Yellen Says Fed's Printing Money to Create 3 Million jobs

Note: I was about to write a long post about Yellen, then I realized Mish already has written about it, so I'll redirect you to his post and then I'm adding some more statements of mine.

Obviously, what bothers me is making statements like this one which cannot be verified in any way. How do you know whether any job created is thanks to the help of some crazy lunatics printing money?

Second of all, even if all this were true, let's suppose that handing away trillions of dollars to banks actually did create 3 million jobs. Let's do the math: ($2.3 trillion / 3 million ) = $767,000.

So basically, every job they think they would be creating costs about $767,000. Would that be worth it? Crazy Lunatics at Work think it is.

Jan. 8 (Bloomberg) -- The Federal Reserve’s two rounds of asset purchases totaling $2.3 trillion will have helped boost private payrolls by about 3 million jobs through 2012, said Fed Vice Chairman Janet Yellen.

Policy makers’ November decision to start a second round of purchases of $600 billion in Treasuries “is intended to support economic recovery from an exceptionally deep recession,” the 64-year-old central banker said in a speech today in Denver. “I believe it will be effective in fostering maximum employment and price stability.”

Yellen gave the most detailed accounting yet of the benefits the central bank sees from its stimulus, adding her voice to a defense of the policy by Chairman Ben S. Bernanke and other officials. Republican lawmakers and officials in China, Germany and Brazil have criticized the purchases, saying they threaten to weaken the dollar and stoke asset-price bubbles.

Yellen, appearing at the Allied Social Science Associations annual meeting, dismissed concerns that the purchases will ignite inflation, saying weak labor demand will be helpful in “mitigating the risk” and the Fed can “tighten policy when needed” by increasing the interest rate it pays on excess bank reserves.

She added that the Fed’s moves won’t hinder growth overseas, are having “only moderate effects on the foreign exchange value of the dollar,” and do not appear to be triggering “significant excesses or imbalances in the United States.”

The central bank bought $1.7 trillion of mortgage debt and Treasuries through March 2010 as it sought to pull the U.S. out of a recession. On Nov. 3, the Federal Open Market Committee decided to buy $600 billion of Treasuries through June in a policy known as QE2 for a second round of quantitative easing.

In her assessment of the economic impact of the purchases, Yellen cited a paper by four Fed economists that relied on the central bank’s main economic forecast model, known as FRB/US.

The simulation assumed the latest round of purchases is completed in a year, and that an elevated level of holdings is maintained for two years before being “unwound linearly over the following five years.”

It concludes that private employment is currently 1.8 million higher than it would be without the purchases, and will get an additional boost of 1.2 million by 2012.

“Moreover, the simulations suggest that inflation is currently a percentage point higher than would have been the case if the FOMC had never initiated any securities purchases, implying that, in the absence of such purchases, the economy would now be close to deflation,” Yellen said.

The economy has lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era.

A Labor Department report yesterday showed that employers added 103,000 jobs in December, fewer than the median projection for a gain of 150,000 in a Bloomberg News survey of economists. The unemployment rate fell to 9.4 percent from 9.8 percent, in part because discouraged workers stopped looking for jobs.

At the same time, inflation is below the long-run rate of 1.6 percent to 2 percent that Fed officials regard as consistent with price stability. An inflation gauge tied to consumer spending excluding food and energy rose 0.8 percent from a year earlier in November.

Minutes of the Fed’s most recent meeting in December showed that some officials aren’t willing to scale back their plans to purchase $600 billion in Treasuries through June, even with an improving economic outlook.
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“We recognize that the FOMC must withdraw monetary stimulus once the recovery has taken hold and the economy is improving at a healthy pace,” she said. “The committee remains unwaveringly committed to price stability.”