Bernanke Feared a Second Great Depression

[D-Mack]

Bernanke Feared a Second Great Depression

By SUDEEP REDDY

KANSAS CITY, Mo. -- Federal Reserve Chairman Ben Bernanke on Sunday said he engineered the central bank's controversial actions over the past year because "I was not going to be the Federal Reserve chairman who presided over the second Great Depression."

Speaking directly to Americans in a forum to be shown on public television this week, Mr. Bernanke pushed back against Kansas City area residents who suggested he and other government officials were too eager to help big financial institutions before small businesses and common Americans.


...


More than 20 people asked questions of the Fed chairman, on topics ranging from bailouts to mortgage-regulation practices to the Fed's independence, a topic that drew the most forceful tone from the Fed chairman. Mr. Bernanke suggested that a movement by lawmakers to open the Fed's monetary-policy operations to audits by the Government Accountability Office is misunderstood by the public.

Congress already can look at the Fed's books and loans that could be at risk for taxpayers, he said. Under the proposed law, the GAO would also be able to subpoena information from Fed officials and make judgments about interest-rate decisions based on requests from Congress.

"I don't think that's consistent with independence," he said. "I don't think people want Congress making monetary policy."

...
http://online.wsj.com/article/SB124865498517982625.html

Does Ben want to quit before it gets worse?

[Slimprofits]

Re: Bernanke Feared a Second Great Depression

more quotes:

http://www.reuters.com/article/bonds...47533320090727

http://blogs.wsj.com/economics/2009/...s-pbs-viewers/


video excerpts:

http://www.pbs.org/newshour/video/sh...l?s=news01pa98

[goadam1]

Re: Bernanke Feared a Second Great Depression

I know he is campaigning for another term, but isn't he right? E.J. said he would do all the things he did and more. We get all snarky here. We are awaiting the potential of the great inflation. We know the dollar is being devalued. So what? I'm glad it's not the "not great whatever."

[nero3]

Re: Bernanke Feared a Second Great Depression

I think Bernanke did a good job, after he had first messed it up with getting rid of goldman sachs competition (before that happened, bernanke was not any good, however it seems he is good in crisis modes once they occur (other than the fatal mistake it was to let lehman and bear sterns fail) Had these banks not failed, I think we would be further into a recovery now. I would very much prefer Larry Summers. He is more likely to take a practical approach, and print more money than Bernanke would.

[grapejelly]

Re: Bernanke Feared a Second Great Depression

Bernanke is repeating the same mistakes that will result in the Great D 2. We are in it already. Because he believes falsely that the Fed tightened too much post 1929 and that created the Great Depression 1.

This is patently false. What shrunk the money supply was thousands of banks going out of business. I'm not saying that was a bad thing either, but it is in fact what shrunk the money supply. It is one of the few things that can really shrink the money supply.

Let's watch as interest rates RISE in the next year or two despite the Fed's best efforts. Let's call it Bernanke's Next Conundrum. (Remember the worldwide "savings glut"?)

What fun!

[nero3]

Re: Bernanke Feared a Second Great Depression

Bernanke is repeating the same mistakes that will result in the Great D 2. We are in it already. Because he believes falsely that the Fed tightened too much post 1929 and that created the Great Depression 1.

This is patently false. What shrunk the money supply was thousands of banks going out of business. I'm not saying that was a bad thing either, but it is in fact what shrunk the money supply. It is one of the few things that can really shrink the money supply.

Let's watch as interest rates RISE in the next year or two despite the Fed's best efforts. Let's call it Bernanke's Next Conundrum. (Remember the worldwide "savings glut"?)

What fun!

What caused that depression was the gold standard, and hard money politics, most other currencies traded at 20-50 cent on the dollar after some time. This time, the dollar is behaving totally different than then, and it's more the dollar that is taking the hit, thereby in some time, forcing inflation onto the economy.

[grapejelly]

Re: Bernanke Feared a Second Great Depression

What caused that depression was the gold standard, and hard money politics, most other currencies traded at 20-50 cent on the dollar after some time. This time, the dollar is behaving totally different than then, and it's more the dollar that is taking the hit, thereby in some time, forcing inflation onto the economy.

no what caused it was the same thing that caused this one. A huge expansion of the money supply creating a bubble that burst. Same as creates every depression.

