Bernanke Seems Clueless About the Real State of the Economy

The wheels of the perception management apparatus are turning at full speed, as evidenced by the audacious spin chief propaganda-meister Bernard “Tokyo Rose” Bernanke put on more bad economic news following another disastrous day in global markets.

He says the recession will end this year.

The utter ridiculousness of such a statement in the face of rising global unemployment, massive monetary inflation, and collapsing banks is testimony to the fact that the self-delusional government and financial industry psychology that incubated and unleashed the present financial catastrophe is alive and well. As long as these arrogant economic narcissists man the helm of our common financial ship, any hope for real solutions and genuine reversal is dim at best.

Why even George Soros and Nouriel Roubini, two other economic media darlings offered direct contradiction to Bernanke’s blather.

Soros said last week that the world financial system has essentially disintegrated, and added that there is yet now prospect of resolution to the crisis. He classified the turmoil as more acute than during the Great Depression, and compared the present economic conditions to those surrounding the destruction of the former Soviet Union.

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

Former U.S. Federal Reserve Chairman Paul Volcker agreed. He suggested productivity around the world was uniformly decaying, and that the rate of decay had surpassed that of the United States in many cases.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.

Nouriel Roubini, one of the few economists who foretold much of the current financial turmoil, on Friday said the United States is nowhere near the end of the banking and credit crisis.

"We are still in the third and fourth innings," Roubini told Reuters in an interview, using a baseball analogy to drive home his view that the current cycle is only nearing its midpoint.

"And it's getting worse," said Roubini, a professor at New York University's Stern School of Business and chairman of RGE Monitor, an independent economic research firm.

Is it the desperation pervading the United States government’s fiscal frontmen that induces Bernanke to make statements so naively optimistic? Or is it the knowledge that such platitudes have such a calming effect on markets that he would forgo credibility in favour of one day’s respite from freefall?

Either way, the disconnection between reality and sentiment among the overseers of global financial policy is dangerous in that the actions induced by that kind of rosy outlook will compound the fallout down the road. If capital entities start investing based on assurances like that from on high, and then find themselves underwater when reality sets in, the carnage at the end of that transaction is amplified.

It would be more responsible for somebody in Ben Bernanke’s position to admit that the U.S. Dollar is on the verge of collapse, and the only thing keeping the illusion of solvency alive is the increasingly opaque treasury auctions, where anonymous “primary bidders” are increasingly defined as domestic as opposed to foreign. That way, investors would be able to migrate their now over-priced U.S. Dollars into under-priced precious metals so that the rogue wave of impending dollar demise doesn’t sink all the ships left in the harbor that haven’t been foreclosed upon.

But I suspect that’s part of the program Ben is propped up there to support. It’s the behind the scenes mega-investors who need us to believe in a future (not the derivative type) where equities make a quick comeback and life returns to the perpetual growth mindset whereby our routines are punctuated by nothing more severe than the occasional vacation or car accident. That way, they can off-load their U.S. assets in favor of precious metals while the rest of the herd are led to believe in The Great Stimulus whereby we wade trustingly back into equities for a second drubbing like cows at the abattoir.

And Barack Obama’s image as the Bird of Paradise is losing feathers faster than you can say DoubleSpeak. From one side of his magnificently articulate lips he asks for $3.6 trillion in spending while from the other he promises to halve the U.S. deficit by the end of his “first” term. I think that’s admirable, but again, based on what? All of the key indicators point to a rise in the deficit, and this first budget sets the record for highest deficit of all time.

Now it takes 12.1 percent of the entire U.S. GDP just to service this debt load. General Motors (GM) required 25% of its sales revenue to service its debt load before the crisis, and look at it now. In an intelligent environment, its crippled viability would be recognized and the corporation would be dismantled and redistributed to those who have demonstrated better managerial stewardship.

Where will the United States go when it can’t sell any more Treasurys to service its debt? China? Japan? That region of the world is contracting just as fast if not faster than the United States.

All of this happy talk needs to be juxtaposed against the same dialect that issued forth from the previous administration during the period from April 2007 when the first cracks in the dyke appeared at Bear Stearns. Following the first Dow dive thus instigated in August, Bernanke et al tried to assuage investors with platitudinous assurances designed to calm the suddenly savage beast. Those who succumbed to the sweet sounds of our Federal Pied Piper had their heads handed to them at least twice.

