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Did Janet Yellen Really Warn Us about the Housing Bubble?

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[Burning $1 bill]

The media recently has lauded Janet Yellen, Obama’s choice to become the next Fed chairman, for her prescient warnings in the mid-2000s that the housing bubble could cause a financial crisis. For example, Alan Blinder wrote in the Wall Street Journal, Janet Yellen “warned, as early as 2005, that the titanic real-estate market was heading for an iceberg.”

Really? In a speech in October, 2005, at the Haas School of Business in San Francisco, Yellen sought to answer three basic questions about the real-estate bubble: “First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble? My answers to these questions, in the shortest possible form, are ‘no,’ ‘no,’ and ‘no.’”

She finally concluded that the housing bubble “could be large enough to feel like a good-sized bump in the road, but the economy would likely to be able to absorb the shock.”

In other words, she failed to predict the impact of the housing-bubble crash.

Peter Schiff recently has gone into more detail in exposing this myth about Janet Yellen. To watch this 40-minute video, click here.

What will Yellen be like as a Fed chairman? I suspect she might be even more inflationary than current Fed Chairman Ben Bernanke. She is a die-hard follower of her mentor, James Tobin, a Keynesian economist at Yale University who emphasized that unemployment is a much more serious problem than inflation. Yellen is likely to dismiss inflationary concerns to push the unemployment rate down.

Price inflation has always been a major threat to the bull market on Wall Street, and bullish for gold.

I can simplify the whole debate about Janet Yellen with a slight revision in this old Wall Street ditty:

When they’re cryin’, you should be buyin’
When they’re YELLEN, you should be sellin’

(The original quote comes from Marilyn Cohen, p. 44 in my book “The Maxims of Wall Street.” To order the book, click here.)

You Blew It!
90 Million Americans Not Working

The unemployment rate is down to 7.2%, and 148,000 jobs were added in September, but the United States is still falling back in the labor market. The key figure to watch is the labor force participation rate, which now is at 63%, its lowest level in 20 years.

Today, 90 million Americans are not working. Of that number, 11.3 million are officially unemployed, looking for a job but unable to find one. Millions have given up and joined the retirees who have left the labor force. Then there are the millions of students who are staying in school or going back to school because the job market is so bleak.

Why is this happening? First, we have become a benefit-corrupted society, where the safety net has become a hammock. It pays for someone to get on welfare more than to work a minimum-wage job. Add up all the benefits of loafing — unemployment insurance, disability, food stamps, Medicaid, Section 8 housing and Obamacare — and you see why 47 million Americans are on welfare.

Second, employers are discouraged from hiring new workers due to excessive regulations and taxes from Sarbanes-Oxley, Dodd-Frank and Obamacare. “Consumers and small business owners are pessimistic,” states a new report from the National Federal of Independent Business.

Slowly but surely America is going the way of Europe… or ancient Rome. If you want to watch a short video about ancient Rome and parallels to today, click here.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

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About Mark Skousen

Mark Skousen, Ph. D., is the editor of the monthly investment newsletter Forecasts & Strategies, as well as three weekly trading services—High-Income Alert, Five Star Trader, and Fast Money Alert. He is also a professional economist, investment expert, university professor, and author of more than 25 books. He earned his Ph. D. in monetary economics at George Washington University in 1977. He has taught economics and finance at Columbia Business School, Columbia University, Grantham University, Barnard College, Mercy College, Rollins College, and is a Presidential Fellow at Chapman University. He also has been a consultant to IBM, Hutchinson Technology, and other Fortune 500 companies. For more information about Mark’s services, go to http://www.markskousen.com/

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