What's with Bernanke jawboning the stock market upwards?

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

You bet! Borrowing your head gear for a moment, I suspect ol’ Greenie knew full well what he was doing when he cut rates all the way to 1% and held them there. He’d created a monster bubble, a monster bust, and then tried to paper over the bust with inflation. But he knew that his inflation wouldn’t really show up strong in the stats until after he was gone, and his successor would be left with trying to clean up the mess. Ergo, he leaves with his maestro-hood rep intact, and Bernanke gets the blame if he doesn’t magically produce that Goldilocks combo of low inflation and low unemployment.

At the very lest, we'll know in a few more years when the full Fed minutes are available. There's a 5 year lag, as I think you know, until they're published. I've read a few from '98 and '99 and they sure did know a lot more than what they admitted to.

Maybe Bernanke can do a helo drop of Pollyanna DVDs? ;)

An "anti chart poltergeist"???

… hmmm … coming from Bart O Chart, one has to wonder what secret ingredient such a thing might contain …

Would you believe - just the normal eye of newt and so forth but with extra silica and bites thrown in to help deal with too mant bart charts displayed on that one eyed monster?

[Finster]

Re: What's with Bernanke jawboning the stock market upwards?

At the very lest, we'll know in a few more years when the full Fed minutes are available. There's a 5 year lag, as I think you know, until they're published. I've read a few from '98 and '99 and they sure did know a lot more than what they admitted to.

Maybe Bernanke can do a helo drop of Pollyanna DVDs? ;)

It will still probably require a bit of reading between the lines. And you will want full headgear protection for that one! I doubt Mr. G would have allowed his innermost thoughts on the matter to make it into any record, even with a delay. Not to mention the image of the Fed govs sitting around and openly talking (even in a closed room) about how badly they screwed up and then admitting they compounded the screwup with even more screwing up seems a little fantastic.

The closest precedent I can think of is Ben Strong's candid remark in 1927 about giving the stock market "a little coup de whiskey". Now whether Greenspan ever admitted or will admit that that's just what he did, that's just what happened 1995-1999. The only difference this time is the Fed has partially deferred the consequences by embarking on a major inflationary effort shortly thereafter. But that deferral of course doesn't avoid those consequences, just make them harder to trace back to their cause.

Here's a little tidbit from Rothbard over at LewRockwell:

One point is undisputed: The autocratic ruler of the Federal Reserve System, from its inception in 1914 to his death in 1928, was Benjamin Strong, a New York banker who had been named governor of the Federal Reserve Bank of New York. Strong consistently and repeatedly used his power to force an inflationary increase of money and bank credit in the American economy, thereby driving prices higher than they would have been and stimulating disastrous booms in the stock and real estate markets. In 1927, Strong gaily told a French central banker that he was going to give "a little coup de whiskey to the stock market." What was the point? Why did Strong pursue a policy that now can seem only heedless, dangerous, and recklessly extravagant?

If that isn't our beloved Maestro's archetype, it's no one ...

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

It will still probably require a bit of reading between the lines. And you will want full headgear protection for that one! I doubt Mr. G would have allowed his innermost thoughts on the matter to make it into any record, even with a delay. Not to mention the image of the Fed govs sitting around and openly talking (even in a closed room) about how badly they screwed up and then admitting they compounded the screwup with even more screwing up seems a little fantastic.

The closest precedent I can think of is Ben Strong's candid remark in 1927 about giving the stock market "a little coup de whiskey". Now whether Greenspan ever admitted or will admit that that's just what he did, that's just what happened 1995-1999. The only difference this time is the Fed has partially deferred the consequences by embarking on a major inflationary effort shortly thereafter. But that deferral of course doesn't avoid those consequences, just make them harder to trace back to their cause.

I think I'll need my headgear and my steel athletic protector too when interpreting those minutes... ;)

Another quote comes to mind too - the one about what a tangled web we weave, when we practice to deceive.

Here's a quote from the Dec 1999 minutes - sound familiar?

The members nonetheless remained concerned about the outlook for inflation. They continued to focus especially on the possibility that the anticipated moderation in the growth of aggregate demand, taking into account the outlook for rising foreign demand for U.S. goods and services, might not be sufficient to avoid added pressures on labor and other resources.