A smart investor would observe the continued demand for gold, the diminishing appetite by foreigners (particularly China) for U.S. Treasurys, the escalating domino effect of collapsing banks, and stagnant world inventories, and rightly conclude that for all the smiles and reassurances, you can’t fall half the way off a cliff, and a golden pillow is all that’s out there to break an individual’s fall.

Comments

[anarchist:]

I wish to hell they (Bernanke, Geithner and Summer) were sitting on their hands instead of at the head of the Fed., Sec. of Treasury and "trusted" financial advisor. Obama is a smart guy but he made a costly call bringing Geighner and summers over from the Bush administration-talk about failed 'models'. And I suppose with those two twits whispering in his ear Bernanke will stay Fed. Head.


On Mar 01 10:21 AM User 320114 wrote:

> You may be right that Bernanke is too optomistic but maybe you are
> way to pessimistic. We all know what happened but no one really
> knows what will happen. Do you really think that corporate management
> is going to make investments based on feelings and thus create even
> a bigger problem? It is never as good as it seems and never as
> bad. Give the current administration some time. At least they
> are not sitting on their hands.

Mar 01 02:51 PM

[jeerio:]

every trend is valid whether it's up, down or sideways. no person of substantial power like Bernanke can say exactly what he might believe - the effect would be worse than his thought. he, Obama, and others will alternate their words leaning up and leaning down until they have their own confidence that stability has been reached. we actually elect and pay them to do this to help us keep our equilibrium during tough times, especially those that might last for years.

that said, i believe we're only about 1/2 done, not meaning that the S&P will go to zero but meaning that another 400 S&P points from here is very likely. and that it's another 3 years before actual stability will be recognizable. and we'll still be fighting inflation then, so it's just going to be a different set of problems.

Mar 01 02:56 PM

[jeerio:]

ps: i meant to say S&P to 400, not another 400 points.

Mar 01 03:04 PM

[Ransome:]

I am proposing a thought. The situation that we are experiencing is different than before. Using leverage, bad judgment and fraud (buy now or you will never be able to afford it), the financial sector blinded by profits created a great deal of securities with counterfeit value, protected them with companies leveraged 100 to 1, and then bet on them. A borrower signs a note that is impossible to re-pay, that note is sold to an investor who uses it to assess his net worth. The note is the same as holding counterfeit money.

There are trillions in counterfeit value out there because at this point the parties can't honor their leveraged debt. The securities are not money good. It was all put together assuming Sally pays Robert pays Jenny pays Joe pays Sally. The US can dump $50 billion into AIG, the money honors contracts and the money circulates until it runs out. Then the financial sector waits for the next infusion. The banking system is holding the governments hostage until all the counterfeits are honored. It is not clear how many of these securities are actually backed by some kind of depreciating asset(s). One might just look at cash flow but it is seldom that simple. All of this must be sorted out, with the taxpayer picking up the tab for all of it, as we are doing, or call it all due and clear everything with the losers losing.

Bernanke thought you just needed to re-capitalize the banks. No one predicted the trillions in IOUs. The interesting part is that much is predicated on the housing bust, but no one in the financial sectors is much interested in stopping the bust. It is only the government. The CDS folks said money is moved back and forth, it all evens out. Perhaps not.

Mar 01 03:51 PM

[Fred Voetsch:]

On Mar 01 08:06 AM sarkanda wrote:

> As far as Roubini goes, even Jeanne Dixon (the psychic) was right
> once though she predicted thousands of things during her lifetime.
> I personally don't give him much credence He doesn't have a crystal
> ball nor does anyone else including Bernanke.

Have you read his testimony to congress from the spring of 2007? It is dead on; almost scary in its accuracy.

I love data that proves points and Nouriel Roubini always offers plenty, now what do you offer?

I imagine you are another of those fools who hates the messengers who tried to warn you but since you didn't listen they are the problem and not you.

Mar 01 04:14 PM

[zep:]

I am still trying to figure Bernanke out. It seems he's right on some points but off on others. I never understood the 16 consecutive rate increases. Why didn't they give the lag effect time to work and stop @ 3% instead of 5 1/2%? Initially he said damage would be contained at a ridiculously unbelieveable number. Yet he has certainly been creative in backstopping the system. I agree with him that if we let one more major financial company fail that the deleveraging fallout could be fatal. It is going to take us a while to change these "too big to fail" firms into less scary ones.


