What Obama's Fed nominee means for your money

Janet Yellen picked by president to replace Ben Bernanke

This is a rush transcript from "Journal Editorial Report," October 12, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Up next on the "Journal Editorial Report," week two of the government shutdown leaves both sides scrambling to end the stalemate. So who's bearing the brunt of the blame?

Plus, is Janet Yellen good for the economy? What President Obama's Fed nominee means for your money.

And a pair of terror raids ends with a big Al Qaeda capture in Africa and reignites the political debate over Guantanamo Bay here at home.

Welcome to the "Journal Editorial Report." I'm Paul Gigot.

Well, week two of the government shutdown. And as the parties work around the clock to end the standoff, it appears neither side is coming out of the budget fight unscathed. Gallup reports that 50 percent of Americans now say they disapprove of the way President Obama is doing his job and just 28 percent view the Republican Party favorably, down from 38 percent last month.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; Washington columnist, Kim Strassel; and senior economics writer, Steve Moore.

So, Kim, lots to blame in Washington this week about how the administration is managing this shutdown. Some people say they're trying to increase the pain, make it look as hard as possible, closing the monuments and denying death benefits for the casualties coming back from Afghanistan. How do you see it?

KIM STRASSEL, WASHINGTON COLUMNIST: Yes, this has been in some way a repeat of their sequester strategy, which is to do similar things to make this as hard as possible for average Americans. Because the reality is, Paul, that not much of the government is shut down. Something like 83 percent of spending is still going out on the major things that people care about most, like Social Security, the mail service, et cetera. So what they've done is focused on these small points of pressure.

But that has backfired to a certain degree as it has come out. And that's what happened in the sequester, too. The headlines started to roll about whether or not the White House has had to take some of these actions that they had. They found that they haven't had to do it. They've had to roll back some of this because of the bad press.

GIGOT: Not surprising that if you're running the executive branch, you want to increase the pressure, put maximum pressure on the Congress. That seems to be what they're doing.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: And it seems as though they're succeeding, Paul. The Congress is supposed to vote to allow these two things to happen.

And, yes, the Republicans are really getting hit hard. There's no question about it. I think it's going to cause significant problems for them going forward in these elections, such as the Governor (sic) Cuccinelli in Virginia, whose got all those --

GIGOT: This November.

HENNINGER: This November -- all those suburbs in northern Virginia, a lot of federal workers. So, you know, Virginia could go Democratic.

But let's not doubt the fact Democrats are being hurt as well. Nobody in these polls is above 50 percent. The American people are pretty disgusted with Washington generally. It's hard to predict where there's going play out over the next three years.

GIGOT: Steve, how do you see the blame game here in terms of who is taking most of the hits for the shutdown? Which is not popular with the American people.

STEVE MOORE, SENIOR ECONOMICS WRITER: Right, look, this is the Hatfields versus the McCoys. There's just no love lost between these two parties right now.

Let me just defend the Republicans for a minute. I agree with Dan's analysis. But what they would say, Paul, is, look, the Congress and the House of Representatives has the power of the purse. And when I talk to Republican leaders and some of the Tea Party members, their argument, Paul, is we have the authority to decide what we want to fund and what we don't want to fund. And that's the argument that --

GIGOT: Hold it. Hold it, Steve.

MOORE: -- Democrats are saying no to.

GIGOT: Yeah, but wait a minute. Yes, they have the power of the purse --

MOORE: Right.

GIGOT: -- with the Senate --

MOORE: Right.

GIGOT: -- not just one house of Congress. This is Constitution 101, OK?

MOORE: Sure.

GIGOT: I mean, you can -- only one House of Congress. You need two.

MOORE: That's true.

GIGOT: And then you have to get the president's signature. So there is this natural thing.

MOORE: Of course.

GIGOT: You can't just dictate from the House of Representatives. I'm not saying blame the Republicans.

MOORE: Sure.

GIGOT: That's just the reality.

