Well, here's the thing; Bernanke can't tell the truth on this matter. Actually there are very few things he can tell the truth about. Does it seem credible to you, for example, that a Great Depression scholar, as he is often referred, could really completely miss the onset of the worst financial crisis since the Great Depression? Maybe it is possible he really did miss it but isn't there a little doubt about this?
In my opinion there is no way he did not know there was serious trouble coming even if he could not have foreseen the magnitude. Had he told the truth in 2006 or 2007 he would have caused panic bordering on chaos. As he takes credit for the "recovery" thus far then we can infer that he is cognizant that there is a risk of causing a serious market dislocation depending on how QE is ended which he probably does not want to do (cause a dislocation that is).
Think about it, had he said "oh yeah, the runs up in commodity prices--that's on us, we totally let the horse out of the barn and we're not really sure what to do from here as the odds are very high that we're going make things much worse." While he would never say that any real candor would probably be taken with the same meaning as that fake quote.
None of this is to defend Bernanke or his policies or to imply I think they've done the right thing. Had policy taken the mindset of just tearing off the band aid, pain and all, I believe we'd be much closer to natural demand coming back than we are now. Zooming out a little more had the Greenspan Fed not done so much to try to avoid a pretty close to normal cyclical downturn after 9/11 then things would not have become so distorted later in the decade. As rough as it would have been I think they should have made all depositors whole but let the risk takers--debt holders and to a lesser degree equity holders of the banks (equity prices went down 90% in many cases)-- take a hit.
In trying to avoid normal cyclical downturns we got the worst crisis in 80 years.
We will never get candor from the Fed head because the market can't handle the truth. There is no way Bernanke will say something he thinks would cause an extreme reaction in the capital markets. If all of this holds water then it makes critiquing the Fed almost futile, well the commentaries anyway. The policies are still fair game. How will there not be extreme and painful consequences for what they have done thus far? It is possible that all of this won't serve to make things worse but I would not count on it which is why in taking a longer term perspective it makes sense to favor destinations currently not taking desperate measures.On a completely unrelated note if you are a college basketball fan there is something very special starting today that if you've never seen you should take the time. I'm talking about the CIAA conference tournament. The CIAA is D-2 but the action is great and the number of competitive games is very high. Coverage will be on a channel called TV1 which is 328 on Directv. That channel will have games on Thursday, Friday and Saturday. The Sunday final will probably be on one of the ESPNs but I'm not sure which one yet.
8 comments:
Risking wars world wide over higher food prices is worth the US avoiding deflation.
At least that is what QE and deficit spending wonks must believe.
roger you tell it like it really is. where oh where are our fearless leaders?
Agree with your sentiment. The Fed Chairman has lost all credibility because he has become just another mouthpiece for the administration; he probably had to agree to such terms in order to get re-nominated. In the last few days, Bernanke has stated rising oil prices are not a serious threat to the economy; one would think that a great economic historian would realize that every major recession since the '73 Arab oil embargo has been lead in by higher oil prices. Duh! Hide your head in the sand and print up some more dollars.
A recent study by a prominent university professor showed that most "experts" (politics, finance, etc) are no better in predicting the future results than was random choice.
I think we have relied too much on these expert pundits to guide us.
In the case of Bernanke, it's probably correct he knew the dire outcome much earlier. What is unfortunate is that the masses cannot be told the truth. This is not the USA I want to live in.
Roger, it is intersting that you don't normally editorilize. I'd like to share a couple of thoughts today.
First, IRT Bernkake, the big boat was aleady in pretty rough seas when he got the helm.
Secondly, for me personally at least, I operate on the assumption that the folks at the helm know what they are doing. When I get onto an airliner for example, I don't worry about anything as I make the assumption the guy at the helm knows what he is doing. If I didn't have that attitude, I wouldn't fly.
A person always has the option of not participating.
Not a bad rant Roger, but too simplistic as I'm sure you know. This was a systemic problem and it's roots are political and cultural, not technical.
Decisions to repeal Glass-Steagall, deregulate derivatives, underfund regulators, etc were not the Fed's. Neither were decisions to not only bail out the TBTF institutions but to save their managements.
These were all political decisions and because the system itself became corrupt everyone was implicated: When you can identify a few scapegoats, a few Enrons or Madoffs, prosecution is possible but when half the elites in the most powerful sectors in the economy (FIRE) are implicated that is a can of worms no one in power will open.
The Fed is helping to keep the lid on the can, that's pretty much the extent of their crime at this point.
You are right that a very dangerous commodity supply shock is occurring but, at this point, it is just as likely it will kill the recovery and end in a return to deflation as the opposite. JMO
PS: In the meantime I've got some gold juniors that have passed the 10-bag stage so I'm selling. Think I'll put some into a few nice Muni GO's; I love a panic.
"the fact is you can't handle the truth. you like me there, you need me there. you're damn right i ordered INFLATION, oops Code RED"
great scene from "a few good men"
Another way to look at Bernanke is he is like the guy at the circus whose in charge of keeping the ring(s) clean. This includes picking up the elephant poop. He is not responsible or in charge of what the elephant's are fed. If somebody gives them beer, smoked almonds, boiled eggs and baked beans as an example, his job is to clean it up regardless. That's pretty much where Bernanke's at today and he is likely doing a pretty good job.
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