Mar 01 10:21 AM User 320114 wrote:

> You may be right that Bernanke is too optomistic but maybe you are
> way to pessimistic. We all know what happened but no one really knows
> what will happen. Do you really think that corporate management is
> going to make investments based on feelings and thus create even
> a bigger problem? It is never as good as it seems and never as bad.
> Give the current administration some time. At least they are not
> sitting on their hands.

Mar 01 04:34 PM

[User 347440:]

Blame it on Bush? What about the 535 elected congressman who's job it was and still is is to oversee day to day operations of things like the financial system. Most of these idiots are still in office, being led by another idiot doing the same thing Bush did, spending like an idiot.

Let's go to the web to see Dodd, Frank, Waters, Frank Raines, Meeks, Clay...............the list is endless.

Where is the call for accountablilty of all these idiots???? The were at ground zero in this whole mess??????


On Mar 01 10:15 AM Ferdinand E. Banks wrote:

> My skiing is over for today, and so I turned to this site to see
> what the pessimists are up to. Needless to say, it was the same old
> bad-mouthing of a president who just took office. Hardly a word about
> the man who led the US into this situation, and who also appointed
> Professor Bernanke. Instead there is a barely concealed longing for
> for a full-scale meltdown so that it will be possible to put President
> Obama in the wind in 2012.

Mar 01 05:29 PM

[roywil:]

Yeah, Mr West. Shut up and stick your head in the sand like the rest of us.


On Mar 01 09:05 AM jasonjim wrote:

> Mr. West, isn't there something positive that is going on that you
> can report on in lieu of preaching a doomsday scenario leading to
> Armageddon and denigrating all attempts by any of our leaders to
> be a little bit positive.

Mar 01 05:46 PM

[devassocx:]

I'm not sure what 'accountable' is in this context.

If he didn't do anything criminal then there isn't anything you can do to him. In our society, unlike some others, we no longer do public floggings. Certainly, draining his personal assets wouldn't be of any benefit to the overall problem.

We often hear from leaders about accountability but usually this
is a pretty meaningless term.

I do agree that he bears his share of guilt for his actions but there
were many players in this game.

Perhaps we are ready for public floggings?


On Mar 01 08:48 AM Dr.Jackpot wrote:

> Why isn't Greenspan being held accountable????

Mar 01 06:21 PM

[Brent Ritte...:]

How can anyone read this article and accept what the author has to say? People should immediately be tipped off to the fact that the author doesn't know what he is talking about by two obvious errors: (1) Bernanke's first name is not Bernard; it's Ben. (2) Bernanke said the recession may end in 2009; he did not say that it will end.

I cannot believe the level of hysteria and conspiracy theories that are running rampant through our society. The truth is people, both corporations and individuals, made bad decisions. Those bad decisions have been exposed and now we, as a collective whole, are paying for those bad decisions. There is no conspiracy theory. The government is not trying to dupe the public. There is no large, evil political agenda. This is the natural result of bad decisions. This is how an economy works out the bad decisions. This is capitalism. Get used to it.

Mar 01 06:34 PM

[paul1307:]

Someone asked, "How did this happen?" I'll tell you; it's really a fairly simple chain of events that improbably occurred.

9/11 happened; the government lowered short-term interest rates to stimulate the economy. They continued lowering them as time went on. The administration decided that falling interest rates "were good for the economy" because the dollar began to decline, citing "increasing exports due to the more favorable exchange rate." On January 1, 2002, you should have taken your money (let's use $100,000 just for example) and taken it to a European bank, exchanged it for Euros and put the Euros in a safe deposit box.

The stock market was heading South, bounced briefly in the fall of 2002 when it became clear that the US was going to invade Iraq regardless of what weapons inspectors found or the UN decided. At the time of the invasion, March, 2003, the stock market turned upwards. Here you should have bought stock in Ceradyne (maker of ceramic body armour) or some shoe company whose name I've forgotten because they made combat boots. As ridiculous as it was, you would have made a fortune on these sorts of stocks; it was a bubble.

