With the current mess the Fed's mixed-up in, coupled with the eminent "Changing of the Guard" that's right around the corner, MoneyShow's Howard R. Gold feels that some solutions—or at least hints—can be found in an upcoming documentary film.
In two weeks, Janet Yellen will face confirmation hearings before the Senate Banking Committee on her appointment as the new chair of the Federal Reserve. Sen. Rand Paul of Kentucky has vowed to hold up her nomination, but she will almost certainly be confirmed.
When she is, she will take office at a critical time. For the past quarter-century, the Fed has accumulated more and more power; it has lowered interest rates to rescue plunging stock markets, and is now engaged in a vast experiment that's adding $1 trillion to its balance sheet every year—with little to show for it.
Meanwhile, stock indexes keep hitting new highs on traders' expectations that the Fed will keep doling out $85 billion a month in quantitative easing, which the Federal Open Market Committee voted to continue Wednesday.
Read Howard's take on why the coast is now clear for stocks on MoneyShow.com.How did the Fed get into this mess? And can Janet Yellen fix it?
There are some hints in a new documentary film, currently touring the country. Called Money for Nothing: Inside the Federal Reserve, it was made by Jim Bruce, a Hollywood veteran (he was an editor on The Incredible Hulk and X-Men: The Last Stand) with an interest in finance that dates back to the waning days of the dot.com boom.
You can watch a trailer here and get information on screenings and DVDs here.
Yellen herself appears in the movie, along with a stellar group of current and former Fed officials including Charles Plosser, Jeffrey Lacker, Alan Blinder, Peter Fisher, Alice Rivlin, and the great Paul Volcker. (Prescient contrarians Jeremy Grantham, John Mauldin, Barry Ritholtz, and Gary Shilling also have their say.) Fed chairman Ben Bernanke and his predecessor Alan Greenspan both declined to be interviewed, Bruce told me.
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| From "Money for Nothing." Reproduced with permission of Liberty Street Films |
Yellen's comments were particularly notable. In the film, she made a bold statement: "It's our job to guarantee that whatever happens to the federal deficit and debt…does not translate into inflation."
Sounds good, although it appears to contradict what she said after President Obama announced her appointment. "I pledge to do my upmost…to promote maximum employment, stable prices, and a strong and stable financial system…The Federal Reserve can help…ensure that everyone has the opportunity to work hard and build a better life," she declared. Spoken like a true Keynesian monetary dove.
But Bruce told me that while shooting the movie, Yellen was intent on establishing her inflation-fighting bona fides. "What's interesting to me was she wanted to make that statement that she made. She wanted to go on the record saying 'we don't have to debase the currency to pay off the debt,'" he said in an interview.
Perhaps, but it's likely to take years for the Fed to get back to normal monetary policy, and Yellen may be in no hurry.
"Janet Yellen doesn't want asset bubbles. I don't think she recognizes [one] already exists," Bruce said.
His movie, which makes this complex subject matter understandable and even entertaining to intelligent viewers, shows how we've gotten there.
NEXT: What Greenspan and Bernanke have wrought
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