Bernanke Being Rewarded for Failure 45 comments
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Ayn Rand wrote, "when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed."
America is not doomed, but the fellows in Washington are pushing for that outcome. It seems that all the characters that encouraged this financial crisis are being rewarded, and Ben Bernanke's re-nomination is no exception to this rule. He was on the Board of Governors when Alan Greenspan grew our bubble economy. Known as 'Helicopter Ben,' Bernanke was the most vocal supporter of low interest rates to combat the bogus threat of deflation, even if it meant dropping cash from helicopters. He succeeded in his aim – as it is hard for prices to decline while the money supply is growing by double digits.
Of course, much of that new money went into speculative bubbles, first in tech and then real estate. When the misallocation became too great to ignore, the credit markets froze and leveraged institutions started failing. Now, Bernanke says that he doesn't want to preside over another Great Depression.
That doesn't mean he doesn't want another Great Depression; he just doesn't want to preside over it. His plan seems to be continuing to print money so that the depression isn't apparent until after he leaves office.
However, while Greenspan was able to get out of Dodge, Bernanke will probably not be so lucky, as his reappointment virtually guarantees that he will be in the middle of the action when the bullets start to fly. Left to clean up his own mess, Bernanke will soon regret not quitting while the going was good.
Bernanke is being praised for avoiding a collapse in the financial system. While he has forestalled some short-term pain, he has in turn forsaken long-term gain. The 'green shoots' that set the pundits alight are nothing more than the direct effects of massive monetary expansion. What we have is nominal growth in the unproductive service and consumption sectors. In short, Bernanke is being praised by the drug addicts for not cutting them off. But the thing about addiction is that the longer you stay hooked, the more deadly the withdrawal.
What this country needs is a Fed Chairman that is immensely unpopular, backed by a courageous President. Under Paul Volcker and Ronald Reagan, this model proved effective at avoiding a complete economic collapse in the early 1980's.
In case posterity's resounding approval has clouded anyone's memory, Volcker was vilified and threatened with impeachment at the height of that crisis. Reagan's decision to stand behind Volcker allowed the Chairman to persevere. It has never been popular to be responsible. Only after the markets settled and the country experienced twenty years of prosperity was history's final judgment made about Volcker.
Greenspan undid the painful sacrifice we made in 1981. He grew a bubble in tech stocks and then refused to allow the economy to restructure after it burst, instead inflating a real estate bubble in its stead. Meanwhile, federal spending ballooned, along with unfunded liabilities and guarantees that distorted the capital markets. The Fed created moral hazard because the government assumed that any excessive debt would be monetized.
When push came to shove, Bernanke did exactly that, perhaps even hiding his intervention by buying Treasuries through intermediaries. In doing so, he allowed our elected officials to avoid making the politically costly decisions that would have prepared the country for future growth.
To get a sense of Bernanke's ultimate legacy, look no further than Argentina. Though many of the rich and powerful had moved their savings abroad, a currency collapse wiped out the middle class in that historically prosperous country. Is such an outcome worth the short-term comfort of avoiding the severe but temporary pain of unemployment and mortgage defaults?
Bernanke's re-nomination is a politically safe decision for President Obama, and at least Bernanke is a devil we know. However, this lack of a 'change' for the better should squash any 'hope' for a genuine recovery. If the Bush years were as bad as the Democrats claim, then it is curious that they are mimicking and magnifying the same mistakes. No one has been held accountable for a financial crisis that the professors, pundits, and politicians told us would not come. All the same players are running the game, always changing the rules so they stay on top.
Real 'change we can believe in' would be a return to our roots in the rule of law and a system of sound money – but it's hard to stay grounded when you're throwing money from helicopters.
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Our manufacturing has been outsourced to the developing world, and only our spirit of innovation remains. Our currency is sinking, and unemployment rising. The only source of new jobs is the government. Our budget deficit is astronomical given that government has taken the role of doing everything for everyone.
Our standard of living is sliding, while that for the developing world is rising. We have become just another country with contentious populist politics, a lousy budget, and an oppressive federal government stifling wealth creation.
