I think Bernanke was a voting Fed member while Greenspan was Chairman. From what I have read he fell in line behind the Maestro on his votes, so he wasn't just a bystander at the time.
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Economists against Fed
- Thread starter ASusilovic
- Start date
I think Bernanke was a voting Fed member while Greenspan was Chairman. From what I have read he fell in line behind the Maestro on his votes, so he wasn't just a bystander at the time.
Quote from piezoe:
Perhaps your right. I think Greenspan, in retrospect was a true disaster. I'm not certain about Bernanke yet, I'm sort of of the mind that perhaps things are so bad that there is no alternative.
Bernanke is just Greenspan on steroids. If you think Greenspan was a disaster, I don't see how you can think Bernanke will do any better. He is lowering interest rates/injecting liquidity to solve every problem, which is what his predecessor did.
If Bernanke were to raise interest rates more in line with the real rate of inflation, it would be a start. No doubt there would be pain for everyone in this country and times would be difficult. But it would pave the way for a solid foundation, rather than the quicksand we are currently standing on. We need to take some serious pain now, or else will we be FORCED to take the pain. In trader speak, we need to cut our losses now before we blow out later. Unfortunately, the probability that we actually take the pain willingly is close to zero. The Fed is certainly not going to do it and the politicians are clueless. This is why you must protect yourself from your own government, to protect any savings you might have left.
In Defense of Ben Bernanke
Ignorance is not bliss, especially when your economy is faltering and sound policies are badly needed.
For months, we have witnessed the spectacle of people arguing that Keynes was wrong. Somehow, additional government spending actually reduces employmentâeven when the economy has huge amounts of spare capacity and unused labor desperate for work; even when the central bank will prevent interest rates from rising to "crowd out" private spending. Really?
One current catchphrase is "job-killing spending." Hmmm. How, exactly, does more spending kill jobs when there is idle capacity and no threat of rising interest rates? Stumped? So am I.
The anti-Keynesian revival has been disheartening enough. But now the economic equivalent of the Flat Earth Society is turning its fury on Ben Bernanke and the Federal Reserve. Critics ranging from German Finance Minister Wolfgang Schauble to tea party favorite Sarah Palinâwhich is quite a rangeâhave spoken as if Bernanke & Co. have lost their marbles and are embarking on a wild policy misadventure.
All in all, it looks like the nation and the world need an Economics 101 refresher. So let's start with the basics.
......
Here's the first Economics 101 question: When central banks seek to stimulate their economies, how do they normally do it? If you answered, "by lowering short-term interest rates," you get half credit. For full credit, you must explain how: They create new bank reserves to purchase short-term government securities (in the U.S., that's mostly Treasury bills). Yes, they print money.
But short-term rates are practically zero in the U.S. now, so the Fed wants to push down medium- and long-term interest rates instead. How? You guessed it: by creating new bank reserves to purchase medium- and long-term government securities.
That sounds pretty similar to garden-variety monetary policy. Yet critics are branding QE2 a radical departure from past practices and a dangerous experiment.
The final major charge, levied especially by a number of foreign officials, is that the Fed's new policy amounts to currency manipulation: deliberately lowering the international value of the dollar to gain competitive advantage for U.S. exporters. Is there any truth to this? Not if words have any meaning.
Economics 101 teaches us that one standard side effect of a central bank reducing interest rates is a lower exchange rate. Actually, things don't always work out that way in the real world; sometimes the stronger growth pushes the currency up instead. This contradictory evidence notwithstanding, it is commonly assumed that expansionary monetary policy depreciates the currency. That's why some foreign governments, especially the more mercantilist ones, are apoplectic. What's down for us is up for them.
But calling QE2 "currency manipulation" is a grotesque abuse of language. After all, the U.S. dollar is a floating currency. Many factors, including but certainly not limited to monetary policy, influence the exchange rate, which changes every minute. But the Fed will not intervene to push the dollar down. If the dollar should rise instead of falling, c'est la vie.
More important, the U.S. is a sovereign nation with a right to its own monetary policy. So I was stunned when a top aide to the Russian president suggested that the Fed should consult with other countries before making major policy decisions. Come again? An independent central bank doesn't even consult with its own government.
If buying Treasurys is a weak policy tool, a view with which I have some sympathy, then it shouldn't be very inflationary. There is no magic link between growth of the central bank's balance sheet and inflation. People, businesses and banks have to take actionsâlike spending more, investing more, and lending moreâto connect the two. If they don't, we will get neither faster growth nor higher inflation, just more idle bank reserves.
........