MOORE: That is the reality. And this is one of the first times in a long time the Republicans have basically put their foot down and said, look, we're not funding -- remember, everyone knows this really comes down to ObamaCare. Now I don't think they're -- in the end, they're probably going to win that fight but they are saying, look, we have the authority to decide if we don't want to fund something and that's what it's about.

GIGOT: You think this is working for them, Steve, though? I mean, is it working out?

MOORE: No. Politically --

GIGOT: Politically.

MOORE: Politically it is not. But what they would say though, Paul, again, in Republicans' defense, we have elevated this issue of ObamaCare to a whole new sphere. And it is true as Congress' approval ratings have fallen, so have the approval ratings of ObamaCare.

(CROSSTALK)

GIGOT: Last time I checked, the president wasn't on the ballot in 2014 but Republicans are.

(LAUGHTER)

MOORE: That's true. Well --

GIGOT: OK?

MOORE: That's true.

GIGOT: So, Kim, how do you read this in terms of the damage being done to either side?

STRASSEL: Well, look, part of the calculation here, at least on the Republican side, is, yes, they are taking most of the heat, the blame, when people have signed up for having shut down the government. Although, the president is taking some too, and a failure of leadership to stop it. But the Republican calculation here is that voter memories can, at times, be short. There are a lot of Americans who are not personally feeling the pain of this shutdown, so aren't necessarily furious or angry over it yet at least.

GIGOT: Right.

STRASSEL: And if they get something out of this in the end that does resonate with the American people for issues like spending and the debt, then it may, in fact, work to their benefit in the longer run.

GIGOT: Dan, you had a budget pivot this week by Paul Ryan.

HENNINGER: Yeah.

GIGOT: An op-ed, or at least a plan to get out of this by Paul Ryan on our pages, the House Budget Chairman, former vice presidential nominee of the Republican Party. Did this offering, to move away from Obamacare and defunding, to let's talk about the budget, get a down payment on the debt?

HENNINGER: Yes, I think this is important. I take Steve's point, the Republicans wanted to say something about Obamacare and about federal spending. They have said it. They've now got to get past this fight over the continuing resolution and the debt ceiling so they have some space to talk about things like entitlement spending, Medicare, Social Security and tax reform, as Paul Ryan suggested, substantive things for which they can have a real argument. These two subjects are a little bit hard to have an argument with the American people. The others are things that the American people can focus on and have serious a discussion about. That's what they have to say.

GIGOT: And they could also trade these discretionary spending cuts, the automatic caps --

HENNINGER: The caps.

GIGOT: -- for something that -- which the Democrats hate, for something --

(CROSSTALK)

HENNINGER: But that's a real debate. We're not having a real debate right now.

GIGOT: All right, Dan. Thanks very much.

Thanks to you all.

When we come back, President Obama chooses Janet Yellen to head the central bank. We'll tell you what the pick means for your money.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: The decision on who will succeed Ben is one of the most important economic decisions that I will make as president, one of the most important appointments that any president can make because the chair of the Fed is one of the most important policymakers in the world. And the next chair will help guide our economy after I've left office.

(END VIDEO CLIP)

GIGOT: President Obama Wednesday announcing Janet Yellen as his pick to replace outgoing Federal Reserve Chair Ben Bernanke. Will Yellen, currently the Fed's number two, follow in the easy money footsteps of her predecessor or forge a new path?

We're back with Dan Henninger and Steve Moore. And "Wall Street Journal" columnist, Mary Anastasia O'Grady, also joins the panel.

So, Mary, the markets seem to be cheering this pick based on continuity, that she'll follow what Ben Bernanke's been doing, bond purchases, a lot of them, low interest rates. What do you think?

MARY ANASTASIA O'GRADY, COLUMNIST: Yeah, I think that's right. I mean, if you look at the history, she's a Fed insider. She's been around the Fed for more than a decade. All of her work points to someone who's really focused on the unemployment issue. That's where she's -- in fact, she's written that if there's a tradeoff between unemployment and inflation, we should let inflation go a little bit higher in order to solve unemployment. So given the current malaise of the economy, I think that suggests that she's going to stick with the bond-buying program, stick with the zero interest rates, and hope that that can get us out of a problem, even though we know that the problems that are giving us slow growth cannot be solved by monetary policy.