At least the revolution was televised in HD. Meet me in Australia.
And Arnold Glasgow said "One of the tests of leadership is the ability to recognize a problem before it becomes an emergency."
----------No leadership, no foresight, no escape...sad but true.
Thanks.
p.s. Are there any more Volkers and Reagans out there? Although obviously not a Democrat, even a Jack Kennedy or Harry Truman would be a great improvement.
And, at least Canada makes use of its abundant natural resources. Maybe Canada will take us in?
On Aug 27 09:38 PM Dr. O wrote:
> Sadly, if you take a step back, what you see is that our country
> is becoming just another slow growth, socialistic, aging, tax and
> spend nanny state, like Europe, Japan, and Canada.
>
> Our manufacturing has been outsourced to the developing world, and
> only our spirit of innovation remains. Our currency is sinking, and
> unemployment rising. The only source of new jobs is the government.
> Our budget deficit is astronomical given that government has taken
> the role of doing everything for everyone.
>
> Our standard of living is sliding, while that for the developing
> world is rising. We have become just another country with contentious
> populist politics, a lousy budget, and an oppressive federal government
> stifling wealth creation.
>
> At least the revolution was televised in HD. Meet me in Australia.
On Aug 27 05:40 PM woollyB wrote:
> The whole purpose of central banking is to inflate. They're just
> doing their job. I think it won't be long now before reality sets
> in again. In fact, when the market turns down again with a vengeance,
> I'd be somewhat surprised if Bernanke gets into his next term, and
> very surprised if he completes it.
>
> I wholeheartedly endorse Schiff for Senate.
On Aug 27 04:17 PM Donald Ingram wrote:
> With Benny and his 'economic jets' back at the helm of the Fed, this
> will bode well for the price of gold! Thanks Benny!!!
On Aug 27 11:02 AM Fighting Yoda wrote:
> By rewarding Bernanke they are actually rewarding themselves - all
> these people are part of the same failed system. By removing Bernanke
> they would have set stage for their own removal - so he continues
> and it goes on. Corruption and lack of accountability is complete.
>
>
> Yes Bernanke has utterly failed, he has politicized the Fed office
> even more than Greenspan. But as long as he is ready and willing
> to keep interest rates low, support every stimulus and bailout program
> - he will stay - because that is what the politicians love. In the
> end we have the exact same people following the exact same policies
> – even easier and cheaper money – keep borrowing and consuming. There
> never ever is talk about debt repayment or production– just borrow
> and shop till you drop. If you don’t have money Govt. will provide
> – clunkers, new home buyers, appliance program.
>
> Yes - 'What this country needs is a Fed Chairman that is immensely
> unpopular". But elections have consequences - Obama won it on his
> bailout theme - so we all voted for it.
>
> People are investing today based on same old failed ideas and recommendations
> of same old people who have never got anything right. The outcome
> will exactly be the same - don't be surprised and don't blame anyone
> else but you. This new bubble will burst again - interest rates and
> taxes will explode, and a lot more people will be foreclosed and
> lose their jobs.
Congress!!
On Aug 27 10:52 AM Asbytec wrote:
> What the country needs is NO Fed chairman...no Fed.
Where were the Ayn rand followers talking about corruption being rewarded when the medal of freedoms were being handed out right and left by "W" ???
When it came to Obama bailing out Detroit car makers (and all the blue collar, union workers) there were all kinds of questions asked! Obama did continue on this wrong path, but, at least with more oversight.
Also, It was Carter (not Reagan) who appointed the unpopular, but, effective, Volker. It was Reagan who appointed Greenspan, It was "W" who appointed Bernacke....do you see a pattern here?
One more thing: Volker supported, I repeat Volker supported, Obama in this last election and is on his advisory panel!!! Pay attention people.
I agree with Peter about a number of things and question the path we are on, but, lets put some of the blame, for where we are, where it belongs.
