Monday, December 29, 2008

Zimbabwe Ben is Lost

"While Ben Bernanke was teaching economics at Princeton University in late 1999, he admonished officials in Japan for doing too little to get their country out of its economic funk. Their model, he said, should be [FDR]. 'Roosevelt's specific actions were, I think, less important than his willingness to be aggressive and to experiment--in short, to do whatever was necessary to get the country moving again,' Mr. Bernanke said in a paper on Japan's paralysis. ... Fed officials on Monday begin two days of meetings to deliberate on the course of U.S. monetary policy at a critical juncture. The central bank's target interest rate, at 1%, is widely expected to be reduced, but doesn't have room to go much lower. ... One of the key lessons Mr. Bernanke drew from years as an academic studying the Great Depression and Japan was that policy makers made matters worse by tarrying and by being constrained by convention. He sees them as mistakes he is determined not to repeat. ... One buzz word inside the Fed these days is 'blue sky,' a term meant to encourage Fed staffers to come up with ideas beyond their normal boundaries. ... 'I call it the Great Experiment,' says Vincent Reinhart, a former Fed staffer who co-authored papers with Mr. Bernanke on how to manage when interest rates get near zero. ... But experimentation is now the order of the day. The Fed has rolled out nearly a dozen new programs aimed at rescuing failing institutions and specific troubled markets. ... The Fed's balance sheet has grown to more than $2 trillion, and because of its ability to pront money to fund these programs, it could grow further still. ... Mr. Bernanke's choices could damage several objectives that the Fed holds sacrosant. Low interest rates and an exploding balance sheet could some day cause inflation. ... Mr. Reinhart notes that Mr. Bernanke's approach also could open the Fed to political intrusion, something central bankers have fought for decades to avoid. ... Moreover, Mr. Bernanke's activist approach could expose the central bank to losses on loans it has made. The loans are all secured in one way or another, and Fed officials said losses are unlikely", my emphasis, Jon Hilsenrath (JH) at the WSJ, 15 December 2008.

"Policy makers around the world marched ahead Wednesday with efforts to stimulate a withering global economy that so far has overwhelmed their attempts to contain the damage. Central banks in Norway, the Czech Republic, Hong Kong, Saudi Arabia, Oman and Kuwait cut interest rates, a day after the Federal Reserve slashed its rates and promised more unconventional lending to battle the deepening U.S. downturn. Additional interest-rate reductions are becoming more likely in places such as Japan, the U.K. and the euro zone. ... As rescue efforts mount, economists are struggling to explain why nothing so far has worked to avert a deep recession", my emphasis, JH at the WSJ, 18 December 2008.

"It is now frighteningly clear that the world's dramatic financial rescue efforts are both unprecedented in scope and creativity--and wholly inadequate. ... The needed response is a big-bang global bailout that is even bigger than what we have seen so far, one that is large and sweeping enough to restore confidence. ... Clearly, the governments have not succeeded in restoring calm. Their efforts look improvised, confused and ineffective to the average consumer or investor. The risks are too great not to move more boldly. ... The U.S. stimulus package would have to be big enough to allay any doubts that the United States is not going to risk failure--a trillion dollars (about 7 percent of GDP) over two years is the right order of magnitude, not $500 billion over the next two years, if press reports of Obama's plans are accurate. ... Unfortunately, there is no way to finance a massive stimulus without going into deeper deficit and incurring extraordinary level of debt. ... The United States cannot act alone. ... Uncertainty is the enemy of stability and growth. Governments are, like it or not, in charge", my emphasis, Jeffrey Garten (JG) at Newsweek, 22 December 2008.

I would like JH's reporting to show more skepticism. "Specific actions were ... less important than [FDR's] willingness to be aggressive and to experiment". "I call it the Great Experiment", indeed. What objectives does the Fed hold "sacrosanct"? "Open to political intrusion"? The Fed is a creature of Congress. What else is it? "Could expose the central bank to losses"? Huh? The Fed bought or lent on paper no one else wanted! This article is pitiful.

In the real economy, things take time. Perhaps the world needs higher interest rates.

JG is a Yale School of Management professor. Professors love power. JG likes bold action and inflation. Own bonds? Euros, US dollars, Yen, etc., sell them! Worldwide inflation is coming. JG does not want the US to "risk failure", whatever that means. He'd rather the dollar fail. Did JG find his trillion dollar number in a hermetically sealed mayonnaise jar? How does he know it will "work"? Compare JG's comments to those of Robert Higgs at:


Anonymous said...

Very clever pointing out what Higgs recounts:

"Morgenthau [also said in 1937] 'Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate. Are taxes to go higher, lower or stay where they are? We don't know. Is labor to be union or non-union? ... Are we to have inflation or deflation, more government spending or less?'"

Can't you just see Chairman Bernanke in the laboratory with his smoking beakers and bunsen burners... "if I just haircut these AA MBS and repo those synthetic CDOs and buy up the AIG collateral then growth should come in Q2... inflate = steady state...inflate = steady state..."

Independent Accountant said...

Not at all. I think of this, "Double, double toil and trouble; Fire burn and cauldron bubble. Fillet of a fenny snake, In the cauldron boil and bake; Eye of newt, and toe of frog, Woll of bat, and tongue of dog, Adders' fork, and blind-worm's sting, Lizard's leg, and owlet's wing,--For a charm of powerful trouble, Like a hell-broth boil and bubble", William Shakespeare, 1564-1616, "Macbeth", 4:1:10-19. Zimbabwe Ben, Hank Paulson and Chris Cox, are the three witches. That's my vision. Stirring Goldman, Bear, Lehman, Treasury bonds, etc., into their witches' brew.
By the way, don't drink it. I am told it's "Biohazard, Level 3"

Anonymous said...

More from the cavern:


I conjure you, by that which you profess,
Howe'er you come to know it, answer me:
Though you untie the winds and let them fight
Against the churches; though the yesty waves
Confound and swallow navigation up;
Though bladed corn be lodged and trees blown down;
Though castles topple on their warders' heads;
Though palaces and pyramids do slope
Their heads to their foundations; though the treasure
Of nature's germens tumble all together,
Even till destruction sicken; answer me
To what I ask you...

What happens when one "untie(s) the winds and let(s) them fight"?

Anonymous said...

Ben Bernanke is a liar and a thief. He talks like he cares about the average person then he gives trillions to wall street criminals. He isn't that stupid, he knows that he is impoverishing us in order to make his wealthy benefactors whole. Until we abolish the jew central bankers we will always have maggots robbing us.

Anonymous said...

Immer wieder informativ!