Fisher strikes back

[jpatter666]

Teddy Roosevelt once remarked of a financial crisis: "When people have lost their money, they strike out unthinkingly, like a wounded snake, at whoever is most prominent in the line of vision." Late last week, we saw the Senate strike out at Federal Reserve Chairman Ben Bernanke. His nomination for a second term was the first to come into Washington's line of vision in the immediate aftermath of Republican Scott Brown's win in the Massachusetts senatorial election.
There are many roadblocks we must overcome to get our economy running again. Businesses must develop sufficient confidence in the future to begin expanding their order books and payrolls. Banks must be willing and able to lend again. And consumers must regain the wherewithal to open their pocketbooks.
A massive obstacle to unleashing the private sector's "animal spirits" is widespread concern about our nation's fiscal predicament and uncertainty about the extent of government intrusion into the conduct of business. This was a key propellant for Mr. Brown's meteoric rise to the Senate. The behavior of Congress this week, however, has added another obstacle to our economic recovery: The risk that elected officials will now politicize the Federal Reserve and compromise its independence.


http://online.wsj.com/article/SB1000...648895592.html

[ASH]

Re: Fisher strikes back

Late last week, we saw the Senate strike out at Federal Reserve Chairman Ben Bernanke. ... The risk that elected officials will now politicize the Federal Reserve and compromise its independence.


http://online.wsj.com/article/SB1000...648895592.html

I know Bernanke is not particularly popular in these parts, but personally I am of two minds about him. We excoriate him for taking actions designed to head off a deflationary spiral because in so doing he helped save the banking institutions that share responsibility for the preceding credit bubble, he risks debasement of the currency, and he is perpetuating a system of false credit-driven financial 'growth' that has no future or lasting substance. He can also be blamed for being blind to the risks heading into the crisis -- he is certainly guilty of not understanding the economy well enough to avert disaster, nor did his Fed do a good job of regulation. The only reason I have some sympathy for Bernanke is that I think perpetuation of the status quo is supposed to be the job of a central banker. I don't think central bankers are necessarily supposed to be economic revolutionaries. I think a central banker is a bureaucrat to whom the system's operation is entrusted; it is Congress, through banking laws, that bears responsibility for the architecture of the system. It was Bernanke's job both to avoid a crisis of the system (at which he failed) and to get the "system" running again afterwards; I'm not sure I can blame him for trying to resuscitate the system rather than allowing it to crash and burn so that something new could be erected in its place. It's true that Bernanke was exceptionally activist about changing rules and breaking precedents to save the system, but I see most of what he did as tactical rather than strategic. The fact that this writer in the Wall Street Journal sees Bernanke as being scapegoated -- and that Obama nominated Bernanke for a second term -- seems to support the idea that Bernanke was serving orthodoxy.

The other point, about the nominal political independence of the Fed, isn't exactly wrong. Perhaps the functions performed by the Fed should be strictly reserved for the government, rather than performed by a technically private body, but if central banking is brought within government, it needs to be more like the judiciary than the legislature. The closer the ability to monetize debt is brought to the elected officials who incur debt, the easier it is to get hyperinflation. We might get there anyway, but in my view, the likelihood is lower when the central bank is run by technocrats less subject to populist pressures.

[c1ue]

Re: Fisher strikes back

It's true that Bernanke was exceptionally activist about changing rules and breaking precedents to save the system, but I see most of what he did as tactical rather than strategic. The fact that this writer in the Wall Street Journal sees Bernanke as being scapegoated -- and that Obama nominated Bernanke for a second term -- seems to support the idea that Bernanke was serving orthodoxy.

Quite true. But equally true - Bernanke has done nothing to address issues raised about the system.

Thus being a token sacrifice itself has value, pour encourager des autres.

[KGW]

Re: Fisher strikes back

It's like deja vu, all over again. . .:rolleyes:

There are many roadblocks we must overcome to get our economy running again. Businesses must develop sufficient confidence in the future to begin expanding their order books and payrolls. Banks must be willing and able to lend again. And consumers must regain the wherewithal to open their pocketbooks.

[mesyn191]

Re: Fisher strikes back

The only reason I have some sympathy for Bernanke is that I think perpetuation of the status quo is supposed to be the job of a central banker.

What do you think of Volker who kept rates intentionally high forcing the US into a recession in the 1980's to preserve the value of the dollar and ultimately the economy itself?

The other point, about the nominal political independence of the Fed, isn't exactly wrong.

IMO the Fed hasn't been politically independent since Greenspan took the chair. Easy Al kept the money flowing every time it was asked for instead of taking away the punch bowl when he should've.

We might get there anyway, but in my view, the likelihood is lower when the central bank is run by technocrats less subject to populist pressures.

I agree with this in principal, but in reality no central bank is immune to outside influence, either from politicians or from big business. It may take a while, but at some point in time they all seem to cave to pressure from special interests, and once that happens you at best get your economy beaten up. At worst your economy gets totally trashed....

I don't really have a solution to this problem. Only thing I can think of is to make it more difficult somehow for gov./business to interfere with the central bank and to put some common sense economics into written law as something the central bank _must_ then follow.

[cindykimlisa]

Re: Fisher strikes back

Quite true. But equally true - Bernanke has done nothing to address issues raised about the system.

Thus being a token sacrifice itself has value, pour encourager des autres.

Below is from the Fed Website


The Fed's Role in Monetary Policy


The country's economic performance is influenced by many factors--economic performance abroad, fiscal policy determined by the legislative and executive branches of government, and monetary policy carried out by the Federal Reserve.