What the Fed proposes to do is neither foolproof nor perfect. Frankly, it's not the policy I would choose. As I've written on this page, I'd like the Fed to purchase private securities and to reduce the interest rate it pays on reserves, even turning it negative. The latter would blast reserves out of banks into some productive uses.
But I don't run the Fed. Maybe Chairman Bernanke's ideas are better than mine and, in any case, the planned QE2 is far better than doing nothing. It is not a shot in the dark, not a radical departure from conventional monetary policy, and certainly not a form of currency manipulation.
I know Ben Bernanke. Ben Bernanke is a friend of mine. And critics ranging from Mr. Schauble to Ms. Palin are no Ben Bernankes.
As for myself, my opinion at this point is that this entire forum needs to be retired and merged with the Politics & Religion forum, because it's a swamp of ignorance and malice and sheer viciousness as deep and wide as that execrable steaming POS.
I keep opening threads here and thinking a serious discussion of economics might break out. With very few exceptions, what I get instead is the display of bottomless ignorance I see in this thread.
Not a single one of you can count to three without straining what few brain cells you have. It's a wonder, as Lex Luthor said of Otis in the first Superman movie of the modern era (1978) that your brain can generate enough energy to move your legs.
You can now continue with your echo chamber. Me, I'm done with this so-called Economics forum. I'm confining myself from here on out to the Trading and Options forums, where at least I don't always feel like my intelligence is collapsing just from reading the comments.
Carry on.
Quote from trefoil:
As for myself, my opinion at this point is that this entire forum needs to be retired and merged with the Politics & Religion forum, because it's a swamp of ignorance and malice and sheer viciousness as deep and wide as that execrable steaming POS.
I keep opening threads here and thinking a serious discussion of economics might break out. With very few exceptions, what I get instead is the display of bottomless ignorance I see in this thread.
Not a single one of you can count to three without straining what few brain cells you have. It's a wonder, as Lex Luthor said of Otis in the first Superman movie of the modern era (1978) that your brain can generate enough energy to move your legs.
You can now continue with your echo chamber. Me, I'm done with this so-called Economics forum. I'm confining myself from here on out to the Trading and Options forums, where at least I don't always feel like my intelligence is collapsing just from reading the comments.
Carry on.
Random Capital's comment makes it plain this topic does indeed go past economics to the legislative.
Quote from ASusilovic:
More QE2 dissent â this time from the back of the classroom.
An open letter to Ben Bernanke via the Wall Street Journal:
We believe the Federal Reserveâs large-scale asset purchase plan (so-called âquantitative easingâ) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fedâs objective of promoting employment.
We subscribe to your statement in the Washington Post on November 4 that âthe Federal Reserve cannot solve all the economyâs problems on its own.â In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.
We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.
The Fedâs purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
That letter marks the start of a campaign by a group of prominent Republican-leaning economists (including Michael J. Boskin, Ronald I. McKinnon Niall Ferguson and) to stop Ben Bernanke and his crazy money creation schemes. According to the WSJ the letter will be published as an advert in their newspaper and the New York Times this week.
Others who have joined the campaign against QE2 include Richard âI ♥ banksâ Bove, Jim Chanos of Kynikos Associates and James Grant of Grantâs Interest Rate Observer.
In addition to letter-writing, the economists have already started to lobby influential politicians in Washington over suppers of sea bass, says the WSJ:
The economists have been consulting Republican lawmakers, including incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and began discussions with potential GOP presidential candidates over the weekend, according to a person involved.
⦠Last Tuesday evening, about 20 economists and others met over sea bass at the University of Pennsylvania Club in Manhattan and hashed out a broad strategy. Mr. Ryan, who has gained notice for a plan to balance the federal budget through deep spending cuts, joined the group as they discussed ways to encourage the GOPâs new House majority to unite behind what they describe as a âsound money policy.â
âWe talked about the importance of the right being outspoken and unified on this,â said a participant.
Munchies and monetary policy. Yum.
http://ftalphaville.ft.com/blog/2010/11/15/404186/economists-against-fed/?updatedcontent=1
rather nice takedown of these so called economists:
The Wall St. Journal, and perhaps other outlets, published an open letter to Ben Bernanke pleading for the immediate discontinuation of QE2:
We believe the Federal Reserveâs large-scale asset purchase plan (so-called âquantitative easingâ) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances.
The letter has 20+ signatories. It is noteworthy how outrageously wrong most of this team of incompetents were â on the recession, the credit crisis, and the markets; James Grant and Seth Klarman being notable exceptions.
Many of the names you will recognize (there are some I donât) appear to have hard right conservative leanings. Paul Krugman takes down a couple of the signers, wondering what economic credentials William Kristol has (Or credentials of any sort for that matter).