Here's a little tidbit from Rothbard over at LewRockwell:

...

If that isn't our beloved Maestro's archetype, it's no one ...

I hope you didn't get your tongue caught in your cheek on that "beloved" part... ;)
Aren't central banksters and similar ilk just peachy keen? :mad:


Good article too, except for this:

Without a functioning Federal Reserve System available to inflate the money supply, the United States could not have financed its participation in World War I; that war was fueled by heavy government deficits and by the creation of new money to pay for swollen federal expenditures.

What Rothbard neglects to mention is that Lincoln, etc. managed just fine in financing the Civil War without the Fed or similar - and even made the inflated greenback good a few years after the war was over.

[Finster]

Re: What's with Bernanke jawboning the stock market upwards?

Good article too, except for this:



What Rothbard neglects to mention is that Lincoln, etc. managed just fine in financing the Civil War without the Fed or similar - and even made the inflated greenback good a few years after the war was over.

The common element is the inflation part. Lincoln did try to permanently establish a central bank and an income tax. Which of course we did eventually get in 1913 - just in time for the the war to "make the world safe for democracy". This is really a side issue, but I think here Rothbard was attempting to show how a government's ability to inflate is connected to its war-making propensity. So much easier to get voters to support a war if you don't hand them the bill at the same time.

I think I'll need my headgear and my steel athletic protector too when interpreting those minutes... ;).

I won't ask about that athletic protector ...

... hurts just to think about it ...

Another quote comes to mind too - the one about what a tangled web we weave, when we practice to deceive.

Here's a quote from the Dec 1999 minutes - sound familiar?

I hope you didn't get your tongue caught in your cheek on that "beloved" part... ;)
Aren't central banksters and similar ilk just peachy keen? :mad: .

The fact that I am now speechless ought to be some indication ...

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

The common element is the inflation part. Lincoln did try to permanently establish a central bank and an income tax. Which of course we did eventually get in 1913 - just in time for the the war to "make the world safe for democracy". This is really a side issue, but I think here Rothbard was attempting to show how a government's ability to inflate is connected to its war-making propensity. So much easier to get voters to support a war if you don't hand them the bill at the same time.

I don't know if its a second childhood but an old '60s phrase comes to mind recently - "What would happen if they gave a war and nobody came?".

Agreed on Rothbard's probable actual focus, I guess I've been reading too much on central banking history and its effects.
My point was that one is not required, as shown by what Lincoln and others have done... and that once there is one, it takes decades but the outcome is always "Katie, bar the door!"... :mad: ... along with lots of http://www.nowandfutures.com/grins/oz_curtain.wav moments.

[Finster]

Re: What's with Bernanke jawboning the stock market upwards?

I don't know if its a second childhood but an old '60s phrase comes to mind recently - "What would happen if they gave a war and nobody came?".

Agreed on Rothbard's probable actual focus, I guess I've been reading too much on central banking history and its effects.
My point was that one is not required, as shown by what Lincoln and others have done... and that once there is one, it takes decades but the outcome is always "Katie, bar the door!"... :mad: ... along with lots of http://www.nowandfutures.com/grins/oz_curtain.wav moments.

I think we're on the same page. I just don't want to put undue emphasis on that thing specifically called "central bank", because other means can be used to inflate, whether a "non-central" bank, a group of such banks, other government agencies (think the GSE's), etceteras. Recall John Law (an archetypical central banker).

In other words, an inflation system by any other name would stink as much ...

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

I think we're on the same page. I just don't want to put undue emphasis on that thing specifically called "central bank", because other means can be used to inflate, whether a "non-central" bank, a group of such banks, other government agencies (think the GSE's), etceteras. Recall John Law (an archetypical central banker).

In other words, an inflation system by any other name would stink as much ...

Indeed, we're very much on the same page.

I could even take it one step further and point out that things like central banks, GSEs, manias and John Law type stuff can only happen if enough of the populace are poorly enough educated to not be able to see and prevent the dangers and idiocy initially.

But then I'd have to put more layers on my tinfoil hat and write about the NEA and their group-think and predecessors and extremely poor job, etc... and then I couldn't pick on central banksters and similar as well, nor exercise my charting compulsion as much... ;)

[jk]

Re: What's with Bernanke jawboning the stock market upwards?

