Tag Archives: Federal Reserve

Winter for Summers

Larry Summers has withdrawn his name for Chairman of the Federal Reserve.  Yay!

I didn’t oppose him because I care about appointing a woman (although I think Janet Yellen would do a great job, based on her record of correct economic forecasts), I opposed him because he’s an asshole.  He doesn’t have the personality and temperament for the job.

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…

 

It’s Nice That Someone’s Looking Out for Our Economy

The Federal Reserve announced significant monetary easing today that will continue until unemployment falls below 6.5% or inflation rises about 2.5%.

Not sure who is happier today, me or Paul Krugman, but this is excellent news for the economy.

 

You Ask the Wrong Question, You Get the Wrong Answer

From Paul Krugman* today:  “By the way, in saying that our prolonged slump was predictable, I’m  not saying that it was necessary.  We could and should have greatly reduced the pain by combining aggressive fiscal and monetary policies with effective relief for highly indebted homeowners:  the fact that we didn’t reflects a combination of timidity on the part of both the Obama administration and the Federal Reserve, and scorched-earth opposition on the part of the G. O. P.”

This brings us back to Rick Santelli on February 21, 2009, when he famously asked, “Do we really want to subsidize the losers’ mortgages?  This is America!  How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”

The answer to that was a resounding “Hell, no!” and the start of the Tea Party,  but Santelli asked the wrong question.  He should have asked “How many of you people want to lose 30, 40, 50% of the value of your homes?  How many of you people want to lose your jobs because of the worst economic meltdown since the Great Depression?  How many of you people want to then lose your homes because, just like your neighbor now, you won’t be able to pay your bills?”

The truth is that because we got so obsessed with “moral hazard,” so determined not to coddle those damn “losers,” we all became losers.  If we’d loved our neighbor a little more, we would have all been better off.  Instead of lifting them up, we dragged ourselves down.

With all our politicians who constantly quote the Bible at us, where was Mike Huckabee or Michele Bachmann or Rick Santorum reminding the self-righteously righteous that the rain falls equally on the good and the bad?

* “The Optimism Cure,” NYT

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.

Fifty Shades of Sado-Monetarism

From “Another Bank Bailout,” Paul Krugman, NYT:

“Most notably, last week the European Central Bank declined to cut interest rates. This decision was widely expected, but that shouldn’t blind us to the fact that it was deeply bizarre. Unemployment in the euro area has soared, and all indications are that the Continent is entering a new recession. Meanwhile, inflation is slowing, and market expectations of future inflation have plunged. By any of the usual rules of monetary policy, the situation calls for aggressive rate cuts. But the central bank won’t move.

“And that doesn’t even take into account the growing risk of a euro crackup. For years Spain and other troubled European nations have been told that they can only recover through a combination of fiscal austerity and ‘internal devaluation,’ which basically means cutting wages. It’s now completely clear that this strategy can’t work unless there is strong growth and, yes, a moderate amount of inflation in the European ‘core,’ mainly Germany — which supplies an extra reason to keep interest rates low and print lots of money. But the central bank won’t move.

“Put all of this together and you get a picture of a European policy elite always ready to spring into action to defend the banks, but otherwise completely unwilling to admit that its policies are failing the people the economy is supposed to serve.

“Still, are we much better? America’s near-term outlook isn’t quite as dire as Europe’s, but the Federal Reserve’s own forecasts predict low inflation and very high unemployment for years to come — precisely the conditions under which the Fed should be leaping into action to boost the economy. But the Fed won’t move.

“What explains this trans-Atlantic paralysis in the face of an ongoing human and economic disaster? Politics is surely part of it — whatever they may say, Fed officials are clearly intimidated by warnings that any expansionary policy will be seen as coming to the rescue of President Obama. So, too, is a mentality that sees economic pain as somehow redeeming, a mentality that a British journalist once dubbed ‘sado-monetarism.’

“Whatever the deep roots of this paralysis, it’s becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don’t despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner.”  Emphasis added.

And that utter catastrophe may put Mitt in the White House.  Catastrophe squared!

Review of Game Change

David Frum, former speechwriter for Bush 43, has an excellent review of Game Change (the Palin-is-a-moron movie on HBO this Saturday, March 10) up at The Daily Beast.  Here’s a morsel:

“Game Change the movie shows a Palin of almost unfathomable ignorance.  Staffers discover that she has never heard of the Federal Reserve and does not know why there are two Koreas; she answers a prep question about the military alliance with Britain by saluting John McCain’s excellent relationship with Queen Elizabeth.

“Efforts to instruct her send Palin into what one staffer describes as a ‘catatonic stupor.’

“The professionals soon discover their mistake.  ‘I don’t even like to say this, but has it occurred to you guys that she might be mentally unstable?’ asks one staffer about the woman the McCain campaign proposed to put next in line to America’s nuclear codes.  As they come to know Palin, the campaign professionals begin to  feel an awakening of conscience:  first qualms, then fears, and finally revulsion — not for the campaign, not for their careers, but for their country.

“Some of the best acting in the film is in the looks of unspoken dread that flit about the faces of Sarah Paulson’s [Nicolle] Wallace and Harrelson’s [Steve] Schmidt as they react to  Palin’s wilder and wilder provocations.  What have they done?  And if this campaign somehow wins — and Palin is put within reach of the presidency — what might they have done?”

There’s much more, all of it very scary.  Think about this.  Ron Paul is dangerous enough because he wants to abolish the Federal Reserve.  But at least he’s heard of it.