Of course, one might level the same charge at another of the letterâs signers, former Bear Stearns economist David Malpass. BR has taken down Malpass here and here (to cite but two), but I donât think Barry ever got to this one, in January 2008 (what we now know was the second month of the worst recession since the Great Depression):
Malpassâs message minimized the impact of both the ongoing U.S. housing recession and the credit crunch.
To an audience of guests representing top French financial institutions like BNP Paribas, Calyon and Natixis â all of which have been singed by the subprime crisis â Malpass sided with what appears to be a majority of U.S. economists in predicting that the U.S. economy would skirt the current crisis without falling into a formal recession.
âWe will have a slowdown month by month for the next six months,â Malpass said. âBut we will look back and we will say there was not a material recession.â
And hereâs open letter co-author Kevin Hassett from the American Enterprise Institute (June 2008) in an article titled Seeing Recession When Thereâs None to Be Found, displaying near perfect partisan hackery, the lede of which was:
Are we in a recession? Despite what the media has led the public to believe, director of economic policy studies Kevin A. Hassett compares todayâs economy to past recessions and finds that the current situation does not seem all that dire.
If a Democratic-leaning press can convince everyone that the economy is in recession, then it can influence the election. [...] The politically motivated pessimism, like the computer virus, can have real consequences.
Iâd be remiss if I didnât also note that Mr. Hassett was co-author of the timely (November 2000) howler Dow 36,000.
A third co-author, Michael Boskin, also did not see the recession that was already staring us in the face (October 25, 2007, emphasis mine):
LAS VEGAS (MarketWatch) â Despite severe problems in the housing market, a credit crunch and record-high oil prices, the U.S. economy will skirt a recession in the coming few quarters and get back on a solid growth path after that, economist Michael Boskin told real estate industry executives Thursday at the Urban Land Institute fall conference.
Another co-author who is uniquely unqualified to discuss recession (or anything economic for that matter) is Amity Shlaes. Back in July 2008, while we were into the 8th month of the recession â just weeks before the entire financial edifice collapsed â Shlaes wrote a Washington Post OpEd, titled âPhil Gramm Is Right.â Shlaes was defending Gramm, who had said âthe country was not in a true recession but a âmental recession.â He also said, âWe have sort of become a nation of whiners. (Nice call, superlative timing).
Charles Calomiris is yet another co-author. Up until 2007, he was the codirector of AEIâs Financial Deregulation Project; he spent the years since trying to blame Fannie Mae/Freddie Mac for the collapse, insisting that radical deregulation had nothing to do with crisis.
Peter Wallison is Calomirisâ co-author on this WSJ OpEd: Blame Fannie Mae and Congress For the Credit Mess, as well as the QE letter. As prime proponents of the radical deregulatory scheme that contributed so mightily to the credit collapse, they have desperately sought some other McGinty to blame for the crisis â anything but their own fecklessness. Wallison is, for lack of another adjective, hallucinatory.
Also on the list: Cliff Asness of AQR Capital Management is another co-author. According to Bloomberg, his flagship Absolute Return fund went the wrong way three years ago, as the credit crisis was starting, falling more than 50%.
So howâd those calls work out? Many of the people who are criticizing the Fed Chief arenât capable of seeing the worst recession in generations halfway through it; Why on earth should anyone care what their views on Quantitative Easing might be? These people should be working at Mickey Dees, not think tanks and hedge funds.
Is this a crew to which Bernanke should be paying any attention whatsoever? This is not a time for our economic policies to be hijacked by partisan ideologues who, frankly, donât seem to be offering up any viable alternatives.
http://www.ritholtz.com/blog/2010/11/dubious-open-letter-to-bernanke/
Quote from Free Thinker:
really. if you were going to trust your life savings to someone would their past record have any bearing on the value of their future advice?
I think you have used a very exaggerated comparison to get your point across. The two situations are not equivalent.
I will take your argument and throw it back at you - so are you going to completely dismiss the argument presented against the Fed because of some of the participants involved? What about Jim Grant? Has he not repeatedly shown good financial judgement in the past?
i never said they were all bad or that i even disagree with the article. point being the fact that they had to include right wing demogogs like bill kristol to get 20 names is telling. either it is a right wing hit piece or they had trouble getting 20 mainstream economists to sign on.Quote from sprstpd:
I think you have used a very exaggerated comparison to get your point across. The two situations are not equivalent.
I will take your argument and throw it back at you - so are you going to completely dismiss the argument presented against the Fed because of some of the participants involved? What about Jim Grant? Has he not repeatedly shown good financial judgement in the past?
i am sure someone could come up with 20 economists who think the fed is doing the right thing.