GIGOT: By monetary policy.

O'GRADY: Yes.

GIGOT: They're more fiscally related or regulatory or tax

O'GRADY: Absolutely. There's tax, regulation, ObamaCare. All of those things are creating a lot of uncertainty and giving us slow growth.

GIGOT: Steve, what are the differences though, or are there any between Ben Bernanke and Janet Yellen, on monetary policy?

MOORE: I think she's likely to put her foot on the accelerator even more so than Ben Bernanke.

You know, it's fascinating, Paul. This is the first Democratic nominee to be the head of the Fed, dating back to the late 1970s when Jimmy Carter selected Paul Volcker. Paul Volcker, remember, was a guy who came in and slammed the breaks on the money supply to break the back of inflation. And the reason I mention that is I don't think Yellen believes in that philosophy.

When Mary was talking about this philosophy of a tradeoff between inflation and unemployment, Mary's right that Janet Yellen believes in that. But, Paul, I totally reject that. I look at the evidence over the last 30 to 40 years and it looks to me like low inflation actually helps grow the economy and create jobs. I think it's a false tradeoff.

GIGOT: Yeah, there is this philosophical difference. For Greenspan and Volcker -- and Volcker and then Alan Greenspan focused on price stability as the main goal. At least that's what they said was their main goal. Janet Yellen really, as Mary suggested, focuses on job creation and output.

HENNINGER: Yeah.

GIGOT: Jobs, that's her focus. That's a throwback really to the philosophy of the '60s.

HENNINGER: The philosophy that was espoused by Nobel Prize winning economist, James Tobin, of Yale, and she is a student of James Tobin. And back in 1993, Tobin said this about spending, "Spending money is spending money is spending money, no matter what on."

(LAUGHTER)

That is just pure Keynesianism.

GIGOT: Right, you dig holes in the ground, it will create jobs.

HENNINGER: So I think one of the things this means for Fed policy is tapering, the big subject that we've been talking about.

GIGOT: Tapering the bond purchases.

HENNINGER: Right.

GIGOT: Slowing the bond purchases that are now $85 billion a month.

HENNINGER: And when everyone thought that might be imminent, I think that's now in the distant future if Janet Yellen has her way with the Fed board, that she was going to just keep, as Mary's been suggesting, pushing the money out, until she sees that unemployment rate come down, period.

GIGOT: The key test of any Fed chairman, in my view, Mary, is not when everybody's cheering you for easy money.

(LAUGHTER)

That's easy. Everybody loves you, right?

O'GRADY: Right.

GIGOT: Wall Street loves you. The politicians love you. It's when you have to reel it back in. You have to tighten money. Do we know whether she has the fort attitude and will to do that?

O'GRADY: Well, you wonder about what kind of an exit strategy they would have here, right, because they would have to stop the bond-buying program and raise interest rates. I think the worrying thing is whether she has the fortitude or not. She says she relies on data, but we know that the data are not reliable. They're always revising the data. So the Fed tends to act late.

GIGOT: Late, yeah.

O'GRADY: And the problem is that if all these reserves start getting out into the system and you have an inflation problem and they have to act late, then they have to jam on the brakes and you might kill a recovery. So she's in a very bad situation. I mean, her best case is if the president and Congress continue with bad policies so we continue with, you know, very low growth. Then, then, she doesn't are a problem because the Reserves never get out into the system.

GIGOT: I think, Steve, bottom line, the American people can expect zero interest rates or close to it for a very long time with Janet Yellen at the controls.

MOORE: Yeah.

GIGOT: Is that fair?

MOORE: Yeah, that's right. She's going to continue these policies and more so. And as Mary knows, studying Central America, if printing money created jobs, then Argentina, Bolivia and Mexico would be the world economic superpowers today.

