Bernanke Interlude
Via David Wessel’s Twitter feed, the WSJ publishes a letter:
Ben Bernanke is a good person, a fine academic and a well-respected professor. But those traits have no bearing on whether he should be reconfirmed as Federal Reserve chairman….
Applying accountability principles, there’s no way Chairman Bernanke should be reconfirmed by the Senate, let alone reappointed by the Obama administration….He’s been at the helm from the very beginning of this Great Recession. That alone warrants a “no” vote on reconfirmation.
At this point, I feel obligated to note that if you’re going to declare this The Great Recession—i.e., if you are assuming the chance of having the third Depression is over*—then Bernanke deserves credit, not blame. (Even those of us who do not assume we’re out of the woods admit we aren’t quite sunk yet, though 17.3% unemployment is problematic at best.)
In addition, the Fed’s behavior over the past 15 months has put America on a very dangerous path. The Fed has increased the monetary base (high-powered or wholesale money) by the largest amount ever, from colonial times to the present, times 10. Without an exit strategy, inflation is a virtual certainty over the coming decade, while an effective exit strategy virtually assures a further weakening of the U.S. economy. [emphasis mine]
This is Gospel for the WSJ editorial page, and a logical confusion of the first order. Any “exit strategy” assumes that the conflict is primarily over, so any exit strategy would, by definition, not weaken—let alone “further weaken,” which suggests that the writer’s faith that “the Great Recession” is accurate is wavering—the economy. (We can, and will, discuss where All That Money Has Gone; suffice to say, it’s not exactly producing a Multiplier Effect.)
But the writer saves the best for last.
And lastly, on a more personal note, [Bernanke] doesn’t have the gravitas of a Paul Volcker, Alan Greenspan or William McChesney Martin. In this day and age of crisis management, gravitas is essential. Almost anyone would be better than Mr. Bernanke.
Well, at least Arthur Burns is conspicuously excluded. It’s nice to know that Arthur Laffer believes in gravitas, while his best-known disciple believes “deficits don’t matter.”
*Yes, I could 1873-77 as a Depression in the United States. Looking at the evidence, it would be difficult not to.
“We can, and will, discuss where All That Money Has Gone”
Where has all the money gone?
Long time passing.
Where has all the money gone?
Long time ago.
Where has all the money gone?
Gone to bankers every cent.
Oh, when will they ever learn?
Oh, when will they ever learn?
“We can, and will, discuss where All That Money Has Gone”
Where have all the dollars gone?
Long time passing.
Where have all the dollars gone?
Long time ago.
Where have all the dollars gone?
Gone to bankers every one.
Oh, when will they ever learn?
Oh, when will they ever learn?
FYI
“we are now on track to reduce TARP bank investments by more than 75 percent, while earning a healthy profit on that commitment,” Mr. Geithner said ……“Today’s announcements mean that more than $185 billion of the $245 that TARP invested in banks is now slated to be returned to taxpayers
http://dealbook.blogs.nytimes.com/2009/12/15/tarp-to-earn-healthy-profit-for-us-geithner-says/
In other words, MOST OF THE MONEY HAS BEEN REPAID, with a return. How much of a return? Well it’s $16B so far: http://www.marketwatch.com/story/tarp-profit-at-least-16-bln-so-far-treasury-2009-12-23
So where’d the money go? Most has been returned. If you want to know about the rest, ask AIG ($40B), GM/Chrysler ($22.4B), Regions Financial ($3.5B) and Discover ($1.2B) who haven’t repaid it. Leave the others out of it.
The Fed, under Greenspan and Bernanke, has been put in a no-win situation. If interest rates are ever so slightly too high the economy contracts and with so much debt, the adverse feedback loops kick in. But if interest rates are too low, assets become over-valued. So blaming the Fed is mostly just part of a denial phase that is the result of ignoring the fact that Globalization is not working.
Economists, and even some of those who think of themselves as progressive, are finding it difficult to understand that too much investment is just as problematic as too little investment. But the problem caused by too much investment is simply that it causes bubbles. It begins to get more complicated when too much investment is combined with too many investors because then assets are subjected to the laws of supply and demand and this of course can drive up asset values via competition. Then things start to get more complicated when growth becomes dependent on the pace of lending. This pace, which is actually a matter of quantity, has a reliance on the pace of upward mobility, although, this reliance can be assuaged by other lending or investment. As upward mobility has been slowing here in the US, for instance, it became incumbent on investment flows to spread out across the globe to offset the slowing of upward mobility. This is why it is so important for foreign markets to be open to short-term investment flows but those markets are closing, rather than opening, and it is critical to understand that these wayward investment flows must continue to expand or contractions will follow.
So, an easy way to understand the problem, is to realize that the most successful economies of the last decade or so are those that refuted the IMF recommendations and restricted access to short-term inflows. Naturally, China comes to mind but there are others and their successes have set in motion a trend that opposes the ever increasing need for foreign investment. So at some point, it becomes a matter of us needing them, more that they need us, and our relations with China now, are a sign of things to come.
But this, and a long list of other problems being caused by the poor decisions that link back to Bretton Woods have nothing to do with Bernanke.
The real money hole is not the Wall Street banks, but the Washington DC banks. You know, the ones run by the Government:
“Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Z5GnTAPcuo
Even though their costs to the taxpayers are probably 10X to 20X greater than the entire TARP program, they are strangely immune from the bashing.
Sammy,
Good point. It is worth saying also that the GSE money is of the vanishing kind, while much of the money applied to TARP, is not only still out there somewhere, but it allowed the retreival of equity funds that had only seemed to vanish.