Posts Tagged: The Federal Reserve

American Society / Banking / Financial / Housing / International Finance / law / Political / The Federal Reserve — 0 Comments
20
Feb 12

The State of Things

At a meeting of corporate counsel I spoke with Kenneth Starr, a former federal appeals court judge and Solicitor General of the United States.   Judge Starr opined that recent Supreme Court rulings demonstrated a tilt toward the conservative wing of the Court.  On the other hand, I argued that the Supreme Court was really split between statist versus libertarian philosophies.  Statism is the theory that political and economic planning power should be concentrated in the state, in effect weakening the individual or the community.  Libertarians hold the opposite view: we should maximize individual rights and minimize the power of the state.  Further, they decry Supreme Court decisions that have focused on maximizing the power of the state at the expense of the individual and the community.  After pausing for a moment, Judge Starr agreed that statism versus libertarianism may be a better way to frame the debate occurring in the US Supreme Court.

2012 is an election year.  Republicans and Democrats seem to be drawing battle lines, but in fact little difference exists between the two parties.  Both espouse statist solutions to America’s economic woes.  The Republicans would utilize the state to enforce a conservative social agenda (pro-life, marital fidelity, “family values”) and channel money to the defense complex.  Democrats would utilize the state to enforce a seemingly different agenda: pro-choice, mandatory medical insurance, social equality and a secure network of social services (unemployment insurance, social security, welfare).  Except for Ron Paul, who has been marginalized, no one debates the proper role of the state.  All the candidates give lip service to reducing budget deficits, but little serious discussion to the proper role of the state.

The Long Emergency

Current economic policy demonstrates the state’s overbearing hand.   Doug Noland, in A New Bull Market?  analyzes current government economic policies.   We have had four years of unprecedented economic stimulus with, among other artifices: zero interest rates, Federal Reserve asset purchases, economic stimulus, and Federal Reserve participation in worldwide liquidity operations (outright money printing).  Further, these unprecedented economic interventions show no signs of abating.   On the contrary, The Federal Reserve trumpets that it will keep interest rates at near zero through 2014.  Further, the Fed and the Treasury have assumed the role of supporting the stock market, housing prices, Fannie Mae, Freddie Mac, private banks and virtually decreeing the current artificial 2% inflation rate.  And even worse, no one in a position of policy or decision making seems self consciousness or regretful that these policies go on and on without an exit strategy.

We arrived here through past government interventions and bailouts.  The history of bailouts is long and undistinguished:  The Penn Central Railroad (1970); Lockheed (1971); Franklin National Bank (1974); New York City (1975); Chrysler (1980); Latin American Debt Crisis (1982); Continental Illinois National Bank (1984);  Savings &Loans (1989);  Mexico (1994); Russia (1998); Long Term Capital Management (1998);  Airline Industry (2001);  Bear Stearns (2008); Fannie Mae and Freddie Mac (2008); AIG (2008); Auto Industry (2008);  Troubled Asset Relief Program – leading banks (2008); Citigroup (2008); and Bank of America (2009).  See History of U.S. Gov’t Bailouts; Top 6 U.S. Government Financial Bailouts; A Brief History of Government Bailouts; Are Financial Crises Alike?; A New Bull Market?

In every bailout we pay a high price for these statist solutions to economic problems.  A bailout is nothing more than a monetary transfer.   Instead of bondholders or shareholders in flawed enterprises taking a loss, the US taxpayer, essentially all of us, are paying for the mistakes of others.  This practice is a cowardly undermining of the essence of capitalism.   In true capitalism we would punish failure and reward success.  This government cowardice also distorts the legal system, as the government unilaterally claims a superior economic right over other creditors to economic relief.

Statism, Capitalism and Freedom

Ideally, capitalism and freedom are intertwined; that is, we are free to make mistakes. Yes, in this scenario our mistakes are punished in the marketplace.   But the rule of law in this scenario can also proceed as intended; that is, a poorly run enterprise can go through bankruptcy and either liquidate or reorganize.   If we want political freedom, we need economic freedom.  It is risky and sometimes painful, but the imprudent among us need to be economically punished and the rightful parties, rather than the entire electorate, need to bear the losses.

What Questions Should We Be Asking?