O'GRADY: The problem is they have won because --

GIGOT: The Feds?

O'GRADY: Yes. Bernanke feels like he won because, you know, we don't have high inflation. He's bailed out the banks by buying their mortgage- backed securities. So they're doing a victory lap now. They say we fought off deflation.

GIGOT: Yeah, but the job creation that they want and the growth just hasn't been there. We hope it comes. We'll see.

When we come back, twin terror raids lead to the capture of an Al Qaeda kingpin in Africa and reopen an old debate at home. Should al Libi be tried in civilian court or sent to Guantanamo Bay?

(COMMERCIAL BREAK)

GIGOT: A pair of daring raids by U.S. Special Forces in Africa last weekend netted one of the world's most-wanted terrorists. Abu Anas al Libi, an Al Qaeda operative charged in the 1998 bombings of the U.S. embassies in Kenya and Tanzania, was captured in Libya and transferred to a U.S. Navy ship for integration, a move criticized this week by some Republicans, including South Carolina Senator Lindsey Graham.

(BEGIN VIDEO CLIP)

SEN. LINDSEY GRAHAM, R-S.C.: In al Libi's case, he is on an American warship somewhere in the Mediterranean because the administration refuses to use Guantanamo Bay. Putting him on a Navy vessel for a matter of days or weeks is not a proper way to gather intelligence in the war on terror.

(END VIDEO CLIP)

GIGOT: Wall Street Journal editorial board member, Matt Kaminski, joins us with more.

So, Dan, let's go to you first on al Libi. How big a capture is this?

HENNINGER: Well, I think he's felt by most specialists as an enormously important capture. Bruce Hoffman, a specialist Georgetown, calls him a jackpot in terms of interrogation possibilities. He even thinks he's more important than the 9/11 mastermind, Khalid Shaikh Mohammed.

GIGOT: Wow.

HENNINGER: That would be a big deal. So theoretically, it is extremely important for them to interrogate him properly to get a maximum - - he was with Al Qaeda almost from the beginning. He has spent years in Iran. He can talk about the connection between the Iranians and Al Qaeda. So this has just been an enormously important capture.

GIGOT: And he reportedly was being sent to Africa, returned to Africa, to be able to build up Al Qaeda's presence there and plan attacks there. So this could be, from an intelligence standpoint, a big get.

But what about this issue, Matt, of putting him on a ship for weeks or maybe months and not at Guantanamo? What's the difference?

MATT KAMINSKI, EDITORIAL BOARD MEMBER: Well, it's pure domestic U.S. politics. There's no difference really. And I agree with Lindsey Graham. You can put integrators on a big Navy vessel or at Guantanamo, but President Obama, above all, does not want to add to the Guantanamo prisoner population and he doesn't want to build up the Military Commissions. They were set up by several acts of Congress to try these kinds of guy because he ultimately wants him to end up in a New York courtroom where he'll presumably get convicted. But it undermines the anti-terrorist architecture created by George Bush.

GIGOT: Yeah. It blends the distinction between actual civilian criminals, common criminals, and enemy -- illegal enemy combatants.

HENNINGER: And let's try to make a point about the interrogations. There will be absolutely nothing resembling enhanced integration on that ship. They're going to have to, as Barack Obama ruled in 2009, use the Army Field Manual to integrate this fellow.

GIGOT: But why isn't the left saying "secret prison"?

(LAUGHTER)

You know, we don't have -- I know that the Red Cross has got in to see him. But isn't this -- I mean, nobody knows where this ship -- I guess it's in the Mediterranean, but nobody has access to it. The press certainly doesn't. I mean, why -- from a legal point of view, is there any difference between the ship and Guantanamo?

KAMINSKI: None whatsoever.

(LAUGHTER)

And it's important to understand why. I think it's actually -- we should credit the administration for doing this and say this is a good thing.

GIGOT: Yes.