[goadam1]

Re: Bernanke Feared a Second Great Depression

My business is picking up a little on cheap money and stimulus. It's like a drink at brunch for a hangover. Whatever. Life is often about buying time until the next think comes around.

Most here are prepared for the next thing. Meanwhile, I'm going to enjoy the mimosa.

[nero3]

Re: Bernanke Feared a Second Great Depression

no what caused it was the same thing that caused this one. A huge expansion of the money supply creating a bubble that burst. Same as creates every depression.

The Ron Paul's have it wrong, I think his views are grounded in some kind of moral, conservative and traditionalist world that says sins should be paid for with blood, that's where Soros disagree, as he recognize that if you let someone down in a hole, (as in letting the system clean itself in Pauls view) it's not sure that someone would get up from the whole, the market is not self corrective. . You would had avoided the depression, if the US have ended the gold standard as in 1971, in around 1930. Had they done that, it would just had been a normal recession. The thing most resembling 1929 in modern times is year 2000. Greenspan was the guy who avoided a depression.

It was the gold standard that forced the fed to raise interest rates in 1931. In general it was committed so many mistakes there, and the DOW to GDP ratio was so different then compared to now, that it's like two different worlds. To have 1929 again, you would had to have year 2000-2003, with all the mistakes as in 1929-32. Let's say no war on terror. No money printing. And very tight policy from Greenspan, even raising rates, it could have happened.

[dcarrigg]

Re: Bernanke Feared a Second Great Depression

[INDENT]Bernanke Feared a Second Great Depression

"I don't think that's consistent with independence," he said. "I don't think people want Congress making monetary policy."

Don't think people want Congress making monetary policy? Another enumerated power of congress - impotent.

I know the U.S. Constitution was written a few years before credit default swaps, but I think that Article 2 Section 8 clearly shows that monetary policy is one of those things congress is supposed to be involved in:

______________

Section 8 - Powers of Congress

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and Post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings; And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

[D-Mack]

Re: Bernanke Feared a Second Great Depression

The Great Preventer
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By NOURIEL ROUBINI
Published: July 25, 2009

LAST week Ben Bernanke appeared before Congress, setting off a discussion over whether the president should reappoint him as chairman of the Federal Reserve when his term ends next January. Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.

Mr. Bernanke understands that in the Great Depression, the collapse of the money supply and the lack of monetary stimulus during contractions worsened the country’s economic free fall. This lesson has paid off. Mr. Bernanke’s decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall.

To be sure, an endorsement of Mr. Bernanke’s reappointment comes with many caveats. Mr. Bernanke, a Fed governor in the early part of this decade, supported flawed policies when Alan Greenspan pushed the federal funds rate (the policy rate set by the Fed as its main tool of monetary policy) too low for too long and failed to monitor mortgage lending properly, thus creating the housing and credit and mortgage bubbles.

...


Some of these moves have raised important questions: Did the Fed help bail out institutions that should have been allowed to fail? Did it cause moral hazard as reckless lenders and investors were effectively bailed out? How and when will the Fed mop up the excess liquidity that its actions have created? Will these actions eventually cause inflation and a sharp fall of the value of the dollar? Has the Fed lost its independence as it has accommodated the fiscal needs of the government by bailing out banks and printing money to cover large fiscal deficits?

Still, the basic point remains: The Fed’s creative and aggressive actions have significantly reduced the risks of a near depression. For this reason alone Mr. Bernanke deserves to be reappointed so that he can manage the Fed’s exit from its most radical economic intervention since its creation in 1913.

http://www.nytimes.com/2009/07/26/op...roubini&st=cse

Questions, questions .. my guess is yes

[Spartacus]

Re: Bernanke Feared a Second Great Depression

"the great preventer" hahhahahahaha

He certainly did quite a coitus interruptus for Mish (not that Mish isn't still out there pounding the same table)

[INDENT]The Great Preventer
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By NOURIEL ROUBINI
Published: July 25, 2009

[sunskyfan]

Re: Bernanke Feared a Second Great Depression

I think any comparisons to the Great Depression are a big mistake: especially the ones by Bernanke (and possibly Greenspan). The Fed is clearly the largest public Trust ever. The idea that after the calamity of last year there should be no accounting is a shift in government philosophy of the US that should not be waved off casually. Either Democracy adapts or it fails and either a Republic works or it is replaced. From a person who has nothing invested in Wall Street nor Real Estate this has been a market correction on unpresidented and relentlessly rationalized corruption. The correction was tempered by the bail outs and Greenspans free money of 10 years ago. What have we gained?

