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Tuesday, August 25, 2009

Some Thoughts on Bernanke's Re Nomination

The president will nominate again Ben Bernanke to be Federal Reserve chair. It's a story that will get a little coverage and even less analysis. Most people will nod and move on their way. Just think about that for a minute. The Fed chairman controls the money supply in the country and by extension the world, and this story will get little mention and even less analysis.

The Federal Reserve chairperson is arguably the most powerful person in the world and yet the dynamics by which they are nominated and nominated again receives less attention than a story on Brittney Spears. By many, Fed Chairman Ben Bernanke is credited with pulling the economy back from the brink. This is a dubious analysis for several reasons. First, it's still not clear the economy is back from the brink. Second, it's impossible to prove what pulls an economy back from the brink. Third, and most importantly, no one has talked about what the effects will be of his loose money policy.

Back in 2002-2003, most of the same folks now praising Bernanke were also praising then Fed Chairman Alan Greenspan. Back then, Greenspan dropped the Fed Funds Rate to below one percent, a level not seen in a very long time. He left it there for more than a year and when the economy boomed in late 2003 and continued to hum for four plus years, Greenspan was given a great deal of credit. Of course, by lowering the rate that much, Greenspan actually created loose money. Loose money leads to irresponsible behavior and that's exactly what happened. Some, like me, put a lot of the blame for the crisis on to Greenspan. Yet, Bernanke has doubled down on loose money policies in dealing with this crisis.

Not only has Bernanke lowered the fed funds rate to zero but he has stepped in to buy about $1.5 trillion bonds, both mortgage and treasury, in order to not only pump money into the system but to keep rates artificially low. In fact, history says that such enormous loose money policies only creates a series of booms and busts and continues to keep the economy in a state of chaos. That's exactly what Greenspan's aggressive monetary policy has created and now when Bernanke has continued with it he is being lauded for "saving the economy".

This morning we are expecting an announcement that earlier projections for budget deficits over the next ten years are about $2 trillion light. The government was already spending at unsustainable rates and now we learn that they have been spending at even more massive rates. How is the government able to get all this money? In part it's because the Federal Reserve is buying the bonds the Treasury uses to borrow. In other words, the Fed acts as the drug dealer to feed the Treasuries insatiable appetite for spending. This is what is being lauded by much of the public as "saving the economy".

Now, I am not saying this to proclaim I am right and the Fed Chairman is wrong. What I am saying is that Fed policy affects all of us and it affects all of us in a very significant way. Yet, this policy receives less scrutiny than a story on Brittney Spears. Today, the Fed Chairman will be nominated for another four year term and no one will bat an eye. There will be little analysis or debate as to whether or not he deserves it. Then, he'll spend the next four years making decisions that will have a significant effect on each and every American and there will likely be just as much analysis of that.

Finally, let me play a clip that I think is important for everyone to see. This is Rep Alan Grayson grilling the Fed Chairman about a policy in which he creates a "shadow currency market". Maybe, after watching this, we should all think twice about just how great Bernanke is.

Frankly, that this video has been a viral sensation but not a media sensation says all everyone needs to know just how critically the media treats fed policy.


Anonymous said...

Is it possible the Senate could reject a 2nd term for Bernanke? Or would that lead to another massive crash like the one that happened when they failed to pass the TARP the first time.

mario lopez said...

Good Move Obama keep up the good work..

Anonymous said...

Another underreported story [strange you don't run this one Mike??]

The $787 billion stimulus package passed in February will fuel a recovery in the moribund U.S. economy this year, Congress' NON-PARTISAN [emphasis added] budget watchdog said on Tuesday.

"Economic activity will begin to rebound in the second half of 2009, largely the result of fiscal stimulus," the Congressional Budget Office said in its assessment of the federal budget and U.S. economy.

SPH said...


Tel Aviv, Friday, 28th August 2009.

The Puzzle of The Crash and The Sacrifice of Gilaad Shalit.

In this article I tell that The Crash will take place on Friday, 18nth September 2009 at 4:11 PM EST.

The reading of that article is of the uttermost importance for everyone.

It is even more important to the Islamic and Jewish people, the sons of Abraham.

It presents the causes and consequences of The Crash.

It proves that Ben 'Systemic Risk' Bernanke engineered deliberately the Great Recession and is preparing The Next Crash

For Eid ul-Fitr the Hamas will sacrifice Gilaad Shalit.

Tell the new to the world and free Gilad Shalit on 4th September 2009 at 5:58 Jerusalem Time and everything will be fine for example.

Some of you may be shocked by the videos and their wordings. Please don't watch them.

The Puzzle of The Crash and The Sacrifice of Gilaad Shalit.