KAMINSKI: As Al Qaeda --

(CROSSTALK)

GIGOT: A good -- capture him as opposed to just shoot him from drones.

KAMINSKI: Right. But the last year or two years, Al Qaeda's really bounced back. At the same time as President Obama is saying this war is receding, they've expanded in North Africa. You had the attack in Kenya from Somalia. So the fact that we've gone in, in Libya, and captured a high-value target, as they say, to try and get the intel from him, that we try to do what we did in Somalia to get another terrorist leader. This means that we are unfortunately have to sort of take these guys on where they are.

GIGOT: Do you -- so you give -- even though the raid and capturing of the target terrorist in Somalia failed on the weekend, you would credit the administration for trying and taking that risk?

KAMINSKI: It's really the first time in five years. There's one other capture of a guy in Somalia, named Wasami (ph), who we also put on this ship.

GIGOT: Right.

KAMINSKI: There was the bin Laden raid. But we're very reluctant to take these guys alive, preferring to kill them by drones. We need the intelligence. I think this is actually a good change in policy.

HENNINGER: Well, now the question is, why has Al Qaeda moved to North Africa? They used to be in Afghanistan. They're in Mali now, Yemen, Somalia. I look the answer is pretty clear, Paul, that they look to operate where there are weak governments.

GIGOT: Dysfunctional governments.

HENNINGER: Dysfunctional governments. I mean, they're not just sitting there. They are training, they are importing arms and they are planning, and so they need to be left alone. And so they have found a series of weak governments where they can also recruit. That's the reason why they were in Libya, Benghazi. And so this is the new command headquarters for Al Qaeda in the world.

GIGOT: That suggests we have to try to build up those governments, in particular, in Libya, where the weakness of the new post-Qaddafi government has allowed some of these terror groups to develop.

KAMINSKI: Of course.

GIGOT: And we've got to keep doing that, work with these local governments to get them up and running.

KAMINSKI: This is part of the Al Qaeda strategy, ever since we went after their command central in Pakistan and Afghanistan. They saw that it could not fight the U.S. effectively from there. So they said, we're going to franchise. It's a way to sort of franchise business strategy. We're going to get these guys to set up operations in various countries.

GIGOT: Here, here for the administration going on offense again against these guys.

We have to take one more break. When we come back, "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits and Misses" of the week.

Matt, first to you.

KAMINSKI: Paul, I can't say that I was a Washington Redskins fan during Dan Snyder's tenure as owner but, this week, he made me proud in pushing back against pressure, including from President Obama, to change the Redskins name. He wrote an open letter where he pointed out, one, that a lot of Native Americans do understand this is supposed to honor Native American traditions. And that when Redskins fans sing "Hail to the Redskins," they're evoking a proud heritage.

GIGOT: All right, Matt.

Mary?

O'GRADY: Paul, this is a miss for the U.S. State Department, which last month, told Iran that it was returning an ancient silver artifact to the country. Supposedly, it had been smuggled out and showed up in New York, and the State Department captured it and was giving it back.

GIGOT: Right.

O'GRADY: Turns out that it wasn't made in 700 B.C. It was made around 1989.

(LAUGHTER)

It's a fake. And it's hard to say who looks more foolish, the Obama administration or the Iranian official that received it with such delight.

GIGOT: I think I bought carpets like that.

(LAUGHTER)

Steve?

MOORE: Paul, you're probably too young to remember, but 40 years ago this month --

(LAUGHTER)

-- America was hit by the Arab oil embargo. It wrecked the economy, caused gasoline lines, and the price of oil and gas went through the roof. 40 years later, America is now the number-one energy producer in the world. No one would have thought it. In fact, 40 years ago, people thought America was running out of oil. Today, we're running into it.

GIGOT: All right, super news, Steve.

And remember, if you have your own hit or miss, please send it to us at jer@FOXnews.com. And be sure to follow us on Twitter, @jeronfnc.

That's it for this week's show. Thanks to my panel and to all of you for watching. I'm Paul Gigot. Hope to see you right back here next week.

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