Dear Ben...

by: Barry Ritholtz

Dear Ben,

Well, it's been a rough couple of months.

Like most new Fed Chairs, you've had a baptism by fire. First, elevated inflation levels, then, the Housing slowdown, next, a credit crunch, then a substantial market correction, and now, a derivative morass of biblical proportions. Oh, and by the way, we are likely entering a recession, with deflation threats in the future.

All Fed Chiefs seem to get off to a rocky start. If it is any consolation, most of it is not your fault. You inherited a mess from Easy Al. His answer to every problem was "Mo' Money," and that just means "Mo' Problems." The tech/telecom/dot com bubble, the Credit/Housing bubble, the lack of supervision or regulation of bank lending/Housing were all snafus on his watch. You were the relief pitcher who stepped onto the mound, with the count 3 and 0, bases loaded, no outs, down by 5 runs.

In some ways, you have already shown yourself to be Greenie's better. You haven't let the politicos sucker you into the tax/spending debate. You can communicate clearly and effectively in simple English. You haven't endorsed any party's specific wish list. Greenie already mea culpa'd doing that.

However, a few recent issues have developed that shall we gently say were not your finest hours. I don't want to rehash these, I'm sure you are getting more unsolicited advice than you could ever sift through. Far be it from me to give you any advice -- and damn to hell the Fed Chair who listens to bloggers or the media for that matter.

So rather than provide unsolicited prescriptions, please consider the following list as items worthy of further discussion. I am not suggesting solutions or even prioritizing. These are merely some issues you may not be aware of. Call it a leaping point for further discussion on the next FOMC retreat.


• Mr. Market is the world's greatest fake out artist. His goal is to confuse the most people he can;

• Human intervention in complex systems often has unintended consequences.

• Wall Street is dominated by Alpha Males. The Street is like a pack of wolves with more than one lead dog. All the Alphas will sometimes challenge the biggest, baddest wolf -- especially if they sense he's vulnerable.

• Which is worse: Inflation -- or deflation?

• What do Central bankers know today they didn't know last year? What have they learned since 2,000? And, since 1973?

• There are deeds, and there is perception. While related, sometimes the two behave independently;

• Has the Business Cycle been defeated? How much can we smooth out the peaks and valleys?

• The United States has seen its global reputation battered in recent years. Other governments -- especially European, but Russia and Central America -- are seeking some payback. I wonder how much the ECB and other Central Banks have bought into that.

• Excesses accumulate in all systems. Sometimes they are specific, and sometimes systemic;

• All Fed Chiefs have had their independence questioned. Some have handled it better than others; Rate all the Fed Chiefs on this issue;

• Is it the mechanic's job to clean the sand out of the gears, or is it to regulate the machinety's speed?

• Which is worse: Over-reactions or under-reactions?;

• History treats idealogues poorly;

• What does it mean to not pop bubbles? Can we do anything other than slowing down a bubble's progress -- but not its ultimate destination? And, how desirable are either of those?

• Communication problems are different then policy issues: Discuss.

• Forecasting the future has proven to be folly. Question: What is the value of the Fed's economic forecasts? Are they just another manufacturer of predictions?

These are just ideas, questions, jumping off points for future discussion. I hope you find them to be helpful exercises.

And I wish you luck in resolving some of the weighty issues facing our economy. You are going to need it...

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