belief could be justified would be in financial crises were truly random events, caused by something outside the economy—or just by a very bad throw of the economic dice.
This is indeed the perspective of mainstream “Neoclassical” economic theory, in which Yellen was trained, and because of which she was deemed eligible—and indeed eminently suitable—to Chair the Federal Reserve.
This is the theory that led the OECD to proclaim, two months before the crisis began in August 2007, that “the current economic situation is in many ways better than what we have experienced in years”, and that they expected that “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.” (OECD, June 2007, “Achieving Further Re-balancing”).
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