Replace Ben Bernanke with Paul Volcker 15 comments
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Last week, the Federal Reserve statistical release (G.17) reported on industrial production and capacity utilization for the economy.
“Industrial production rose 0.7 percent in September after an upwardly revised gain of 1.2 percent in August. For the third quarter as a whole, output advanced at an annual rate of 5.2 percent, the first quarterly gain since the first quarter of 2008 and the largest gain since the first quarter of 2005. Production in manufacturing increased 0.9 percent in September, and the index excluding motor vehicles and parts rose 0.5 percent. Mining output strengthened 0.7 percent, while the output of utilities fell 0.7 percent. At 98.5 percent of its 2002 average, total industrial production was 6.1 percent below its level of a year earlier. In September, the capacity utilization rate for total industry increased to 70.5 percent, a level 10.4 percentage points below its average for 1972 through 2008.”
The Los Angeles Dodgers skipper, Joe Torre, when recently asked what the difference is managing during the regular season versus the post-season playoffs replied, to paraphrase Joe, in the regular season, you think about making a change; you consider it, then you follow your gut instincts. In post-season, you don’t consider making changes – you make changes. The inference here is years of experience are superior to rationalization.
Conventional wisdom says that no other American would be more qualified to be Chairman of the Federal Reserve Board, if America finds itself heading into another great depression, than Ben Bernanke. I submit that with interest rates nowhere to go but up; a weakening dollar, and massive budget deficits for years to come, the best person to run the Federal Reserve over the next two years is Paul Volcker.
At first blush, this idea may seem radical, but these are not ordinary times. What are the benefits if President Obama figuratively walks out to the pitcher’s mound, takes the ball from Bernanke, and say, “Ben, you threw one hell of a game for eight innings. We can take it from here; the economy is heating up.” Then, Obama turns towards the bullpen, forms his hand into the shape of a clam, opens and closes it twice, to signal for his major league inflation closer – Paul Volcker.
This is presidential managing.
For starters, the world will know any future inflation in the U.S. will be tame. When the cover of Barron’s is instructing the Fed Chief and the FOMC to raise rates at their next meeting, November 3-4 from 0.15% to 2.00%, perhaps he is hard-wired for fighting depression and we have gotten his A game – just when we needed it. But now, crisis accommodative monetary policy must give way to normal accommodative monetary policy.
The price of gold and our money supply is at all time highs. The SPDR Gold Shares (GLD) is now the second largest ETF behind the SPDR S&P 500 Index, holding $35 billion in assets. Only four central banks and the IMF control more gold, according to the World Gold Council. As the economy expands, do you really need a guy hanging around nicknamed “helicopter Ben”, named for vowing to spread money from helicopters to stop a depression from occurring, when too much liquidity is making too many people nervous?
This also sets a precedent. It was logical, I suppose, to move Tim Giethner from the Federal Reserve Bank of NY to Secretary of the Treasury to help thaw the frozen major center banks. The FDIC insurance fund is in the red, the (Unofficial) Problem Bank List at Calculated Risk show 479 names, therefore, most of the action over the next two years will occur in local and regional banks. Moving FDIC Chairman Sheila Baird to Secretary of the Treasury will maximize the power of the Treasury to minimize the next leg of the banking crisis. On the other hand, maybe Volcker has a short list of candidates.
Cabinet members come and go all the time. Moreover, no one believes that it has to do with spending more time with the family. At least these are strategic reasons to point to if anxiety grows over persistent problems in the economy.
Disclosure: Long GLD, GDX, SLV
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This article has 15 comments:
On Oct 19 10:11 AM Dave Wrixon wrote:
> The biggest concern is Paul's advancing years, but lets face it even
> a corpse would be better than Bernanke.
On Oct 19 09:06 AM phdinsuntanning wrote:
> Marvin, smart message, trust the skinny boy notice and daboyz not
> looking. Take care with paper gld & slv. It will be burned if
> Paul V goes there, very hard I gues, but keep dreaming, cheers.
economicdarwinism.word.../
It has Volcker as the Director of the National Economic Council, brings in Blinder to head the Fed, and Summers as the Treasury Secretary (mostly because he's running it anyway).
Look at the stock market, we no longer value companies, we play the pricing spread, the asymmetric information spread, not the value spread. Everyone is a crook because there is so much money to be made the fast way. It is almost beyond regulation. Besides, this money generated by financial capitalism is kept from the so called "productive forces" that make a society and a national economy strong. People seeking Alpha don't want to hear this, but the productive forces are so weak, you can't even give money away. Without productive forces, money becomes valueless, hence the move into gold. You don't need burning inflation to destroy the value of money. I'm sure we will muddle through until the next collapse because financial capitalism is not sustainable by itself.
