SuperNanke to the Rescue! 15 comments
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It’s quite fitting that markets are trading sharply higher this morning as Fed Chairman Ben Bernanke speaks to economists and policy makers in Jackson Hole, Wyoming. The text of the Bernanke’s speech has been released and concentrates on explaining just how dire our financial infrastructure has been, and how forcefully policy makers acted to avert a total collapse.
The Chairman believes that “resulting global downturn could have been extraordinarily deep and protracted.” had the Fed and Treasury not stepped in with aggressive actions. Ironically, the statement pays very little homage to what got our global economy in this mess in the first place. Quite honestly, there are plenty of strong arguments pointing to lax Fed policies which encouraged excessive borrowing and risk taking in the first place.
This strong and unprecedented international policy response proved broadly effective. Critically, it averted the imminent collapse of the global financial system, an outcome that seemed all too possible to the finance ministers and central bankers that gathered in Washington ~Ben Bernanke, Chairman FOMC
While the history of Fed policy rests largely on the shoulders of Alan Greenspan, it is clear by the actions of the current administration that we prefer to use leverage and debt to finance short-term strength instead of allowing the market to wring out excesses in order to set a foundation for solid and lasting economic recovery (albeit at a more constrained pace). The current policies of holding rates extremely low, injecting capital into private industry, encouraging borrowing by both individuals and businesses in order to finance recovery and growth will likely lead to weakness in the future when these debts must be repaid.
Today’s statement also raises the question: Are we really out of the woods yet? While the market forges ahead to a new recovery high, and investors celebrate new found paper wealth, some serious questions remain unresolved. What about the millions who not only find themselves out of work, but also have seen the time elapse to the point where they can no longer collect unemployment benefits? What about housing values which are still significantly below (admittedly inflated) levels from 18 months ago? Or the fact that an icy residential real estate market makes it nearly impossible for families to relocate and find new jobs? While the stock market is a barometer for future expectations for the market, it cannot be used as a thermometer to determine that today the economy is more stable.
I will concede that without the emergency actions by the Fed and Treasury, our economic system could have fallen much harder (although the crash that we endured was by no means pleasant). But my concern is that as we begin to feel that there is some time separation between today and those dark days of the past year – we are all to willing to pat ourselves on the back and congratulate each other for still being alive. What we should be doing at this time is to evaluate what could have been done in the decades (not months) leading up to this collapse – and how we can implement policies that will encourage more stable and sustainable growth in the future.
So Mr. Bernanke, I congratulate you for acting forcefully and creatively to stem the fall and put us back on our economical feet. But I would also implore you and the current administration to resist the temptation to inflate another bubble by encouraging borrowing and excesses. Instead, please allow the American people and American businesses to conservatively and deliberately rebuild their balance sheets and live within their means.
No more cash for clunkers or expansions to entitlement programs. Don’t take money from those who have built successful businesses and give it to those who have proven to be poor allocators of resources. Instead, let the profitable grow so they can hire many in this vast pool of unemployed. Give tax incentives to those who offer employment and encourage competition in businesses such as energy, health care, and manufacturing. Leave interest rates at reasonable levels, but be careful not to encourage borrowing beyond ability to repay. This is true for Mr. and Mrs. Smith in small town USA as well as for Goldman Sachs (GS) in the penthouse over Manhattan.
Let this country grow with the spirit of freedom and competition which made us great. Yes we CAN rise to that entrepreneurial place of strength. But only if we are allowed to try… and fail… and get up and try again. Learning from our failures is the key to success. And that’s true in Washington, in New York, in Michigan, in Silicon Valley, and across the globe.
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It is also by no means over!
It's obvious in hindsight that there were plenty of other options that would have worked just as well or better. They panicked.
We may be out of the crisis they envisioned, but only the near future will show us what the cost will be.
ExACTly! Well said.
Bernanke is leaving himself nowhere to hide, when the next leg down takes us too below the March lows.
He will wish he resigned.
If we are to continue to listen to his speeches from Jackson Hole, or a Maine fishing lodge, or Aspen in January (these guys are really suffering, yes?), then the least he could do is look the part.
Bernanke needs to next appear with a nice cottony cheerleader outfit with a an old fashioned megaphone and a big "D for depression", on his varsity sweater. He will of course need to wear the too short skirt for purely sex appeal.
He can make his next speech from Vegas!
"Give me a QQQQQQQ!
Give me an EEEEEEE!
What's that spell?
Disaster for you and me!! YYYeeaahhhhhhhhh!"
"Give me Low interest rates!
Give me trillions in stimulus!
What's that spell?