The political debate should ask the hard questions:

  • Why is the Federal Reserve keeping interest rates at zero until 2014 when we are supposedly in the fourth year of a recovery?
  • If we are in the fourth year of a recovery why are we fiddling with the capital markets with Operation Twist and talk of QE 3?
  • With unprecedented levels of fiscal and monetary stimulus, why has government intervention produced only below average and mediocre economic growth? Why is there no recovery in housing prices?  Or no growth in jobs?
  • Why is the Federal Reserve targeting 2% inflation when the legal mandate is no inflation?
  • Why is the Federal Reserve artificially supporting the stock market?
  • When will we ever return to a “normal economy” without the need for outsized deficit spending and monetary stimulus?
  • Why are we privatizing profits and socializing losses?

These are but some of the important questions.   The key question to ask is where did genuine capitalism go?  We pride ourselves as the land of free market capitalism.  Unfortunately, it has not been practiced in the United States since the 1920’s.  Right now we have fascism, state socialism, crony capitalism, but certainly not the real thing.  And that is scary.  Someone should be asking where free market capitalism went.

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American Society / Banking / Corporate Behavior / Executive Compensatio / Financial / Foreign Policy / Management / Political / The Federal Reserve — 0 Comments
3
Aug 11

The Meal Was Great; Our Outlook, Not As Good

I had dinner the other day with two close friends, both former colleagues.  We are, in parlance, “men of a certain age:”   baby boomers, children of the sixties, sons of World War II veterans.  We all began our work lives in our twenties, worked for giant corporations, and turned jobs into long-term careers.  When first hired by our companies, we planned to stay just a couple of years and then move on to another company.  With the benefit of hindsight now, and the need for false humility ended, we can each gratefully admit that we enjoyed significant professional success, although none of us thought we would rise to the senior executive levels that we did.

We now occasionally get together for dinner and discuss our families, our current pursuits, how our former employer is doing and the general state of things.   Last time, we discussed what went wrong with America generally, why our children will not have long careers with large companies, and why they likely will not be as financially successful as we were.

We spoke about our fathers and the norms of their generation.  They fought in the War, returned and worked hard, and had few expectations about success or wealth.   They kept their noses to the grindstone and rarely complained.

We discussed the landscape of the corporations we went to work for.   When I was hired as a junior attorney, the General Counsel barely made five times my salary.  Bonuses were stingy and a modest number of stock options (in the hundreds of shares) were offered to a handful of our most senior executives.  Interestingly, it was generally a harmonious and engaging work environment. In contrast, by the time I retired, the Chairman and CEO made more than 400 times what an average employee made.  Employees were not nearly as engaged or happy.

The immediate catalyst for our wondering what has gone wrong with America was the current debate over the US debt ceiling.  I started to think back to the blogs I had written and tried to put together some hypotheses.  I caution the reader this is not a rigorous, but rather an impressionistic view of sociological, political and economic trends which shape the current state of affairs.   If it is insightful, I give tribute to good dinner conversation and fine friendship:

  • Loss of Shared Sacrifice – Perhaps it was the “Me Generation” of the 1960’s, but America has lost its sense of shared sacrifice; that is, the notion that we are all in this together and we rise or fall as one nation.   Instead we have an ethic of greed:   I want what I want and I want it now, everyone else be damned.
  • Out of Control Military Spending – Too much of America’s resources are spent in our defense budget.  Compounding this problem is a series of seemingly endless wars.  While we deploy hundreds of thousands of troops to Iraq and Afghanistan, our allies deploy hundreds.  Note that the German, Canadian, and Australian economies boomed, while ours stagnated.
  • The Volunteer Army – A volunteer army allows wars to be fought by other people’s children.  Thus, the popular outcry against wars or military spending is diminished because our own (privileged) sons and daughters are less likely to be involved.
  • Too Many Laws – The Wall Street Journal highlighted the growth in federal criminal law.  We over-criminalize too many areas of society.  One commentator archly noted that someone violates some law each day, often unaware of his lawbreaking conduct. See As Criminal Laws Proliferate, More are Ensnared
  • Unequal Enforcement of the Law – Perhaps since the OJ Simpson trial, our citizens cynically believe that if one hires a good enough lawyer, one literally can get away with murder.  This carries over to the belief if a corporation is big enough, especially a “too big to fail” financial institution, it will never be prosecuted.
  • Socialism for the Rich, Capitalism for the Poor – When the “too big to fail” institutions became insolvent, the Bush Administration, Congress and the Federal Reserve rushed in with a comprehensive program of TARP and zero interest rate lending.  The Obama Administration has continued these policies from the beginning.  Insolvent homeowners have been evicted from their homes, and many unemployed workers have exhausted their unemployment benefits.
  • Reckless Lending and Borrowing – The Federal Reserve was a major culprit in the growth of both public and private credit.  Instead of accepting the economic consequences of the internet bubble crash, Alan Greenspan reduced interest rates to below market levels to encourage real estate lending.   Subprime lending further inflated the housing bubble. Based on an inflated residential and commercial real estate market the economy boomed.  Assuming that this was permanent prosperity, debt was taken on at all levels: states and municipalities, corporations, homeowners and the federal government.  Now we cannot repay that debt.

While my dinner with friends continued all in one evening, Part Two will continue this discussion.

 

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Foreign Policy / Justice System / Political / The Federal Reserve — 0 Comments
13
Feb 11

Restoring Federal Reserve Accountability

In We Cannot Separate Politics and Economics. And Those Who Speak Out Against Bad Policy are Helping the Economy…And Our Individual Investments; Washington’s blog makes an important point about the poor state of economic analysis.  Modern economists naively analyze the economy without regard to the interplay of politics:

Some people criticize the injection of politics into economic discussions.

But economic historians tell us that economists used to understand and accept that economics is wholly interrelated with politics, and that politics affects our economy. They note that modern economists have artificially tried to somehow separate the two, like Descartes tried to separate the mind from the body.

Indeed, the father of modern economics – Adam Smith – talked a lot about politics in relation to economics. Washington’s Blog

Recognizing the inter-connectedness of politics and economics, the discipline was originally referred to as “political economy.”  In fact Georgetown University has a political economy major.

The blog goes on to criticize the multi-trillion dollar expenditures on the Iraq and Afghanistan wars and the consequent deleterious effect on the economy.  Moreover, for the last ten years we have undermined any semblance of a free market by living under a state of economic emergency.   We have massively lost trust in government.  With the financial crisis and lack of prosecutions the public has also lost trust in our financial institutions, the SEC and the Justice Department.  But what is missing from this excellent analysis is the role of the Federal Reserve.

The Federal Reserve: Earnest Technocrats or Politicians in Disguise?

The Federal Reserve has a limited statutory mandate: maintain full employment and price stability.  Under Ben Bernanke the Federal Reserve has gone far afield from that mandate:

We now have a fourth branch, the imperial Federal Reserve.  Without our permission, this rogue branch is dictating economic policy for the United States.  Mission creep is taking the Fed from its dual mandates of employment and stable prices to its own self-proclaimed mandate: economic stimulation (in direct contravention of the views of the newly elected Congress and the American public) and dollar devaluation.   In QE2 it also has taken on the role of guardian of stock market prices. See Who Elected Ben Bernanke?

Bernanke has crossed into the realm of political decision making:

  • Ultra low short-term interest rates have fattened bank profits at the expense of retirees, pension funds and insurance companies.
  • QE2 money printing has set off a speculative binge in commodities hurting consumers.
  • QE2 has hurt the value of the dollar, favoring US exporters over foreign importers.
  • Higher import prices have hurt consumers since we have de-industrialized America.  Consequently, we are dependent on cheap foreign-made goods.
  • QE2 has exported inflation to foreign countries. Revolutions in the governments of our allies, Egypt and Tunisia, are not a coincidence.  Higher food prices in impoverished economies are a breeding ground for unrest. See A Perfect Storm in Egypt
  • QE2 has set off currency wars and raised global tensions with China, the EU countries, Brazil, and emerging economies.
  • QE2 permits the Federal Reserve to purchase a major portion of newly issued Treasury debt.  This permits continuance of unprecedented federal budget deficits.  Thus, Congress avoids making the necessary tough budget cutting decisions.
  • QE2 has also perversely raised the all important 10-year Treasury note yield by 1.25%, thus increasing mortgage rates and retarding any housing recovery.

Holding the Federal Reserve Accountable

The Federal Reserve cherishes its vaunted independence.  This independence was predicated on adhering to a technocratic, apolitical agenda of controlling money supply to provide a background for economic growth.  The Federal Reserve is now overtly operating in a political role: it determines winners and losers in the economy (banks favored over savers), the value of the dollar (exporters favored over importers and consumers), and financial speculators (the wealthy over the middle class and Wall Street over Main Street).  It is also interfering in foreign policy, exporting inflation in key commodities to foreign countries (many of which are our allies) and triggering a potential currency war and protectionism.  Finally, Dr. Bernanke recently lectured Congress about deficits: a topic far afield from the role of the Federal Reserve. See Bernanke Makes Sure Fed Reminds Congress Deficits Bigger Than QE2

Let me repeat: Ben Bernanke was not elected and he is not a benign technocrat.  Politics and economics are intertwined.   He was wrong about the housing crisis, the financial crisis and QE1.  Our politicians must rein him in and restore economic policy control to elected officials.

Some would argue that encroaching on Federal Reserve independence would undermine the institution hurting economic policy.  The military is under the control of civilian political leadership and there is no uproar over “military independence.”  If the military can be under political control then the Fed can be too.  The real issue is accountability and the Federal Reserve has little, if any accountability.  Conversely, it will also make our profligate elected officials equally accountable for economic policy.

It will not be easy or elegant, but it will begin to restore trust in our government and economy.

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American Society / Corporate Behavior / Education / Management / Political / The Federal Reserve — 0 Comments
5
Dec 10

Mission Creep

A common subversive phenomenon of corporate behavior is “mission creep.”   The behavior is subtle and almost undetectable to all but the most expert students of organizational behavior.   Let’s examine some concrete examples.

Human Resources is fertile ground for mission creep. HR generally is a staff function hierarchically below the CEO, Business Heads, the Chief Financial Officer, the General Counsel and other corporate functionaries.  What better way for an ambitious human resources executive to rise in that hierarchy to achieve importance and responsibility than by unilaterally expanding his mission into functions beyond his expertise.  So the formally humble human resources executive “volunteers,” “takes on” tasks beyond the traditional (and boring) hiring, compensation and labor relations functions, and thereby finds new more important missions.

Several employers ago, the head human resources executive evolved from the mundane, to run internal communications (and implicitly controlling external public communications), a portion of real estate and strategic planning, corporate surveys and an information technology complex. He also sat on the executive committee of the company.  So from humble beginnings our enterprising human resources executive created a veritable empire – mission creep, mission accomplished.

Education is another enterprise ripe for mission creep.  Enterprising administrators can expand their empires so that more than 50% of a public school district is comprised of highly paid administrators rather than direct classroom teachers. See Mission Creep: How Large School Districts Lose Sight of the Objective – Student Learning

Creep is not limited to corporations and school systems.

Pharmacy Creep

As we get older we also encounter pharmacy creep.   We may start with a multivitamin in young adulthood.  But by the time we reach our 50’s we may have acquired prescriptions for a statin, a blood pressure drug, niacin, an anti anxiety drug, and for males perhaps some Cialis or Viagra.  Each specialist we visit is more than happy to prescribe even more drugs to add to the medical arsenal. In addition to greater cost, eventually, the drugs start to interact with each other in unforeseen ways, usually with unpleasant, unintended consequences.

Modern Governments

Federal government mission creep makes the above examples look harmless.   It is easy to blame the Obama Administration for the current mess we are in.  But the seeds for governmental mission creep were planted eight decades ago during the New Deal.  However, mission creep thrives under both Republican and Democratic administrations.  We should highlight some areas where government has directly usurped the private sector:

-          The auto business through GM and Chrysler

-          Lending and insurance through AIG, Ally(GMAC) and Citicorp

-          Security through TSA

-          The mortgage market through Fannie Mae, FHA, GNMA and Freddie Mac

-          Interest rates, fiscal policy and even the stock market through Federal Reserve intervention

Indirectly, the government is well on its way to controlling (1) the workplace through detailed labor and employment legislation and regulation, (2) healthcare through Obamacare, and (3) the financial industry through recent legislation.  The defense complex with massive purchases and 750 overseas bases is almost an industry unto itself.

Every time a private enterprise or a state or municipality goes hat in hand to Washington for “assistance” or a bailout, we invite the government to expand its mission.

Finding a Proper Role for Government

What is missing from public discourse is a little humility.  Perhaps we cannot have it all, and asking the government to get it or do it for us is the road to diminished freedom.  We have discussed re-engineering government before.  See Why not Reengineer Government? Re-engineering is a sophisticated way of saying that we need to rethink the role of government. We need to focus on core functions of government such as physical protection of our population, and privatize what we can.   The powers that be need a little more humility, and recognize that government cannot and should not accomplish everything.

Our current economic quagmire is a message that mission creep is costly and in the long-term unsustainable.  Mission creep diminishes private sector creativity and wealth creation.

The current huge deficits and economic misery are symptoms of a government mission that has gone way off course and cannot be accomplished.

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American Society / International Finance / law / The Federal Reserve — 0 Comments
28
Nov 10

How Many Branches of Government?

“The Federal Reserve is an example not just of run-of-the-mill hubris but of the far more profound Pathology of Power.

The rule of law has been supplanted in the U.S. by self-serving propaganda campaigns serving State and financial Elites: this is the Pathology of Power.”  The Federal Reserve and the Pathology of Power

Ben Bernanke is out of control.  “Out of control” is an oft-used phrase, but in this case the term describes an important actor with a limited statutory role who is usurping the power of both the legislative and executive branch.

Back in school we learned that we had three branches of government, the legislative, the executive and the judicial.   Each had checks and balances to ensure that power was not abused.  We now have a fourth branch, the imperial Federal Reserve.  Without our permission, this rogue branch is dictating economic policy for the United States.  Mission creep is taking the Fed from its dual mandates of employment and stable prices to its own self-proclaimed mandate: economic stimulation (in direct contravention of the views of the newly elected Congress and the American public) and dollar devaluation.   In QE2 it also has taken on the role of guardian of stock market prices. See Who Elected Ben Bernanke?

By law the Federal Reserve has two economic mandated goals:  full employment and stable prices.  The US Treasury, part of the executive branch, has a separate and distinct role, and is responsible for maintaining the value of the dollar and debt issuance.  Venturing into the world of quantitative easing the Federal Reserve is usurping the role of the Treasury through debt issuance and the Congressional role of fiscal policy through back door economic stimulus.

Crossing a New Line

Michael Shedlock has long maintained that the Federal Reserve was the least competent part of government.  Dr. Bernanke never saw the economic crisis; however, he maintained that past folly would not stop the Fed from grabbing even more power and bungling any economic recovery.

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.  Fed Uncertainty Principle

In a recent speech at the European Central Bank, Chairman Bernanke launched into a direct attack on Chinese exchange rate policy:

Federal Reserve Chairman Ben Bernanke put aside traditional central bank niceties and launched a direct attack on the slow pace of China’s steps to strengthen its currency.

In a speech prepared for a conference at the European Central Bank on Friday morning, Bernanke said that China’s decision to undervalue the yuan has essentially thrown a monkey wrench into the global economic recovery. Bernanke Turns Up Heat on China Currency Policy

Dr. Bernanke then tied the Chinese policy to weak employment in the US:

“On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,” Bernanke said.

The Fed could not rule out the possibility that unemployment “might rise further in the near term,” he said. This could bring an end to the tepid U.S. recovery, he said.

He pointed his finger at China’s slow adjustment of its exchange rate. Bernanke Turns Up Heat on China Currency Policy

Other Areas for Dr. Bernanke’s Deft Policymaking

If Dr. Bernanke is willing to lay the blame of high US unemployment on the Chinese perhaps he should also recommend changes to the US’s legislative regime that makes hiring difficult:

  • Why not dismantle collective bargaining rights?
  • What about those pesky environmental laws?
  • Why do we need all these inefficient workplace mandates such as equal employment opportunity, family and medical leave, veterans’ rights, etc.?
  • Why do we need a minimum wage?
  • What about the newly imposed Obamacare costs?
  • Why not change tax policy which favors overseas profits?

We have a timid, economically naive President and a divided Congress.  Into the breach steps Dr. Bernanke, filled with academic sagacity, theory and dogma.  Remember this is a man who said the subprime crisis was well contained, and who could not detect a housing bubble.

When Congress inquires into outlandish Federal Reserve policies, Chairman Bernanke brandishes as a mighty shield the need for independence. Even an audit of their books is viewed as a mortal threat.  Well Dr. Bernanke, perhaps it would be better to stick with your narrowly defined and legitimate role and jettison the imperial “fourth branch” of government nonsense.

Note to Dr. Bernanke: If you want to be overly political and wield unauthorized power, expect your independence to be severely clipped.  You cannot have it both ways.

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Economics / International Finance / law / Political / The Federal Reserve — 0 Comments
6
Nov 10

Who Elected Ben Bernanke?

Everyone was focused this week on the mid-term election results.  Instead, we need to focus on another event just as crucial, but less understood by the American public.  Our unelected Federal Reserve Chairman, Ben Bernanke, launched QE2, the outright government purchase of US treasury securities.  The highlights:

-          The Fed is buying $600 billion of Treasuries (in the 5-10 year part of the curve) through mid-2011 and another $250-300 billion via coupon reinvestments, which they were going to do anyway.

