Letters to the Editor
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Why and How is Bernanke responsible for a recession?
I'll agree he's being set up as teh fall guy, but the role of the Federal Reserve, by design, is too limited to be reponsible for the whole economy. And who says a recession is the worst thing in the world? It seems to me many of the problems we are facing now are the result of tryin to avoid earlier recessions or problems.
This notion that the economy can never contract is rediculous.
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Why and How is Bernanke responsible for a recession?
Perhaps he's not responsible, but he sure could have been more attentive a few years ago when people noticed house prices going through the roof. Here's an example:
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html
In the above-linked Washington Post article, Bernanke is quoted as saying a 25% increase in house prices over two years wasn't a bubble, but rather was a sign of our strong economy. This was from Bernanke's testimony before congress.
Maybe he's not to blame, but I sure have doubts about his economic acumen.
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Twittle-dee, Twittle-dumb
So, does this make Bernanke a twit?
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Don't change horses, period
It may seem presumptious, but I predict that Bernanke will serve a long term as Fed chairman, only because the desire to turn over leadership is at a low. There is an article today calling McCain the third term of Bush. Hell, let Bush run and I guarantee you he will get more votes.
What is the point? Once you get there, no one wants to get rid of you? The only decent replacements are your children or your spouse? Being born is half the battle?
What is with this new aristocracy? As long as Bernanke isnt' client 1 through 8 he will serve a long time, just about as long as you have to stand in a soup line when the economy crashes. If today's world was in place in the 1930's Hoover would have served three terms. Mistakes? Who cares, don't change horses, period.
I know you're thinking, what about Obama? Well, he ain't in the White House yet, and the worse things get, the more his change message will send the voters into apoplexy.
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Bare Sterns at Bear Stearns?
Where the heck are you today, Andrew Leonard? We hope you are okay.
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And another thing: DEflation???
Falling home prices are deflation. So are falling interst rates.
How does this fit in with the conventional wisdom now, when we worry about inflation in foreign exchange and in energy costs?
This is not Nixonian Carteresque stagflation. Indeflation? Is that possible? Inquiring minds want to know.
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DE-stagflation
DE-stagflation is inflation with low interest rates. The Fed is already committed to this path, to avoid DE-stagflation they would have to start raising rates. Some people think the market will do this, or market forces will do this, but they underestimate the power of the NEW Federal Reserve.
Since the Federal Reserve waived most of the reserve requirements for banks, they have gained incredible leverage to force those banks to play by their rules.
The rules are not the same for everybody, the FED has the power to open the books on any bank, and suggest they add to their reserves. If the plan is to force banks to lend at the Fed fund target rate, they can achieve that through coercion.
In the 90's the Japanese banking systen was routinely bashed, for carrying bad paper. Americans called it 'crony capitalism'. George Bush is the king of Crony Capitalists, beginning with his Halliburton friends. Banks with bad paper will be allowed to carry that paper, if they hold the Fed line on interest rates.
China is already in DE-stagflation, technically anyway, because their inflation rate is above their Bank Target Rate. Again nothing has to change, we are already there. Inflation in this country is probably around 8%. DE-stagflation is preferable to plain stagflation, because the sheer size of the numbers destroys economic confidence. While a real inflation rate of 5% is 60% higher than a fed funds rate of 3%, it only looks like 2% to you and me. Plain Stagflation would be preferable to what we have.
Never in a healthy economy should the rate of inflation exceed the return on a fixed income investment, but there you have it.