The dollar, as measured against a basket of European currencies traded from a high of 120 plus on 1/1/2002, plummeting downwards in 2003 and beyond, while the administration, obsessed with the stock market as a supposed proxy for the economy, smiled greasy grins and stated "We're for a strong US dollar" while, rather than intervene to prop the dollar up, let it continue its slide. As the dollar slid, pundits stated that multinational corporations were seeing increased profits "due to increases in productivity." Nonsense. As the dollar slid, productivity in dollars soared because of the escalation of the exchange rate.

Because the dollar became weaker, Mid-East oil producers insisted on more dollars for oil; their yachts are usually built in Europe where the eroding dollar was buying much less with each passing year.

In the meantime, "the carry trade" was using cheap Yen and cheap dollars to loan to American homebuyers, who, if they could fog a mirror could get a mortgage. And why not? If they could make payments, then banks and mortgage lenders made out well on 6+% mortgages while short-term money was lending for 2% and less. If the buyer couldn't make payments, that was okay too. In places like FL where housing was appreciating 3% PER MONTH, foreclosing was a great way for banks to flip houses and profit on both sides of the situation, loans and initiation fees on the one side, and profits on foreclosures as housing went up 30% per year.

Not to forget oil. During wars in the Mid-East, historically since WW II, the price of oil rockets upwards: 1954, 1973, 1979, 1992, etc. As oil went up, so too did the expense of war. The US military uses 1/2 of the oil imported into this country, and consumes more oil than the other top 10 users in the world. With oil shooting upwards towards the eventual high of about $147/bbl from the lows of about $28//bbl circa 2001 or so, and 50% of our imported oil going into the war effort, something had to give, and it did.

Eventually, the low income buyers at the bottom of the housing food chain got pinched when their budgeted $50 per month for gas became $250 for gas and it was either eat or lose their houses. What would you choose? So did they and began to begin slipping on house payments in about late 2003 and early 2004. By the end of 2004, housing in outlying areas of DC and other long-commute parts of the country were seeing 25% drops in prices for houses in the long-commute communities where traditionally first-time buyers go for a lot of house for a lot less money. Their long commutes also slammed their gas budgets. The slide began.

Banks used to foreclosing and making money found that the houses they were foreclosing on were becoming difficult to sell precisely for the same reasons that their buyers were defaulting: long commutes and high gas prices. Banks held tight to their non-performing assets because young bankers didn't believe that housing prices ever went down, or went down for so long that they would lose money on their foreclosed houses. They were however somewhat prudent in that rather than continue to foreclose on every bad loan, they filed liens, but didn't foreclose, leaving the houses in their owners name while the owners were barred from living in them. Bankers also don't pay homeowners dues (liens were placed by home owners' associations) and bankers stopped paying real estate taxes (no money coming in; none going out). Meanwhile, they were sitting on powder kegs of declining value assets and no money coming in.

Crude oil soared reaching $147/bbl on price hikes by oil-rich countries and speculation by "investors" pushing prices to the limit. Houses in the long-commute areas spiraled downwards while banks held them expecting "future profits," "once housing recovers." Bad bet bankers.

We're now in 2007. Take those Euros you put in the safe deposit box and exchange them for dollars. The DXY, having slid from a high of about 120 was now down to about 70 something. Your Euros were now worth $154,000 in exchange, a cool 54% profit on the sliding dollar. The stock market was peaking or close to it based on that 54% windfall associated with the decline of the dollar against European currencies that made a constant profit when measured against the Euro look like sheer genius when converted to dollars. Again, 54% profit for nothing more than the declining dollar. Sweet, no?!!

Bankers in 2007 are now really scared. Nobody holds mortgages; they all hold bonds linked to pools of mortgages. The meltdown in subprime was the canary in the coal mine I like to say. Those buyers were on the margins to begin with, sold mortgages by mortgage brokers and builders who simply sold the mortgages off while the ink was still wet. What did anyone care when they weren't going to make a lifetime commitment to holding the paper? No one actually. But the banks were holding assets depreciating almost daily on diminishing house prices, down as much as 35% or more in parts of the country where the boom was biggest. Where it's biggest, of course, when the bubble bursts, it also hurts the worst. Problem was that banks in Podunk that had for many years held only local mortgages they sold had few to no local mortgages anymore, instead, holding "collateralized debt obligations" in the form of pooled mortgages from all over the country, including those outlying long-commute areas near DC and other large cities that Podunk was not simply hundreds of miles from, but philosophically continents away from.

