Two and a Half Bens
I haven't publically scratched my head about our buddies at the Federal Reserve for a while. I guess the weekend is as good a time as any. Waking up with a little bit of hangover, I usually seek to cure it with a big greasy bacon based breakfast. Laughing also helps me feel better. In fact, the more I think about it the more I realize that Federal Reserve policy may be the best situation comedy in America today.
Ever since Charlie Sheen was last seen winning on the air, pop culture has been a bit boring. Luckily, we always have the Ben Bernank to paint a sweet, shit eating grin on our grills. The most powerful one trick pony on the planet is once again contemplating doubling down on a failed bet. As always, he seems certain it will work and as always, he will fail to no repercussions. It is very much like a television comedy, if you think about it. Our bumbling hero keeps making the same mistake. We all see it coming. It happens anyway. Rinse. Repeat. Laugh. Tune in next time.
In recent days, Federal Reserve officials have raised the possibility that they may need to again buy mortgage bonds, as they did in 2009. In theory, that should cause mortgage rates to fall further, bringing more buyers into the market and spurring additional refinancing that frees up consumer-spending power.Whether the Fed will actually follow through isn't yet clear. But discussions of this possibility show the frustration within the Fed over its failure to jump-start the economy and deal with stubbornly high unemployment. It also reflects the Fed's newfound focus on housing, highlighted in Fed Chairman Ben Bernanke's August speech in Jackson Hole, Wyo. He noted that housing was acting "to slow the natural recovery process."
Unfortunately, discounting the price of shit will not make it smell any better. In fact, discounting the cost of borrowing Fiat to buy Lada is only slightly less moronic than fighting the deficit with food stamps.
In a world where we are bombed by misinformation on a daily basis and where special interests of all shapes and sizes fight for our attention and loyalty, one fact remains unchanged. Until the housing market is allowed to bottom and until the decrepit brain dead zombies on life support known as Fannie and Freddie are put to sleep, all of our debates and discussions will be for naught.
Though it seems that the Bernank is slowly starting to realize that the printing press is not a magical market making toy, catharsis is still a long ways away. Like every good situation comedy over the years, the goal has never been to maximize quality, but to maximize ratings. I am able to admit the Fed's got me beat in this regard. I know that their show sucks, yet I still cannot help but to tune in and see what they will do this week.
On with the show...
Midas
I'm actually going to the Boston Fed in December with my school to give a presentation on the current economic situation and one of the requirements is to give the Fed some recommendations. I might have to consider recommending them your line.
Should drive the point home.Look at me I'm Midas and I'm smarter than that joo Bernanke because I work on wall street and post on a forum...
hehehe
Blame the dual mandate. Ben has to work for full employment, not just fighting inflation.
Yes because QE has been so helpful in stimulating employment.
Blame the federal government too. Monetary policy is just pushing on a string and it's trying hard to maintain it's credibility, one-half baked idea at a time.
http://www.economist.com/blogs/buttonwood/2011/10/debt-crisis-1
I'm just ribbin ya Midas.
That being said, there are too many people on here that push stupid Austrian or w/e economic ideas and hate the Fed for no reason. BMan is a brilliant economist. His understanding of the world is basically correct. Obvs he can't do magic though, and its becoming increasingly clear no amount of money pumping is going to solve problems that are being caused by over leveraged consumers, economic uncertainty, and the associated lack of demand.
I think BMan understands this to some extent, but doesn't want the adverse market reaction from the Fed throwing up its hands and giving up.
His (and Obama/ Bush's) handling of the crisis was 70% correct though (the 30% off being mostly execution matters). It's only a C in school but in the real world shit's tough
Ugghhh no you're not even close. In every single example, without exception, government intervention only makes things WORSE. Housing, healthcare, education, the list goes on and on. Without exception, every time the government decides to intervene, the problem intensifies. If Ben Bernanke was indeed worth his salt, he would understand that people are better allocators of capital than the government will EVER be. Until this is understood, the U.S. will continue to decline, and we will be worse off because of it. The only true path to prosperity is to create a far smaller government, truly incentivize the right to work and be productive, and allow the people at large to set prices and allocate capital to the truly efficient and productive enterprises - In essence, recreate the environment that the founding fathers intended.
You are right, it hasn't been helpful. And I doubt it would of been tried if the Fed was only concerned with fighting inflation.
Fortunately for you, you must not hang around many central bankers. Some of these clowns and their think tanks would cut nominal rates to negative in order to try and "grease the wheels" (aka destroy the savers and impoverished) if it meant having a chance to goose core inflation back to 2.5%. This may be the most Zimbabwean Fed of all time, and the bankers that matter still cannot even get the core inflation they desire.
Everyone's ripping on central bankers way too much. I don't understand the point of the post except to say, "Bernanke is stupid."
I'm also pretty sure that the Federal Reserve governors know that their "show sucks" and there isn't much they can do at this point. As they've said, the cost/benefit analysis of monetary policy shows that fiscal policy would be more prudent at this point. However, they've said it doesn't mean that they should just sit on their ass and do nothing.
Just think about the market turmoil once the Federal Reserve goes, "We're all pretty shit out of luck here. Good luck." The Fed won't say that just yet, but they're definitely hinting that they've run out of ammunition to boost output. Next year will be fun.
It will probably be the same turmoil when everyone figured out that the Fed did not have the housing bubble contained, or that time when the Bank of England basically said they had conquered the business cycle when in fact they did not, and that time the Bank of Japan let land prices appreciate by so much that you could buy all of Cali for less than the city limits of Tokyo, and then all the banks uncovered their shitty loans only to be zombified.
In the end, the perception that bankers offer stability is a short run mirage, and 5-12 men in a room cannot and should not centrally determine the price of money.
Yep, that's probably true. Fed credibility is a mirage at this point. The Fed can't induce consumers or businesses to make purchases without calling into the credibility of US debt.
At the end of the day, we might regret Federal Reserve intervention, though I still think that QE 1 was a necessary action in order to smooth market turmoil. Rational investors should pull out when the market is too optimistic and should pile in when the market is too fearful. The Fed did the latter towards the tail end of 2008.
I think Fed action at this point is uncalled for. Though...our creditors are mostly foreign and I wouldn't mind too much if we fucked over the Chinese and Japanese. Thoughts?
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