Zom-beeeeeeeeeeeeeee! Yeahhhhhhhhhh"
I guess since the stock market has risen 50% in 6 months, then everything will be alright, because that is really the only fundamental statistic that matters to Washington. So, we can all quit worrying now, everything is great......just because Ben says so.
raylopez99.blogspot.com/
Click on the first link for a graphic that shows discussion over TARP was the cause-in-fact of the equities crash of October 2008. This link is from the second link above.
A picture is worth a thousand words.
This figure is from John Taylor's paper on the crash, Critical Review:
A Journal of Politics and Society, Vol. 21, Nos. 2-3, 2009 Economic
Policy and the Financial Crisis: An Emperical Analysis of What Went Wrong – John B. Taylor
Go here: groups.google.com/grou...;
for a discussion of this topic.
Don't conceed this point. The late 19th century had similar growth rates to the late 20th century (Angus Maddison's data), and the former was before the 1913 creation of the US Federal Reserve. You can have a "V-shaped" recovery without a Fed. Otherwise, you risk a "U" or "L" shaped recovery, just like in Japan, with their failed Keynesian economics.
tinyurl.com/pdljc9
raylopez99.blogspot.com/
Click on the first link for a graphic that shows uncertainty over TARP was the cause-in-fact of the equities crash of October 2008. This link is from the second link above.
A picture is worth a thousand words.
This figure is from John Taylor's paper on the crash, Critical Review:
A Journal of Politics and Society, Vol. 21, Nos. 2-3, 2009 Economic
Policy and the Financial Crisis: An Emperical Analysis of What Went Wrong – John B. Taylor
Go here: groups.google.com/grou...;
for a discussion of this topic.
Milton Friedman, when he wrote for Newsweek also pointed to the Fed’s stop-and-go tactics of the 1970’s.
Friedman was for a constant money supply growth whereas Taylor founded the Taylor Rule (formula) of Fed Funds Rate. Greenspan, and Bernanke as his side kick, knew the Taylor Rule very well when they created the bubble. They merely violated the Taylor Rule and applied Bubble-nomics.
On Aug 22 09:05 AM HunterGVL wrote:
> Everytime Bernanke opens his mouth to grace us with his spin, the
> market rallys sharply. He has become a 'regular' on the 'everything
> will be great from here on out' circuit. He has been saying things
> are fine and getting better from the end of 2007 until today. He
> has been wrong each and every time and he is wrong now.
>
> If we are to continue to listen to his speeches from Jackson Hole,
> or a Maine fishing lodge, or Aspen in January (these guys are really
> suffering, yes?), then the least he could do is look the part.<br/>
>
> Bernanke needs to next appear with a nice cottony cheerleader outfit
> with a an old fashioned megaphone and a big "D for depression", on
> his varsity sweater. He will of course need to wear the too short
> skirt for purely sex appeal.
>
> He can make his next speech from Vegas!
> "Give me a QQQQQQQ!
> Give me an EEEEEEE!
> What's that spell?
> Disaster for you and me!! YYYeeaahhhhhhhhh!"
>
> "Give me Low interest rates!
> Give me trillions in stimulus!
> What's that spell?
> Zom-beeeeeeeeeeeeeee! Yeahhhhhhhhhh"
>
> I guess since the stock market has risen 50% in 6 months, then everything
> will be alright, because that is really the only fundamental statistic
> that matters to Washington. So, we can all quit worrying now, everything
> is great......just because Ben says so.
The Obama administration has bought this economy, in full. This short term bump and their proclamation that they saved the economic world makes them primarily accountable for the immediate future. It is the equivalant of Bush standing on a aircraft carrier and proclaiming "mission accomplished".
Of course if the economy resumes it's slide the spin machine will resume reflecting the blame elsewhere, but, this all clear stuff sets the stage for accountability in the here and now.
Seems to me both parties have been trying hard to discredit themselves. I suspect that, by the time 2012 rolls around, the Republicans will know they can run any idiot -and so they will. We'll probably get President Romney, or some other Big Government Republican, and he'll preside over a whole new phase of disaster.
Silver lining: If Both parties get sequentially burned by embracing Big Government, maybe they'll smarten up? Hey, I'm allowed to dream . . .
The market will follow fundamental information over the long run, but today's prices appear to be largely a function of investor confidence which is being juiced by positive statements out of the various governing bodies of our economic process. It is very difficult to know WHEN the market will swing back to a fundamental pricing measure (and likely take investor confidence along with it), but I think it's very clear that the risk is high in this environment. So as investors we've got to be careful not to drink the kool aid but also not get too committed to the short side until the confidence has run its course.
Keep the investment powder dry and the eyes wide open. We should see some much more attractive buying opportunities in the next several months. For today, buying on the hype could be disastrous.
zachstocks.com