On Aug 28 01:18 AM realold wrote:
> I don't think that "we" all voted for him. Though, I do appreciate
> your intent in writing it.
You would have loved to have a depression. What a Chicken Little
Kirby
You are far too optimistic. Nothing you say needs to happen will ever happen. Argentina will be considered a model for years. As for the USA, it won't exist. One by one States will pull out of the union.
So what's the problem here ? You act like we will be around to regret it.
Er... the Ayn Rand followers WERE screaming bloody murder at the bailouts... that's why the thing barely passed.. if you'll remember, it didn't the first round, then the folks who could be bought by tax cuts, were. And the rest is history. Bush deserves no credit at all for having helped things, but don't blame this on a minority of political activists whose names we don't even know -- because they were always saying the same things, even under bush. I know because I was one of them, and I have been reading them as well. My ilk and I are not republicans, and we shall not be blamed for their mistakes. We've been pointing out the fault in bailing out failing institutions the whole way down.
On Aug 28 12:20 PM mr. blue wrote:
> Excuse me but it was "w' who bailed out the financial institutions
> with no, I repeat NO questions asked. Ex Goldman sacs officials
> protecting their own all the way. Rewarding corruption???
> Where were the Ayn rand followers talking about corruption being
> rewarded when the medal of freedoms were being handed out right and
> left by "W" ???
> When it came to Obama bailing out Detroit car makers (and all the
> blue collar, union workers) there were all kinds of questions asked!
> Obama did continue on this wrong path, but, at least with more oversight.
>
> Also, It was Carter (not Reagan) who appointed the unpopular, but,
> effective, Volker. It was Reagan who appointed Greenspan, It was
> "W" who appointed Bernacke....do you see a pattern here?
> One more thing: Volker supported, I repeat Volker supported, Obama
> in this last election and is on his advisory panel!!! Pay attention
> people.
> I agree with Peter about a number of things and question the path
> we are on, but, lets put some of the blame, for where we are, where
> it belongs.
Actually what you need is a congress that wont take bribes from big public corp. Thats a better start. in the mean time they continue to accept "campaign contributions" ok ok ok lets call it what it is so that the laws and regulations are twisted so Wall street can continue to be the great wealth transformation mechanism from the middle class to the rich known on planet earth
It's deflation, not inflation that is the major concern to address now. Asset deflation and the inability to borrow or create leverage off underlying assets is the real concern going forward. Without that credit expansion and liquidity in all asset classes, we continue to be in serious jeopardy when you talk about the average American's spending power and household wealth.
The overhang of enormous and disproportionate debt to equity ratios makes systemic foreclosure risk unmitigated, and the strategy seems to be to allow banks as much time as possible to consolidate and earn their way out of crisis predicated on paper asset valuation.
All of these arguments against the monetary policy only hold true if we cannot recovery as an economy going forward at some point in the future.
If that were the case it's not really Argentina that we should worry about emulating, it should be that horrific analogy of the Zimbabwean Dollar where a trillionaire can't buy a stick of gum!
In that instance, money was, quite literally, not worth the cost of the ink and paper it was printed on!
As much as some Christians see the Book Of Revelation coming true in the headlines of their newspapers, I see Rand's prophetic, dark vision from Atlas Shrugged (and even The Fountainhead) eerily repeated in the actions of our leaders of state and industry.
But I do NOT think its quite time to fold my tent and steal away, abandoning my post as a cog in the capitalist engine motivating the planetary econmic system.
I have hopes that we will dodge this bullet at least long enough for me to squirrel away a few more nuts located against all odds by this blind hog.
Fannie Mae and Freddie’s Felix new bag of tricks.
Fannie Mae and Freddie Mac are preparing to introduce a program aimed at helping independent mortgage banks acquire the short-term credit they need to make home loans. Fannie and Freddie plan to build on a previously undisclosed pilot program that Freddie has with Provident Funding Associates LP, a large national mortgage lender based in Burlingame, Calif., and with Natty Mac, a so-called warehouse lender based in St. Petersburg, Fla., that provides short-term funding to mortgage companies.
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