Geithner Politicizes the Fed, Warns Congress to Not do the Same; Idiocies and Ironies; Economist James Galbraith Unfit to Teach
by ilene - November 22nd, 2010 4:37 pm
Courtesy of Mish
The hypocrisy of treasury secretary Tim Geithner would be stunning except for the fact hypocrisy from Geithner is pretty much an every day occurrence.
Geithner is blasting Congress for politicizing the Fed, while doing the same thing himself. To top it off, the Fed itself is politicizing the Fed by interfering and commenting on Fiscal policy while bitching about Congress commenting on monetary policy.
Please consider Geithner Warns Republicans Against Politicizing Fed.
U.S. Treasury Secretary Timothy F. Geithner warned Republicans against politicizing the Federal Reserve and said the Obama administration would oppose any effort to strip the central bank of its mandate to pursue full employment.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt” this weekend. “You want to be very careful not to take steps that hurt our credibility.”
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt today and in a meeting with U.S. senators earlier this week.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
Bernanke Comments on Fiscal Policy
Flashback, October 4, 2010: MarketWatch reports Bernanke calls for tougher budget rules
In a speech delivered at the annual meeting of the Rhode Island Public Expenditure Council and devoid of comments on monetary policy, Bernanke said that fiscal rules might be a way to impose discipline, particularly if those rules are transparent, ambitious, focused on what the legislature can control directly, and are embraced by the public.
“A fiscal rule does not guarantee improved budget outcomes; after all, any rule imposed by a legislature can be revoked or circumvented by the same legislature,” Bernanke said,
by ilene - October 15th, 2010 3:36 pm
Courtesy of Mish
Lower interest rates are not typically synonymous with rising inflation, but Bernanke foolishly thinks he can get that magic pair with the power of persuasion in conjunction with Quantitative Easing.
Please consider Fed Considers Raising Inflation Expectations to Boost Economy
Federal Reserve policy makers may want Americans to expect inflation to accelerate in the future so they spend more of their money now.
Central bankers, seeking ways to boost flagging growth after lowering interest rates almost to zero and buying $1.7 trillion of securities, are weighing strategies for raising inflation expectations as well as expanding the balance sheet by purchasing Treasuries, according to minutes of the Fed’s Sept. 21 meeting released yesterday.
Some Fed officials are concerned that expectations of lower inflation will become self-fulfilling, damping demand by increasing borrowing costs in real terms, the minutes said. By encouraging Americans to believe prices will start rising at a faster pace, the Fed would reduce inflation-adjusted interest rates and stimulate the economy. Chairman Ben S. Bernanke said in 2003 that Japan could beat deflation by using a “publicly announced, gradually rising price-level target.”
“The Fed is on the verge of actively targeting a higher inflation rate,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. U.S. stocks advanced, sending benchmark indexes to five-month highs, the dollar fell and gold declined for the first time in three days after the minutes were released.
Trying to raise inflation expectations is untested in the U.S. The policy may backfire if actual inflation drifts higher than the Fed would like, potentially eroding gains won in the early 1980s by former Fed Chairman Paul Volcker, who raised interest rates as high as 20 percent to subdue prices.
Jim O’Sullivan, global chief economist at MF Global Ltd. in New York, said in a Bloomberg Television interview that the biggest risk is “boosting long-term inflation expectations more than they lower real interest rates.”
The FOMC could adopt a combination of inflation targeting and price-level targeting to get inflation expectations up, said Mark Gertler, a New York University economist and research co-author with Bernanke.
The Fed could restate its commitment to keep inflation rising annually at around 1.7 percent to 2 percent. At the same time, the FOMC could announce some
by ilene - May 17th, 2010 6:44 pm
China is currently looking to head off an inflationary disaster after real estate prices and demand reacted a little too well to their recent stimulus plan. Taking restrictive measures like the ’one man, one apartment’ policy and keeping the banks from financing new construction is probably a good start, but all this talk about a Soft Landing for the Chinese economy is hard for me to believe.
I may simply lack the frame of reference, but over the course of 14 years, I’ve never once seen an example of a Soft Landing. I’ve only seen bubbles burst violently with the Last Speculators Standing headed over to a new asset class to begin the next bubble anew.
In my relatively short time in the markets, I’ve already been promised 5 or 6 so-called Soft Landings, each time eventually feeling as though a Steinway piano had been softly-landed right on top of my head.