So that's it. Simple story, law of unintended consequences and all that. Who knew that in promoting American exports by letting the dollar slide at the same time we had a war on two fronts sucking more oil out of the Mid-East than at any other time in history that rising oil prices - five-fold or so - would strain housing bottom-feeders (the Krill of the housing boom and bust) with unexpectedly high gasoline prices that caused them to choose between eating and making house payments would cause the single-largest housing bust in 75 years, saddling every bank in the country with CDOs on houses hundreds or thousands of miles away from them, with prices falling like a stone and making their balance sheets run red? Well, not many people, as it turns out, or we wouldn't have the banking crisis - they're all insolvent, don't you know because of the CDOs they hold in lieu of local mortgages they've traditionally held - and death-spiral in housing prices that are killing us right now.

Don't blame me; I only analyze this stuff. But I will say this: when you want to fight a war and lower taxes at the same time; then fail to prop up a falling dollar because letting the dollar fall increases the earnings of multi-nationals and causing a bubble in the stock market because only fools believe that the economy and the stock market are synonymous, you're taking a mighty big chance. At the very least you're hoping the bubble will burst on the other guy's watch. Didn't Cheney say "Reagan proved deficits don't matter?" Didn't the administration say that "gas prices won't really affect the economy until they hit $4 per gallon?" Ooops! I guess they forgot that the military uses oil too, and the law of unintended consequences let the rest of it fall into place.

Where or when will it end? I can't tell the future, only piece together the pieces of the past that flow logically together. They sort of do, don't they? But, we could see DOW 4,000 this year, pretty easily, the way things are going (not that that is tied to the economy, but it isn't pretty, and it is tied to personal wealth). Gold goes up when there's inflation, not simply because stock markets are tanking, lest why isn't it already $2000 per ounce the way some folks think it should be already? Gold may be a "safe haven" but you can't eat it and you can't build houses of it. The stock market has already lost $10 Trillion, housing $3 Trillion, so far, and we're still counting. DOW 4,000 would cost another $3 Trillion.

Another sobering thought or two from Mr. Sunshine here: the DOW peaked in Aug, 1929, bottomed in 1932, down 90%. It took three years to bottom. Of course, if you're "in it for the long-term," not to worry. The DOW hit the Aug, 1929 highs again - in 1954. Let's see. That means we'll probably hit DOW 14,000 again in, well, 2020 at the very earliest, which seems doubtful. More likely 2026, maybe not until 2030.

The lesson is this: the next time a politician says "(anybody) proved that deficits don't matter" and they try to rescue the economy by letting the dollar go into free-fall, take your money and start to put it under your mattress. Is helicopter Ben right, could we see the bottom this year? In the stock market maybe, DOW low 4,000 (or lower), and if it continues to drop, 1400 in 2010. But the economy is another story altogether; housing won't bottom until 2011, and not forgetting that one out of every new job created in the last eight years was in construction, the economy won't bottom and begin to grow again until the "Krill" of the real estate economy, those first-time buyers and buyers of houses on the fringes of both commuter distances and low prices start to buy houses again. We'll need stable oil for three or four years before that starts up again, and as long as our military uses 50% of every drop of oil we import instead of the more usual 40% during non-wartime, oil will remain high, and due to emerging economies, international use will continue to grow even if our use stabilizes. Hybrid cars? You've got to get serious. We need a serious way to get off oil or we'll have no recovery. Ever.

By the way, the reason the stock market won't recover quickly is that like following the '29 crash, the buyers of a whole generation, having been plucked and stuffed, screwed, blued and tattooed, tagged and bagged and permanently separated from their money, will not be investing in the markets again, if my guess is correct, for a whole generation, 20 years or so. Besides, $10-15 Trillion of wealth will have evaporated. When you lose 50%, you don't get back even by getting a return of 50%; you need returns of 100%. If you've seen your markets decline 90%, you don't need returns of 90% to get even, you need returns of 1000%. Think about that, and ask yourself just where is that money going to come from??? I'm sorry; I just don't have that much under my mattress, and neither do George Soros, Warren Buffet and Bill Gates combined. It only gets uglier from here on; we haven't even seen ugly yet, imho...

Mar 01 08:20 PM

[User 357682:]

This Economy is a easy fix for America all we need are Jobs and Buy American we do not need government bailouts. Question to all Example when you call Dell computer for tech support who answers the phone somebody self named George Smith from India it use to be an American that answered the phone we have plenty of people out of work here instead of laying off Americans lets layoff overseas services and bring it back home same with the auto industry they need no bailout WE NEED TO BUY AMERICAN!!! IT'S ALL ABOUT SALES NOTHING ELSE VERY SIMPLE STUFF aka Supply & Demand.Wouldn't one rather buy with pride knowing that the hard earned money you just spent is going to wind up back in your own neighborhood instead of on the other side of the globe ? The USA has to stop sub contracting all the work out overseas.THIS IS THE NO TAXPAYER BAILOUT PLAN .3 SIMPLE STEP PLAN 1) MANUFACTURE AMERICAN. 2) HIRE AMERICAN. 3) BUY AMERICAN . PS this plan worked for many many years.

Mar 01 08:45 PM

[Bog O:]

Let us start with something simple.
GM must produce a car that is better or equal to Toyota/Honda in quality
GM must sell a car that is equal to or less than Toyota/Honda in price
and still make a profit. So when is that going to happen??

So how do you think we can fix the banking crisis??

Mar 01 09:58 PM

[benevolent ...:]

Bernanke was placed into the position of chairperson of the federal reserve because he was willing to do what he is doing. "Seems" Is all it is.
But if fatalism was your prognosis are you to be made aware or should you be told all is right to maintain normalcy as long as possible. The factual numbers say it all yet no person has difinitvley defined the problem: total US debt-to-income ratio way too high, a current account deficit that has built for 30 years, an ever increasing M3-potential consequence builds to disaster as the world will abandon the dollar as the reserve currency and finally the credit default swaps that will need trillions of $ each time there is a $100 billion default of almost any bond that fails.

A solution is only possible when it is clearly and accurately defined to all that are involved.

Mar 01 10:33 PM

[tonyb:]

yeah, thats right. it will not take too long to borrow and/or print the money, then you shall have your check pronto.


On Mar 01 10:18 AM stockholder wrote:

> I don't understand the gloom here? The stimulus plan was just approved.
> The US post office has not even had a chance to deliver the first
> checks.

Mar 01 10:37 PM

[Amitabha Mu...:]

The way things are happening, the American economy under the present leadership will continuously contract making all the Americans, rich and poor horribly poor in the years to come. This government came to power only because America already started becoming a poor country. Multitudes of young people and mostly people from lower economic levels of the society, such as poor, lower middle class and at best middle middle class who at present constitute major population chunk of the society. These segment of the population have low understanding of the economic matters which is one of the reasons of their poor economic condition - all swayed up by the words that were so nice to hear but nothing of real value in it.
As I had written earlier the main enemy of the U.S.A. was the quality of education for the young people as well as the lack of gigantic effort on the part of governments as well as private players to give its young people the right scope to equip themselves with top quality education. Now it is too late. Again because of lacking solid skills in mathematics most of brightest boys and girls of America opted for the well paying but soft areas of law, medicine and business management. This resulted in America building a good presence in the areas of financial management but moved out of technology based high volume manufacturing. This was a towering mistake on the part of American governments. Now the time of reckoning has come. In my opinion the social factor also was responsible. As more and more families became single parent families the young boys and girls of those families opted for entering the job market earlier to give relief to their mothers.
As the world economy mainly that of China and Japan and western europe totally coupled their economy with American consumption their economies will also deflate to such a level that five years down the line they will be insignificant . What has already happened is the tip of the iceberg the main body is still under water.
The faulty policies of the present government will only accelerate the downfall and the years to come many big American companies will shift their operations outside U.S.A. to avoid excessive corporate taxation. The attempt to go for wind power is a wrong one. It is a primitive technology with low power density and higher cost. The right decision would be technologywise upgradation of atomic power plants and breeder reactors. But alas in the area of technology America is going backwards.

Mar 02 12:10 AM

[davekelly3:]

I listen to Jim Rogers. He said 'You'll go bankrupt if you listen to central bankers or people in the government. Don't listen to those people'. What was it they said about the strength of Fannie and Freddie?

Mar 02 12:44 AM

[auto44:]

That's what you think. Pray tell which ones. I don't want to go there but I would gladly send my money for a while.


On Mar 01 11:55 AM frankie cooper wrote:

> see, i don't get it. if you REALLY believed that all of this destruction
> was going to happen, why wouldn't you just leave the US. there ARE
> countries that aren't going to be as decimated as the US, you know....
>

Mar 02 09:54 AM

[auto44:]

There were price controls on heating oil and gasoline during the Carter administration, and of course shortages as product was withheld from the market waiting for the controls to come off.


On Mar 01 02:16 PM John Lounsbury wrote:

> James West - - -
>
> You wrote:
> "...the self-delusional government and financial industry psychology
> that incubated and unleashed the present financial catastrophe is
> alive and well. As long as these arrogant economic narcissists man
> the helm of our common financial ship, any hope for real solutions
> and genuine reversal is dim at best."
>
> I hope you have not understated the situation.
>
> For the many commenters that criticize the negative forecasters,
> you should be thankful they are there. The downside potential must
> be recognized or we will all be ostriches, heads in the sand, waiting
> for a golden egg to plop out.
>
> Too many in positions of authority are publicly taking positions
> that are too rosey to even meet 50% probability. Examples:
>
> 1. Bernancke's second half 2009 recovery prediction. He said it was
> "possible IF all actions taken by the Fed, Treasury bailout programs
> and the stimulus program are successful." Note that he did not assign
> probability. I would guess that knowledgeable optimists would put
> the probability of that possibility at a little less than 50%. The
> knowledgeable pessimists are maybe at 10% (or even less) probability.
>
>
> 2. The stress test on banks has one serious flaw: the most extreme
> stress test case has GDP falling by 3.3% for this recession. This
> is probably the very least GDP will fall under the rosiest scenario.
> We had 1.505% drop in 4Q/2008 (1.505% for one quarter annualizes
> to 6.2%). That is almost half of the extreme stress test case. It
> is almost impossible to concieve of any scenario where we do not
> drop more than 1.7% further before GDP growth returns. My median
> guess for GDP decline in this recession would be around 5%. I'd give
> a 40% probability of -6%. I think you have to get down to the 7.5%
> to 8% drop to encompass 90% of all possible outcomes. The bank stress
> test is sniffing ether if they do not at least include a test case
> with at least -5% GDP.
>
> 3. The HUD Secretary Shaun Donovan has said we need a mortgage rescue
> plan to prevent a further fall of average home prices by $6,000.
> More cluelessness. We need a drop of at least three times that to
> return to historic price to income ratios. There can be no stabilty
> in housing until prices are more in equilibrium with other economic
> factors.
>
> Don't get me wrong. I think that government action to provide resistance
> to a deflationary spiral is necessary. I just don't think that actions
> that simply try to prop up bubbles and do not aim at establishing
> economic equilibrium positions can succeed. Among the biggest mistakes
> of The Great Depression were attempts to selectively provide wage
> and price controls. Both Hoover and Roosevelt were guilty. The idea
> of wage and price controls persisted all the way through Nixon/Ford.
> Jimmy Carter kept the idea on the table but did not try to further
> implementation. One thing the Ronald Reagan brought in that few will
> debate was of value was to scrap wage and price control as a policy
> tool.
>
> The role of government in this crisis is to provide liquidity, to
> create an environment that allows new business ventures to get established
> and avoid trying to regulate anything other than prohibiting preditory
> and anti-competitive behavior.
>
> Given the political choices available in the last election, I believe
> a satisfactory outcome was achieved from the economic viewpoint.
> However, we may look back in 5 - 10 years and wonder what better
> choices might have been made were they available.
>
> I am continually dismayed when policy actions are viewed through
> an ideological prism when pragmatism, free of ideology, is what we
> really need.

Mar 02 10:06 AM

[Roman_Fiddler:]

I expect if anyone in Bernanke's position was too pessimistic (that is, realistic - these days!) they'd be out on their behind quick smart.

So he is either utterly clueless, just doing what he's told (while building a stockpile of gold in Paraguay), or very cunning. My vote is on the first.

Mar 02 03:14 PM