Indeed, we're very much on the same page.

I could even take it one step further and point out that things like central banks, GSEs, manias and John Law type stuff can only happen if enough of the populace are poorly enough educated to not be able to see and prevent the dangers and idiocy initially.

But then I'd have to put more layers on my tinfoil hat and write about the NEA and their group-think and predecessors and extremely poor job, etc... and then I couldn't pick on central banksters and similar as well, nor exercise my charting compulsion as much... ;)

i don't blame the education establishment. after all, you have to fight tough elections in kansas in order for teachers to be able to discuss the fact that the earth is more than 6500 years old. duh.

on the other hand, before we get too worked up about the density of most of our countrymen, consider that in any population there will be a distribution of intelligence, knowledgeability, sophistication. where in that distribution would you like to be? and what follows from that answer?

[Finster]

Re: What's with Bernanke jawboning the stock market upwards?

i don't blame the education establishment. after all, you have to fight tough elections in kansas in order for teachers to be able to discuss the fact that the earth is more than 6500 years old. duh.

on the other hand, before we get too worked up about the density of most of our countrymen, consider that in any population there will be a distribution of intelligence, knowledgeability, sophistication. where in that distribution would you like to be? and what follows from that answer?

It has nothing to do with Kansas school boards and everything to do with US corporate boards. Big business must have realized decades ago, implicitly if not explicitly, that low interest rates and high inflation (relatively) would make traditional savings a losing proposition for the average family. Hence much of the marginal capital which otherwise might have been earmarked for savings is forced into the stock market. This makes equity capital artificially cheap for corporations and gives them a large base of unsophisticated owners who rarely notice their management's hands in the till.

Nancy Zambell wrote in the August 16 issue of Big Idea Investor:

...In the '80s CEOs on average earned 42 times the average employee. But this was before stock options entered the picture, allowing windfall gains for execs (and early employees). By the early '90s CEOs earned some 200 times the salary of the average US worker, and today that multiple has increased to 450 to 1...

It is no coincidence that inflation has become so popular on Wall Street, that this period coincided with the great boom in mutual funds, defined contribution retirement plans, IRAs, 401(k)s and the like, along with an army of financial professionals to advise the average Joe on how to manage all of it. Mr. Average Joe has no idea how to read a corporate balance sheet, and they like it that way. Far as they are concerned, all he need know is that he has no alternative to being in stocks if he is to have any hope of having his savings support him in retirement.

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

i don't blame the education establishment. after all, you have to fight tough elections in kansas in order for teachers to be able to discuss the fact that the earth is more than 6500 years old. duh.

on the other hand, before we get too worked up about the density of most of our countrymen, consider that in any population there will be a distribution of intelligence, knowledgeability, sophistication. where in that distribution would you like to be? and what follows from that answer?

True on items like Kansas and reactionaries but an area like religion is much more subject to opinion and emotionalism etc. than economics and managing a household (the actual derivation of the word economics).


And I'll even beat you to it on economics in general:

"Economics exists to make astrology look respectable."
-- John Kenneth Galbraith

... and also point out that the comment was post Keynes, and also point out that the other virtually unknown side of Keynesian economics involves paying back the excess spending after the "crisis" is over.

Very true too that intelligence and the rest do vary greatly amongst individuals.

My real point though is that inflation and currency degradation and similar have been around for centuries and millenia, and I submit that a lack of education of not only what they are and what causes them but also the various vested interests are at root what allows the nasty and vicious cycle to continue. And where else can that responsibility be primarily placed?

Don't get me wrong here too - there are many great teachers out there. I place responsibility on a very few vested interests behind the scenes and with organizations like the NEA.

[jk]

Re: What's with Bernanke jawboning the stock market upwards?

My real point though is that inflation and currency degradation and similar have been around for centuries and millenia, and I submit that a lack of education of not only what they are and what causes them but also the various vested interests are at root what allows the nasty and vicious cycle to continue. And where else can that responsibility be primarily placed?

i place the responsibility with each and every individual. most people are driven by their feelings and don't want to think about much.

Big business must have realized decades ago, implicitly if not explicitly, that low interest rates and high inflation (relatively) would make traditional savings a losing proposition for the average family.

they may have realized this decades ago, but if so they forgot while volcker was chairman of the fed.