Has anyone ever seen an actual economic Soft Landing? Are Soft Landings even possible, or do they only exist in that peculiar brand of parlance found wherever monetary policy meets political campaigning?
Alan Greenspan was once considered the Master of the Soft Landing, until we all realized that he was simply an serial asset inflator whose easy money jamboree covered up the underlying deterioration of economic fundamentals.
I’m rooting for the Chinese central bankers to orchestrate a Soft Landing for the world’s sake. I just can’t find any examples of this even being possible in modern times.
I’m no economic historian, if you have a real live relatively-recent example of a Soft Landing – please share!Until then, I’d rather count on meeting a talking dog before I see one.
by ilene - April 5th, 2010 3:22 am
Courtesy of JESSE’S CAFÉ AMÉRICAIN
That title is a bit of a rhetorical question, because I think the stock market bubble has already arrived, and the Fed is pumping the bellows. But let us not allow that detail to impede the progress of our discussion. Let’s assume that only the next leg up in this monetary experiment will be breaching the limits of the bubblesphere.
Mark Thoma has ‘reblogged’ a review of Dean Baker’s book False Profits from Brad DeLong Site at his own, The Economist’s View.
Brad, the blogging professor from Berkley, takes issue with Dean Baker’s book, concluding:
"But let me start by saying how I disagree with the book. I think that its story of the linkages between our current crisis and Federal Reserve policy is significantly overstated. Its argument about how excessively-low interest rates caused the housing bubble is exaggerated. I think that its belief that the Federal Reserve could have taken much more action to curb the housing bubble while is underway is also exaggerated…"
Well, at least he is consistent. In censuring my criticisms of Mr. Greenspan’s monetary policy back in 2004 which I made as comments on his blog, Mr. DeLong said that Greenspan "never made a policy decision with which I disagreed." Although I was incredulous, I took him at his word.
Not even Greenspan apparently is willing to say that anymore. Although he is very willing to forget the activist role he took in promoting banking deregulation and the expansion of leverage and derivatives, and the rough treatment measured out to those who dared to disagree with the powerful bureaucrats at the Treasury and the Fed. Reich Levels Broadside at Greenspan, Rubin, Summers and Phony Financial Reform
But the comments to this blog were quite interesting and led me to another review of Dean Baker’s book by ‘Daniel’ over a Crooked Timber.
I found the first comment after Daniel’s review to be particularly interesting.
kevincure: 04.03.10 at 6:21 PM
"I was at the Fed in 2006. Everybody at the Fed
by ilene - March 11th, 2010 10:52 pm
Courtesy of JESSE’S CAFÉ AMÉRICAIN
If you read through this letter from US Senator Sherrod Brown (D-OH), who is also the chairman of the Senate Subcommittee on Economic Policy, you will get a grasp of how badly the Fed has mishandled its responsibilities over the past ten years at least.
I thought the Senator was far too kind and reserved in his criticism. Yes, the Fed did focus on inflation. Unfortunately the definition of inflation which they used was inappropriate, since it did not include the obvious asset bubbles which were created by the Fed’s own monetary policies.
In addition, the Fed not only neglected its role in consumer protection, it took an activist opposition to the regulation of new financial instruments such as derivatives that has created a position that even today leaves the US in a financially precarious position.
This is particularly galling when one hears of the schemes being concocted by the bank friendly Senators, Dodd, Corker and Shelby, to move more of the weak banking reforms into the Fed, which is itself a private institution owned by these very banks that it will regulate.
This is not the appropriate level of financial reform that the American people deserve. And if you notice to whom Senator Sherrod is addressing his concerns, you will understand my lack of enthusiasm or any change or improvement in this sorry state of affairs.
March 10, 2010
The Honorable Timothy Geithner
Secretary, United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
The Honorable Lawrence Summers
Director, National Economic Council
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500
Dear Secretary Geithner and Director Summers,
I write to you today to express my concern about the vacancies at the Federal Reserve, both on the Federal Open Market Committee (FOMC) and soon in the Vice Chairman’s office. This is the financial equivalent of leaving open vacancies on the United States Supreme Court, and it is essential that we fill these positions.
by ilene - February 25th, 2010 2:04 pm
I’ve gotten a bit of a reputation around the TIME office in Hong Kong of being something of a China basher. I don’t think that’s fair, since I have absolutely no doubt China will be the next great superpower. But I do have an issue with what I consider blind optimism on the part of many observers about the China growth story. Too many economists out here seem to wish away some of the serious structural problems in China’s economy. The prevailing attitude is that China is somehow more capable of dealing with such problems than other countries. I’m not convinced. There is every reason to be optimistic about China’s long-term prospects, but that doesn’t mean there won’t be bumps and bruises (and an occasional broken bone or minor coronary) along the road to global greatness. The U.S. had its share of crashes, panics, recessions, and even a civil war on the way to becoming the world’s indispensible economy. Why would China be any different?