-          The key “number” for the markets is that $600 billion figure, which is about $75 billion per month. See Rosenberg Joins Chorus of those Accusing Bernanke of Asset (Read Stock) Price Targeting

In Ben Bernanke’s self-justifying op-ed in the Washington Post, he explained his main goal:

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion. What the Fed did and Why: Sustaining the Recovery and Supporting Price Stability

Dr. Bernanke remained confident he could reverse this policy at the appropriate time.

Nowhere in the Federal Reserve’s mandate is the elevation of stock prices.  Why not target wages and house prices?  Further, the Fed will be continuing to purchase tainted and suspect mortgage backed securities.  These securities are the heart of the current Foreclosuregate controversy.  The Fed is paying full value for a security that may be worth pennies on the dollar.

Unintended Consequences of the Policy

Focusing on stock prices is a little like ordering dessert before focusing on the nutritional value of the main course.  Before now, profits, dividends, discounted cash flow and future growth prospects determined what happened to a company and its stock price.  Now will we have Federal Reserve whim determine stock prices?  QE2 sets the markets up for another enormous bear market when the Fed stops QE2, or when stock-dislocating events overtake the Fed.

The unintended consequences are both legion and wealth destroying:  a weak dollar with surging import prices; soaring inflation in critical commodities such as oil and grain; compressed profit margins caused by higher input costs; further punishment of savers and retirees; trade wars with other nations whose economies wilt under a weakened dollar; and market-wide unstable speculation.

Karl Denninger in Bernanke’s Folly: The End Game explains that the Fed policy is essentially a gigantic hidden tax on businesses and consumers.   The end result will be a downward spiraling economy with businesses forced to lay off more workers to offset higher input costs – anything but the virtuous cycle Dr. Bernanke so fervently seeks.

The Constitution and the Election

Economic blogs are abuzz with QE2 analysis.  One particular area has been overlooked:  the break down in our political system and Constitutional protections.  Dr. Bernanke has usurped the taxing and budgeting authority of Congress.  QE1 and 2 put the taxpayer squarely on the hook for all Federal Reserve losses.  The Treasury is required to make good on Fed losses. So without writing a bill or holding a hearing, Dr. Bernanke launched his quantitative easing campaign and effectively dismantled the legislative process.  John Hussman warns of the danger of this reckless usurping of Congress’ role:

Now, since standing behind insolvent debt in order to make it whole is strictly an act of fiscal policy, one would think that under the Constitution, it would have been subject to Congressional debate and democratic process. But the Bernanke Fed evidently views democracy as a clumsy extravagance, and so, the Fed accumulated $1.5 trillion in the debt obligations of these insolvent agencies, which effectively forces the public to make those obligations whole, without any actual need for public input on the matter.” See Lessons from a Lost Decade

The Farce of the Mid-Term Elections

Tea Party activists are publicly miserable about out of control federal spending, bank bailouts and economic stimulus.  Before the new Congress convenes, Dr. Bernanke has unilaterally established economic policy for both Congress and the Administration.  Where is the outrage?  The Tea Party is so worried about liberty and free market capitalism, why have they not protested the dubious economic policies of an unelected new economic Czar, Dr. Bernanke? After all Dr. Bernanke and the Federal Reserve Governors have the same methods and goals as the former Soviet State Planning Committee.

More practically, why has Congress not held hearings and asked Dr. Bernanke some pointed questions:

  • Why did QE1 not work?
  • When you stopped QE1 in March of this year the markets fell and the economy retreated.  Is there a reasonable possibility that you can ever stop the QE policy without a market crash?
  • Have we just signed on to perpetual QE? If not, explain your exit strategy.
  • What will be the effect on our trading partners and will your policy lead to a currency war?
  • Please outline other risks in your policy and weigh these against the benefits.
  • How much of QE2 will go into foreign market speculation?
  • QE did not work in Japan for the last 20 years. Why will it work here?

Academic Theory

Dr. Bernanke is an academic theoretician. He taught at Princeton and now heads the Federal Reserve.  He has never run a business in the real world.  Quantitative easing is a theory and like all theories needs to be tested and proven.  We do not approve introduction of a new drug without stringent tests and proofs.  Dr. Bernanke is not playing with one drug; he is playing with our entire economy and political system.  QE1 in the United States and QE in Japan for twenty years  proved to be failures.  Why are we repeating failed strategy?

If he is going to target stock prices, then I still have some underwater stock options from a former employer.  Perhaps the good doctor could salvage my company’s stock too.  When one usurps normal market mechanisms, why not?

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