It is no coincidence that inflation has become so popular on Wall Street, that this period coincided with the great boom in mutual funds, defined contribution retirement plans, IRAs, 401(k)s and the like, along with an army of financial professionals to advise the average Joe on how to manage all of it. Mr. Average Joe has no idea how to read a corporate balance sheet, and they like it that way. Far as they are concerned, all he need know is that he has no alternative to being in stocks if he is to have any hope of having his savings support him in retirement.

this is the finance based economy. some huge percentage [which i forget] of the earnings of the s&p are from financial service companies. we were all supposed to get rich day trading dot.com stocks, and then selling each other houses and condos. i again put the major responsibility on each and every individual who expects to get rich quick and easy. there's nothing irrational about wanting to win the lottery, but there's nothing rational about depending on it.

don't people bear some responsibility for their own situation?

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

i place the responsibility with each and every individual. most people are driven by their feelings and don't want to think about much.

...

don't people bear some responsibility for their own situation?

Yes, it definitely is a personal responsibility issue even more than anything, but I was talking about a very general solution with an attempt to focus attention on the "very best" people - who aren't.

The situations in which we find ourselves, both personally and very widely, don't just happen by themselves.

[jk]

Re: What's with Bernanke jawboning the stock market upwards?

Yes, it definitely is a personal responsibility issue even more than anything, but I was talking about a very general solution with an attempt to focus attention on the "very best" people - who aren't.

The situations in which we find ourselves, both personally and very widely, don't just happen by themselves.

time for my own tinfoil-hat diatribe:

blaming the nea for what's happening reminds me of something written by joe quinlan which went something like this:

in the u.s. we have a division between what is controlled by the left and the right. we let the left control the english department at yale, the new york review of books, much of hollywood, the west side of manhattan and the twyla tharp dance company [and the nea-jk], while the right gets to control ibm, the defense department, wall street and the oil and gas industry.

[bart]

Re: What's with Bernanke jawboning the stock market upwards?

time for my own tinfoil-hat diatribe:

blaming the nea for what's happening reminds me of something written by joe quinlan which went something like this:

in the u.s. we have a division between what is controlled by the left and the right. we let the left control the english department at yale, the new york review of books, much of hollywood, the west side of manhattan and the twyla tharp dance company [and the nea-jk], while the right gets to control ibm, the defense department, wall street and the oil and gas industry.

You're welcome to take my comment out of context and go into painting a tinfoil hat diatribe picture but this is what I said:

My real point though is that inflation and currency degradation and similar have been around for centuries and millenia, and I submit that a lack of education of not only what they are and what causes them but also the various vested interests are at root what allows the nasty and vicious cycle to continue. And where else can that responsibility be primarily placed?

Don't get me wrong here too - there are many great teachers out there. I place responsibility on a very few vested interests behind the scenes and with organizations like the NEA.

I don't think there's much if any disagreement on the existence of a severe lack of understanding of basic economics and the effects of vested interests, etc.

I also don't think it has much to do with either left or right, or if you prefer - both sides are culpable and then some.

The NEA example was just that - an example. Fill in and add your own favorite examples of relatively ineffective education related institutions, especially in the economics and finance areas.

Personal responsibility, as I agree is also senior... but again, the conditions we have don't happen by themselves.
They are created by both that lack of personal responsibility *and* by vested interests and "very best people" with less than sterling goals and purposes.

[Finster]

Re: What's with Bernanke jawboning the stock market upwards?

this is the finance based economy.

You've been listening to too much establishment propaganda. Finance doesn't put food on your table or heat your home. The US consumes some 7% more than it produces, and much of that deficit is due to the finance illusion.

don't people bear some responsibility for their own situation?

Sure they do. And in the aggregate, they learn from experience and act rationally. Over time, for example, they have learned that shorting the dollar against their home is a profitable trade.

they may have realized this decades ago, but if so they forgot while volcker was chairman of the fed.

All we got was a temporary respite from inflation. You can see that from deflationary blip in the FDI circa 1980. Thank God for Volcker and Reagan that we got that much, but looked at in the larger context of things it was barely a blip.



Let's look at that in a larger context yet. Note that from 1665 to about the time of the creation of the Fed in 1914, the dollar had no real long term trend. Ever since, it's been almost straight down.