I’m starting to wonder if China is heading into one of those rough patches right now. Sure, China’s GDP growth in 2009 (at 8.7%) was an amazing achievement. But now Beijing has to contend with the fallout from the measures it took to create that growth during the Great Recession.
For example, there is a fascinating story in The Wall Street Journal about the percolating problem of debt at China’s local governments. Provinces and cities gorged on bank loans during the downturn last year to spend on infrastructure projects, which was a major spur to GDP growth. But now, the Journal says, Beijing’s leaders have become nervous that local governments won’t be able to pay back their debts.
This problem gets at a much bigger issue: What damage has China’s stimulus plan done to its financial system? China’s GDP surge was created by a credit boom of biblical proportions. Banks granted almost twice the number of loans in 2009 as they did the year before, an amount equivalent to nearly 30% of GDP. This increase in credit runs counter to usual economic logic. In a downturn, banks should become more cautious, and there is less demand for loans anyway as corporations scale back investments. But China’s banks headed in the opposite direction. Could all of this deluge of loans have gone to creditworthy borrowers, to…
by ilene - January 6th, 2010 11:55 am
Courtesy of Mish
Bernanke’s hubris, inability to admit mistakes, and his blaming everyone but himself for his mistakes is increasingly starting to touch on nerves.
On Tuesday, the New York Times asked the right question: If Fed Missed This Bubble, Will It See a New One?
In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”
The fact that Mr. Bernanke and other regulators still have not explained why they failed to recognize the last bubble is the weakest link in the Fed’s push for more power. It raises the question: Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?
Just this week, Mr. Bernanke went to the annual meeting of academic economists in Atlanta to offer his own history of Fed policy during the bubble. Most of his speech, though, was a spirited defense of the Fed’s interest rate policy, complete with slides and formulas, like (pt – pt*) > 0. Only in the last few minutes did he discuss lax regulation. The solution, he said, was “better and smarter” regulation. He never acknowledged that the Fed simply missed the bubble.
“We’ve never had a decline in house prices on a nationwide basis,” Mr. Bernanke said on CNBC in 2005.
“The Federal Reserve has unparalleled expertise,” Mr. Bernanke told Congress last month. “We have a great group of economists, financial market experts and others who are unique in Washington in their ability to address these issues.”
Fair enough. At some point, though, it sure would be nice to hear those experts explain how they missed the biggest bubble of our time.
All that "expertise" was less than useless. It is amazing how hopeless Bernanke was about housing, about jobs, about the recession, about everything.
Bernanke did not get a single thing right.
Taylor Disputes Bernanke
Please consider Taylor Disputes Bernanke on Bubble, Says Low Rates Played Role.
John Taylor, creator of the so-called Taylor rule for guiding monetary policy, disputed Federal Reserve Chairman Ben S. Bernanke’s argument that low interest rates didn’t
by ilene - December 9th, 2009 1:34 am
Bubble, what bubble? Do you see a bubble?
Are our artificially low interest rates fueling bubbles elsewhere?
I don’t know, perhaps we should ask the:
- Hong Kong real estate developer who is leasing his finished space at $9000 USD per square foot
- Australian mining exec, whose company’s market cap just shot up by 200% from a Monday to a Wednesday
- Arabian sheik who has grown weary of having things dipped in platinum
- Brazilian sugar cane producer, who has run out of space for cash in his vault
- Commodities trader in London who is left with the classic dilemma of Aston Martin or Rolls Royce
- Gold mine operator in Mexico who now feels obligated by outrageous fortune to double his offerings to the church collection plate
- Shanghai investment banker who is running out of companies to take public
- Russian art-collecting oligarch who is considering a purchase of the Sistine Chapel’s ceiling, just because he can
Maybe one of them can tell us if our free money is creating any bubbles elsewhere.