A case for Janet Yellen is that as the Fed’s current vice chair, she represents continuity. Based on her comments and past record, she would either continue Bernanke’s policy or even take them up a notch, creating even more new money in order to “help” the economy. A case against Janet Yellen is the flip side of this. Bernanke’s policies have been a complete failure, so choosing an acolyte of his would be the worst possible thing to do.
Bernanke’s policies have in fact failed on many levels. In the first place, he is a Keynesian who thought that more money would increase demand in the economy. Studies have shown that this did not work, that it actually backfired.
Every dollar of new borrowing encouraged by giveaway interest rates was more than offset by a reduction in spending by savers. When savers receive little or no return on savings, they cannot either spend or invest what they do not receive. Moreover, the repressed interest rates have actually discouraged bank lending while destabilizing pension funds and insurance companies.
Interest rates below inflation have succeeded in creating a mirage of prosperity by fueling a stock market rise, a rise that is looking more and more like another bubble among other Fed sponsored asset bubbles. But bubble or not, there is no demonstrated link in economic theory between a rising stock market and rising employment levels.