The U.S. economy and its financial markets continue to plow ahead, ostensibly immune to any effects of monetary tapering. Instead, the financial gods seem to be directing their fury towards emerging markets.
Three aspects in particular strike me as liable to become important in the coming years. First, while much of Bernanke's personal interest and expertise was on financial markets and monetary policy, Yellen's own focus has always been more on understanding labor markets frictions and outcomes.
There was plenty of gloomy economic news throughout the year. Yet, despite all those economic issues, the stock market ended the year at record highs, with the Dow up 25 percent and the S&P 500 up nearly 30 percent.
Why does the government want to keep rates in the basement? They want to get business to unleash their stash of cash (currently over $1 trillion) and create more jobs. By many accounts, that action is working.
The Fed has been trusted with the responsibility of keeping inflation and unemployment low. Because of the inverse relationship between the two, policy makers have not always found it easy to carry out both assignments.
Despite his occasionally populist rhetoric, Obama proved highly solicitous of Wall Street interests at the expense of Main Street, and under the guidance of Summers, the Bush strategy of bailing out Wall Street continued under Obama.
The sharp drop in new home sales, weak spending in July, and negative guidance from retailers suggest to us that the recent rise in borrowing costs and energy prices may be starting to take a toll. Will the Fed take this data into consideration?
There's no mystery about why the Fed wants to keep interest rates low. Who is the biggest loser when the Fed keeps rates artificially low by purchasing $85 billion of securities with newly-created credit every month? Savers are the big losers in this rigged game.
There is indeed a real fiscal cliff that the United States is racing towards. It's the very same cliff that Europe has already dived over. That cliff is based on the collapse of our debt and dollar markets, resulting from the lost faith on the part of international investors.