Carney on ‘Kudlow’: Janet Yellen Was More Concerned About Climate Change Than Looming Banking Crisis

Treasury Secretary Janet Yellen was more concerned about climate change than the looming risks to our banking system brought on by the rapid rise of interest rates, Breitbart Economics Editor John Carney told Fox Business host Larry Kudlow.

During a panel discussion with Carney on Kudlow’s Friday show, Fox News contributor Liz Peek noted that Yellen was asleep at the switch in the run-up to the current banking crisis.

“Everybody was watching last year as interest rates went up, by the way, [at] the sharpest rate of ascent in modern times,” Peek said. “So, you would think that the regulators—Janet Yellen and that group that she has [of] the financial organizers of our country—would have been watching to see what the impact was on the banks and in particular on the tech sector, which it completely wiped out… It’s offensive that Janet Yellen acts now like she has a plan. She doesn’t have a plan. We know she doesn’t have a plan. But where was she? Where has she been during this period?”

“Well, we know where she’s been,” Carney interjected. “They’ve been sitting there worried about climate change the whole time. Climate change risk all the way. Interest rate risk, the basics of banking—they weren’t paying any attention to.”

“Larry Summers said this—he said instead of worrying about inflation and interest rates, they are worried about climate change. And that’s not the role of central bankers,” Kudlow added.

“By the way, the Financial Stability Oversight Council—which met today, I guess, because they actually realized they have a problem on their hands—in the February meeting, read the readout. It’s available on their website. They were talking about climate. Their ’22 annual report was about climate. I mean, you really can’t make this up. That’s what they were worried about,” Peek noted.

Kudlow also brought up Yellen’s conflicting statements about whether the uninsured depositors of all or only some banks would get a bailout.

“It sounds to me like we will bail out uninsured deposits and every other damn thing,” Kudlow said.

“We almost have to because we’re setting up the expectation,” Carney replied. “It looks very bad if you say, ‘Yeah, we bailed out Silicon Valley Bank, but you other guys, you’re not going to get the bailout’—because then people will start trying to guess who gets a bailout, who doesn’t. You have more banks fail because people flee when they say, ‘Oh, I’m in the bank that doesn’t get it.’”

Carney highlighted an observation the economist Anna Schwartz made about the destabilizing role uncertainty played in the 2008 financial crisis. Schwartz and fellow economist Milton Friedman co-authored the influential 1963 book A Monetary History of the United States, 1867–1960, which argued that the Federal Reserve’s changing monetary policies played a large role in causing the Great Depression.

“Back in 2008, my brother Brian did an interview with Anna Schwartz, who is a co-author of the book on the Great Depression with Milton Friedman,” Carney said. “One of the things she said was that we were doing things wrong in 2008 because we weren’t following a set rulebook, and we were just doing everything ad hoc. If you do it like that, nobody knows the rules of the road. That creates more instability rather than less.”

Pivoting from the banking crisis, Kudlow asked Carney about the Federal Reserve’s prediction that the economy would contract this year, which, as he noted, was the topic of Thursday’s Breitbart Business Digest.

“If you look at where the Fed thinks growth is going to be this year—full year—it’s 0.4 percent, down a little bit from back in December,” Carney explained. “So, if we’re growing at 2 percent now, we’re probably going to be growing more than one percent in the second quarter… How do you get it all the way down to 0.4? You have to have a pretty steep contraction in the third or fourth quarter. The Fed—they hate to say that. They don’t want to admit it. But that is what those numbers mean. They’re saying we’re predicting a very steep downturn in the second half of this year.”

As Carney noted in Friday’s Breitbart Business Digest:

There are plenty of reasons why Fed officials do not want to forecast a recession. For one thing, [Federal Reserve] Chairman Jerome Powell still maintains that there exists “a path” to a soft landing. For another, the Fed is hesitant to appear to be rooting for a recession and the hardships recessions bring. By admitting that its policy choices are consistent with a recession, the Fed would be confessing to causing one.

Peek agreed with Carney’s analysis and predicted that Powell will pause his rate hiking and abandon his two percent inflation target in the face of a recession.

“We’re going to enter a slowdown,” Peek said. “The political heat on Jay Powell is going to be scorching, and he’s going to change the target by the end of the year… It is two percent. My guess is we’ll start hearing, well, three is pretty reasonable, 3.2, 3.5, which is kind of what the Fed is expecting by the end of the year. They’re not going to go to two percent.”

Changing the target is a “terrible idea,” Carney said. “If the Fed does back off of the two percent target, which they will feel pressured to, I think that’s going to be a disaster because how do you trust the three percent target? Or the four percent target?”

Kudlow offered a succinct history of the last time the nation faced an inflation crisis and how we got out of it—a topic of which he has personal knowledge from his days serving in the Reagan administration.

“This is where I came in professionally in the 1970s because we were always going to ‘Whip Inflation Now,’ but we never did,” he said. “And then the peaks got higher and the troughs got higher, until a guy named Paul Volcker came and just slayed the monster altogether, and we started from scratch, which I might add, with Reagan’s tax cuts, gave us three decades of prosperity.”

Unfortunately, Peek predicted that Powell would not have the same fortitude as his predecessor Paul Volcker, and the pressures of an election year recession might prove too much for him to withstand.

“Jay Powell is proven to be, I think, a very political animal,” Peek said. “Look at already [Massachusetts Democratic Senator] Elizabeth Warren and a lot of senators are coming out and saying, ‘Oh, we can’t raise rates anymore. This is harsh. This is going to lead to unemployment.’ Yes, that’s what Jay Powell has said he wants to do. It’s unacceptable for the Democratic Party trying to keep the Oval Office next year.”

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