The Federal Reserve's most critical role is to keep the economy healthy through the proper application of monetary policy.

The objective of monetary policy is to influence the country's economic performance to promote stable prices, maximum sustainable employment, and steady economic growth. Congress set forth this objective in the Federal Reserve Act of 1913, the Employment Act of 1946, and the Full Employment and Balanced Growth (Humphrey-Hawkins) Act of 1978.


Since Ben took over the position how did he do in these areas?

1. Promote stable prices
2. maximum sustainable employment
3. And steady economic growth

I think one needs to look carefully at what Ben and the Fed were doing From Feb 2006 to October 2008 to promote, regulate within their power and supervise within their power elements to which they have been given regulatory supervision.

Obviously whatever they were doing then missed the mark.

This kind of reminds me of the Titanic. It seems the capitan of the ship may have been one of the best and most experienced. Do you think that he should have been remembered as a great captain because of all the people who did not drown and should he have been rewarded by making him captain of the next big ship.

I'm thinking probably no to the above because of what happened before the crises. For me this kind of logic seems to apply to the situation for Ben.

But we all know that is not going to happen because we are not dealing with logic and sound monetary policy decisions.

And we all know that Ben is "too Big to fail!'

Cindy

[ASH]

Re: Fisher strikes back

What do you think of Volker who kept rates intentionally high forcing the US into a recession in the 1980's to preserve the value of the dollar and ultimately the economy itself?

I think that was the right thing to do. I gather from folks like GRG55 that Volcker was guilty of prior monetary policy sins, and may not be worthy of adulation, but I also think that Volcker is today saying the right things. In the context of my comment about safeguarding the status quo, I think Volcker's move to break the price-wage inflation spiral of the late 70's and early 80's constitutes saving the system rather than fundamentally changing the system. However, I am commenting from a very thin basis of knowledge... this all went down when I was 5, and I haven't done the reading necessary to learn all the facts.

IMO the Fed hasn't been politically independent since Greenspan took the chair. Easy Al kept the money flowing every time it was asked for instead of taking away the punch bowl when he should've.

I agree with this in principal, but in reality no central bank is immune to outside influence, either from politicians or from big business. It may take a while, but at some point in time they all seem to cave to pressure from special interests, and once that happens you at best get your economy beaten up. At worst your economy gets totally trashed....

I agree. For me, the issue is one of degree. It isn't that the Fed is now independent of political pressure -- it is that the Fed is now more structurally independent than it would be if it was directly controlled by Congress. Life tenure to the Supreme Court is one way we safeguard the independence of the judicial branch; that model might well apply to central banking.

I don't really have a solution to this problem. Only thing I can think of is to make it more difficult somehow for gov./business to interfere with the central bank and to put some common sense economics into written law as something the central bank _must_ then follow.

I doubt there is a perfect solution. I'm just trying to point out that direct Congressional control of the Fed isn't necessarily desireable. At the same time, I do support the idea that control over the nation's money should be a function of government rather than the private sector. The problem is that we wish monetary policy were conducted in the interests of "the people" rather than specific industries or individuals, yet "the people" don't necessarily understand economics very well, and will occassionally pressure their elected representatives to have their cake and eat it to. There definitely needs to be a strong firewall between those who borrow and spend money and those who print money.

[charliebrown]

Re: Fisher strikes back

from a moral point of view. I feel that it is immoral to create inflation.
A person ought to be able to save money, and not have that money inflated away. If forces savers to be speculators, especially in the
world of ZIRP that we now live in.

Before the fed, and after the civ-war prices were relatively stable,
the economy grew. have we gained anything by having a fed? There were bank panics then, but we have had crisis after the fed too.

If we want a fiat currency, and that currency to be managed by the fed, at least we need to seek price stability. How much was a loaf of bread in 1960? A quarter? I remember a nice house costing $25 sq ft in the 60's too.

[mesyn191]

Re: Fisher strikes back

Thanks for the reply ASH.

I trust Volcker a bit more than others I guess, but I'm no expert either. IMO the "Volcker Plan" is a nice start but not a solution, Obama will have to go much farther to really start fixing things and I doubt he can or even could if he wanted to. Congress is a mess, we pretty much need to get rid of nearly all of them and replace them with truly progressive (repub/dem/lib/socialist/communist/indep/whatever, I don't care, just get someone in there who will fix things...) representatives to fix things.

I doubt that will happen any time soon.

Long term I think the only thing that can fix the knowledge gap re: financial knowledge are better schooling that teaches people to think critically so they focus more on facts rather than talking points and gut reactions. In the long run there'll always be special interests, but if people are more informed and educated they become harder to manipulate.

[cjppjc]

Re: Fisher strikes back

Well since Cool Hand Luke was used in another thread. Allow me:

Prison guard: Sorry Luke it's my job.
Luke: Sayin it's your job boss don't make it right.

[Glenn Black]

Re: Fisher strikes back

well said.

I can only add that all top level bureaucrats should be responsible for risk assessment of their process, to assess how well it meets society's needs, and how well it meshes will all neighbouring departments & Agencies (eg. excessive overlap, gaps, mis-communication, conflicts).

Based on all the above, they should report to their masters (ie. congress) with a summary of the past & current status, unresolved problems & risks, your plans for the future, and recommendations for regulatory improvements.

How well did Bernacke do any of this?

[GRG55]

Re: Fisher strikes back

The strongest argument I have heard so far in favour of re-nominating Ben Bernanke is that unlike most arsonists, who invariably return to the scene to witness their fire, he pitched in and tried to help put it out...:rolleyes: