Best Santelli Rant in a while..
- Thread starter Tsing Tao
- Start date
Right, so I am happy to explain my thinking... I will elaborate below.
Wait wait wait, I think I didn't phrase my question specifically enough. I was referring to what you would have done if you were at the Fed. Stuff you mention above (e.g. GM, Glass-Steagall, etc) represents decisions and choices that (should) have been made by the President and Congress. I am not really interested in discussing those.
So can you pls talk about what you would have done if you were Bernanke, say?
Luke and pspr or anyone else . . you guys can jump in if you like, with your indepth input.
Use the same circumstances and tools as Benanke had.
First of all, as someone who believes the Fed should be done away with, I'd never be there in the first place. So making the assumption I would be at the Fed makes the assumption that I would have to be a Fed head like the rest of them, and I'd probably have done something as stupid as they did. But let's pretend that me, Tsing Tao in my current belief system, somehow got appointed to head the Federal Reserve, and that the collapse happened just as I got appointed (because I would have been more attuned to the actions before hand, so I would have hoped I would have been able to stave off the worst of it).
I would have lowered rates, just as Bernanke did. I would have lowered them on a temporary basis to the levels seen before in recessions, and by large increments like Ben did. I would not have done it because the stock market was falling (or in response to that rogue SocGen trader bullshit like Ben got criticized for reacting to).
I would have stayed out of all deals and negotiations/offerings to finance/cover/whatever you want to call it things like AIG, Bear, etc. I would have gone to Congress and demanded stronger legal oversight on large institutions, and suggested they be broken up into smaller ones, and told Congress Glass-Steagall should never have been rescinded and needed to be reinstated immediately. I would have made the emergency discount window available, and stopped short of QE. Up until that point, QE was unheard of (not the concept, but the practice) in the US anyway, so I could have pushed back on any critic by citing risks in doing it, and expressly said that the Central Bank was not in the business of monetizing the country's debt. And I would have had plenty of support.
And, of course, I wouldn't have been known for the phrase "drop money from helicopters", either.
OKI, makes sense...
Let's leave the question of doing away with the Fed for the moment, even though I'd be interested to hear what you would propose as an alternative. But that's for another time/thread.
Now, suppose, having done all those things that you describe above (aggressively cutting rates, emergency lending, going to Congress, etc), the economy continues to be sh1t, Congress ignores you and doesn't do any of the right things, the unemployment rate keeps going up, inflation (however you define it) keeps going down, banks keep failing, etc etc? What do you do?
And, as I am sure you know, Bernanke wasn't the person who actually came up with the phrase "dropping money out of a helicopter". It was Milton Friedman, in "The Optimum Quantity of Money", 1969.
Bernanke was the one that made it famous.
I don't recall anyone ever referring to Friedman as "Helicopter Milton". Maybe I'm wrong.Well, regarding unemployment, if I were at the Fed, I would seriously push back on that mandate to congress. I would mention that when it was given to the Fed (back in the early 70s? I can't remember and am too lazy to google it) it was essentially a way for Congress to pack the buck. The Fed has no tools to directly affect unemployment, I would argue. That is a fiscal responsibility. I would point out how other central banks don't have that mandate. But if the economy continued to be shit, the only thing I would do is keep rates low (and by low I mean the 1% range) for an extended period. My defense for that would be that inflation was "low" (although I would certainly use my new-found Fed power to argue that CPI is not very accurate any more). At that point, I would tell Congress - and more importantly the American people - that the Fed has done all it's can, and to please call their congressmen/senator and get them to start doing their job. for the Fed to go further would be inherently dangerous to them, their savings and the future economic power of the United States. And lastly, I would once more reiterate that the Fed is NOT in business to monetize and finance the debt of Washington DC.
But you need to also accept that if I had let all those TBTF banks explode, we'd be in a world of hell for a short while, but once the system cleansed itself and bad debt was erased (not papered over) then the system would once again be healthy again and we might just follow an Iceland path, rather than a Greek or Spanish one.
Did you see Bernanke's testimony this morning? The guy is completely lost. He doesn't know what to do anymore. Dove one minute, hawk the next, the beatings will continue until morale improves! He's hoping to stall everyone until he can GTFO in 2014.
"Highlights
Housing starts retrenched sharply in June on a downswing in the volatile multifamily component. And atypically wet weather likely weighed on starts. Housing starts in June fell back 9.9 percent, following an 8.9 percent surge in May. The June starts annualized level of 0.836 million units well fell short of the consensus forecast for 0.951 million units and was up 10.4 percent on a year-ago basis. June's starts level was the lowest since August 2012.
"The decrease in starts was led by a monthly 26.2 percent drop in the multifamily component after a 28.2 percent jump in May. The single-family component slipped 0.8 percent, following a 0.5 percent rise in May.
"By region, the drop in June starts was led by the Northeast and closely followed by the South with respective declines of 12.1 percent and 12.0 percent. The South is the largest Census region in terms of housing activity. The Midwest decreased 7.4 percent and the West fell 5.4 percent.
"Permits also dropped sharply on a plunge in the multifamily component. Permits fell 7.5 percent in June after dipping 2.0 percent the prior month. June's annualized pace of 0.911 million units was up 16.1 percent on a year-ago basis. Analysts expected 0.990 million units for June permits.
"Today's starts and permits numbers are disappointing but hard to read due to weather issues and the volatility in the multifamily component. The underlying trend likely remains upward. Based on other data, the single-family portion is joining the modest uptrend based on recently favorable numbers for the National Association of Home Builders' housing market index. "