Maybe We Should Abolish the Fed…

Just kidding!  But they really did miss the Great Recession.

From “Most Fed Officials Saw Economy Weathering Subprime Crisis,” Craig Torres, Bloomberg:

“Federal Reserve officials in August 2007 saw the beginnings of the crisis in subprime mortgages and concluded that the U. S. economy would be able to withstand it, even as some Fed members warned that it could trigger a downturn, transcripts from their 2007 meetings show.

“‘Well-capitalized banks and opportunistic investors will come in and fill the gap, restoring credit flows to non-financial businesses and to the vast majority of households that can service their debts,’ Donald Kohn, then vice chairman of the board, said in Aug. 2007….

“The transcripts show the committee’s slow grasp of the enormity of contagion that was to spread throughout global markets as a result of billions of dollars in low-quality housing assets that had been securitized into bonds and sold to banks and investors worldwide.  Several FOMC participants such as then-San Francisco Fed President Janet Yellen sounded alarms in the first half of 2007.  Still, the FOMC…showed reluctance to alter policy until August.

“‘The odds are that the market will stabilize,’ [Ben] Bernanke told the committee in Aug. 2007….

“[O]n June 27028, Yellen said the biggest risk to economic growth was housing, which she called the ‘600-pound gorilla in the room.'”  Emphasis added.

It turns out that housing was more like an entire wildlife preserve filled with gorillas…

 

Mitt’s Can’t Win on the Economy Because His Policies Are Losers

From “Clarifying Romney,” James Surowiecki, The New Yorker:

“Romney’s specific policies haven’t helped him much, either, partly because his economic speeches have been light on detail, and partly because his party’s ideology limits the kinds of solutions he can offer to the current job crisis.  As a Republican, Romney can’t push for any more stimulus, and is demanding deep spending cuts (without specifying exactly what programs he’d kill).  And, while even a conservative could go after the Federal Reserve for doing too little to boost economic growth, Ropmney has made exactly the opposite argument.  He has said that he would replace Ben Bernanke with someone who would support a ‘strong dollar’ — which means tighter monetary policy, fewer exports, and fewer jobs.”  Emphasis added.

This “strong dollar” garbage is intended to reach out to the Paul people, who want to return to the gold standard.  He won’t just call out crazy for what it is, he panders to it, he appeases it. 

Krugman Blasts Fed

From  “The Great Abdication,” Paul Krugman, NYT:

“Ben Bernanke…has warned in particular about the damage being done to America by the unprecedented level of long-term unemployment.

“So what does the Fed propose doing about the situation?  Almost nothing.  True, last week the Fed announced some actions that would supposedly boost the economy. But I think it’s fair to say that everyone at all familiar with the situation regards  these actions as pathetically inadequate — the bare minimum the Fed could do to deflect accusations that it is doing nothing at all.

“Why won’t the Fed act?  My guess is that it’s intimidated by those Congressional Republicans, that it’s afraid to do anything that might be seen as providing political aid to President Obama, that is, anything that might help the economy.

“None of this should be happening.  As in 1931, Western nations have the resources they need to avoid catastrophe, and indeed to restore prosperity — and we have the added advantage of knowing much more than our great-grandparents did about how depressions happen and how to end them.  But knowledge and resources do no good if those who possess them refuse to use them.

“And that’s what seems to be happening.  The fundamentals of the world economy aren’t, in themselves, all that scary; it’s the universal abdication of responsibility that fills me, and many other economists, with a growing sense of dread.”  Emphasis added.