I am a progressive. I have no insterest in the good old days. We have some fanstastic tools to set up a new system and some big problems to solve. What are we waiting for? Panicked intellectuals who were wrong to wring their hands some more? Next I'll be seeing Bernanke and Greenspan along with the Rep Right who worshipped Bush showing up on Oprah crying their hearts out when they find out the child really is theirs!

[GRG55]

Re: Bernanke Feared a Second Great Depression

The Great Preventer
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Print
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By NOURIEL ROUBINI
Published: July 25, 2009

LAST week Ben Bernanke appeared before Congress, setting off a discussion over whether the president should reappoint him as chairman of the Federal Reserve when his term ends next January. Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.

Mr. Bernanke understands that in the Great Depression, the collapse of the money supply and the lack of monetary stimulus during contractions worsened the country’s economic free fall. This lesson has paid off. Mr. Bernanke’s decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall.

To be sure, an endorsement of Mr. Bernanke’s reappointment comes with many caveats. Mr. Bernanke, a Fed governor in the early part of this decade, supported flawed policies when Alan Greenspan pushed the federal funds rate (the policy rate set by the Fed as its main tool of monetary policy) too low for too long and failed to monitor mortgage lending properly, thus creating the housing and credit and mortgage bubbles.

...


Some of these moves have raised important questions: Did the Fed help bail out institutions that should have been allowed to fail? Did it cause moral hazard as reckless lenders and investors were effectively bailed out? How and when will the Fed mop up the excess liquidity that its actions have created? Will these actions eventually cause inflation and a sharp fall of the value of the dollar? Has the Fed lost its independence as it has accommodated the fiscal needs of the government by bailing out banks and printing money to cover large fiscal deficits?

Still, the basic point remains: The Fed’s creative and aggressive actions have significantly reduced the risks of a near depression. For this reason alone Mr. Bernanke deserves to be reappointed so that he can manage the Fed’s exit from its most radical economic intervention since its creation in 1913.

http://www.nytimes.com/2009/07/26/op...roubini&st=cse

Questions, questions .. my guess is yes

"In the beginning" [circa 1996 ;) ] the Fed and Greenspan speculated very briefly about the negative consequences of unbridled animal spirits in the markets ["irrational exuberance"].

Then came LTCM, where the Fed "proved" that it could fix any market-imbalance induced financial disaster, even one that threatened the entire global financial system [which is how the LTCM meltdown was characterized by Rubin/Summers/Greenspan at the time].

This was followed by repeated denials [by the Fed] that the Fed, or any other organization of mere mortals, could possibly identify a financial bubble in advance...and even if it suspected a bubble, who was the Fed to question the sage wisdom of millions of transactions by rational investors that make up "the market" [echos of the late 1920s, btw].

That was followed by the tech meltdown, the first Deflation Scare of the new century, and Greenspan's agonizing series of "measured" 25 basis point rate increases...so afraid was the Fed of surprising the markets or triggering another recession. Most will recall that "Measured" was the most overused word in the Fed's speeches & FOMC minutes until it was finally superceded by "Contained".

By that point the disaster was already upon us, while the Fed prattled on about inflation expectations being "contained", the sub-prime credit disaster was "contained", even the first of the bank failures were described as "contained" so completely had it captured the Fed's and the media's limited lexicon.

Today we are bombarded with news of the omnipotent Fed "exit strategy" and are asked to offer kudos to Bernanke because his Fed "prevented" another disaster - perhaps the biggest of them all. Bernanke strikes me as an earnest scholar that has spent his entire life studying and preparing for one event - the onset of the next Great Depression - and when he got the chance to take the "goat rodeo" job on the eve of that moment in history it would have been unthinkable for him to refuse. He may well be the only honourable person in the entire escapade...it's hard not to notice that, unlike his peers, he alone appears to have avoided the multi-million dollar bonuses, speaking fees and book royalties.

Here's a wee prediction: No matter how bad it gets, no matter what deprivations are visited on our societies as a result of officially sanctioned corruption and deceit in the financial system, for most of the next decade we will be told repeatedly that, if not for the Fed, it would have been worse...much, much worse.

Unfortunately, we'll never really know...