We fueled the productive forces in Asia, weakened the productive forces at home, while fueling the speculators at home. The bailout further damaged the weakened productive forces at home and bailed out the speculators. This is why we need Volcker, Bair and Warren. I think they understand.
The monetarists and the Chicago School must be banned from the economy and take Harvard while you are at it as they are a big promoter of financial capitalism, the economic Nosferatu that drains energy from the productive forces. Warren must have been considered an Alien from Outer Space at Harvard as she did not support borrow and spend nor debt till you drop.
On Oct 19 10:32 AM Economic Darwinism wrote:
> I like the general idea here, but in June, I made my own recommendations
> for reappointments that I still stand by.
>
> economicdarwinism.word.../
>
>
> It has Volcker as the Director of the National Economic Council,
> brings in Blinder to head the Fed, and Summers as the Treasury Secretary
> (mostly because he's running it anyway).
On Oct 19 10:37 AM Ransome wrote:
> I'm thinking the deposit banks are not up for paying more interest
> on deposits. This may be a poor reason to hold rates down but it
> could push them over the edge. The flow of money is chasing short
> term returns instead of long term investment. Goldman is going gangbusters
> because they can borrow short and invest short. Deposit banks can
> not do that. If interest rates climb and the deposit banks don't
> respond, money will flow like a river out of the banks. This is
> a big experiment in financial capitalism where moving money for short
> term gains becomes 40% of GDP, replacing industrial capitalism which
> is now less than 10% and agriculture which is 1%. The Fed is captured.
>
>
> Look at the stock market, we no longer value companies, we play the
> pricing spread, the asymmetric information spread, not the value
> spread. Everyone is a crook because there is so much money to be
> made the fast way. It is almost beyond regulation. Besides, this
> money generated by financial capitalism is kept from the so called
> "productive forces" that make a society and a national economy strong.
> People seeking Alpha don't want to hear this, but the productive
> forces are so weak, you can't even give money away. Without productive
> forces, money becomes valueless, hence the move into gold. You don't
> need burning inflation to destroy the value of money. I'm sure we
> will muddle through until the next collapse because financial capitalism
> is not sustainable by itself.
>
> We fueled the productive forces in Asia, weakened the productive
> forces at home, while fueling the speculators at home. The bailout
> further damaged the weakened productive forces at home and bailed
> out the speculators. This is why we need Volcker, Bair and Warren.
> I think they understand.
>
> The monetarists and the Chicago School must be banned from the economy
> and take Harvard while you are at it as they are a big promoter of
> financial capitalism, the economic Nosferatu that drains energy from
> the productive forces. Warren must have been considered an Alien
> from Outer Space at Harvard as she did not support borrow and spend
> nor debt till you drop.
Ron Paul is correct. The solution is to begin the process of winding down the Fed and eventual dissolution of the entire structure, ending with rigorous prosecutions and penalties for uncovered malfeasance. This alone will encourage 'wrong doer's' to come forward and turn 'states evidence'.
On Oct 19 01:01 PM The Geoffster wrote:
> Why not replace the Fed with coin, as the Constitution requires.
On Oct 19 01:01 PM The Geoffster wrote:
> Why not replace the Fed with coin, as the Constitution requires.
Which lies of the past?
Extending the author's baseball analogy....
So Obama (the manager) pulls Bernanke (pitcher) because, well, he sucks. Brings in Volcker, the old vet, who serves up the same pitch he used back in the 80's: the high hard one. High interest rates, hard times, that is. Back then he saved Manager Reagan's job, but in order to keep the winning streak going Reagan prevailed on the team owners to spend, spend, spend and eventually the major opposition, the Moscow Reds, went bankrupt trying to compete. But the Washington Pinks were slowly going bankrupt themselves, eventually spending more than all the other teams combined, far outstripping their revenue stream and borrowing from successful teams in the minor leagues. Everyone with a lick of sense knew this would lead to Washington suffering the same fate as Moscow.
Well, now the most successful minor league team, the Beijing Capitals, has been promoted to the big leagues and is challenging the Washington team for the championship. And they own Washington's stadium, the bats and balls, and most of the ushers and hot dog hawkers speak Chinese. When Obama brings in Volcker and his high hard one, throwing at their players' heads and threatening their investment, they'll turn the lights off and send Washington down to the minors.
Gimme the ball, Obama.
On Oct 20 03:30 PM flow5 wrote:
> You are obviously ignorant of Volckers record as Chairman of the
> Federal Reserve Board. He is a bad leader and an incompetent economist.