The Post’s View
FOR WHAT SEEMS like the umpteenth time, Federal Reserve chairman Ben S. Bernankehas offered a defense of the Fed’s unorthodox policy response to the financial crisis of 2008-09. Without those actions, the chairman told students at George Washington University on Tuesday, the world economy might have gone into a “total meltdown.”
In a way, it’s a shame that Mr. Bernanke still has to go around making that obvious point, but he’s right — both about the regrettable necessity of bailing out “too big to fail” firms and about the Fed’s subsequent zero-interest rate policy and massive purchases of Treasury bonds and mortgage-backed securities. The U.S. economy remains sluggish, despite recent signs of growth and job creation; it would be in far worse shape, however, if the Fed had not engaged in massive monetary easing.
Still, these benefits come with risks attached. Among the biggest risks is that easy money from the Fed enables banks and firms to postpone necessary restructuring — and for Congress and the White House to postpone getting the federal government’s long-term fiscal situation under control. Indeed, three of Mr. Bernanke’s own central-banker colleagues, Bank of Japan governor Masaaki Shirakawa, former European Central Bank president Jean-Claude Trichet and Jaime Carauna, general manager of the Swiss-based Bank of International Settlements, made that very point at a Federal Reserve conference in Washington last week. Bernanke-style policies “can make it easier to waste time,” Mr. Carauna warned. The Fed has bought the U.S. economy time, but if that breathing space is not used wisely, the long-term result could be inflation and higher interest rates.
Echoing those concerns, former Treasury Department official Lawrence Goodman notes in a Wall Street Journal op-ed that the Fed’s massive purchases of federal debt, which amounted to 61 percent of net Treasury issuance in 2011, are keeping interest rates artificially low — and are masking a decline in demand for Treasuries from foreigners and the U.S. private sector. Net interest payments on the federal debt actually fell between 2008 and 2011, as a share of gross domestic product, even as the deficit tripled. Mr. Goodman argues that this phenomenon gives policymakers a false sense of security about the federal government’s fiscal predicament.
Mr. Bernanke, of course, was and is well aware of this risk — but has considered it less threatening than the risk of deeper recession. Indeed, without the Fed’s policies, growth might have been even weaker, tax revenue even lower, unemployment spending even higher — and, accordingly, deficits even bigger. Mr. Bernanke’s latest view of the economy is that it is still underperforming and that there is no reason to change the Fed’s plans to keep zero interest rates through next year and into 2014.
Nevertheless, when it does come, a self-sustaining recovery will undermine the case for fiscal and monetary expansion. Both Congress and the Fed will then have to react decisively and swiftly to undo a lot of what they’ve done in the past four years. They still have time to engineer a safe exit — but perhaps not quite as much time as they think.
For more from Post Opinions:
Katrina vanden Heuvel: The man blocking America’s recovery
http://www.washingtonpost.com/opinions/undoing-the-federal-reserves-monetary-easing/2012/03/28/gIQAIG5OhS_allComments.html?ctab=all_&#comments
http://www.washingtonpost.com/opinions/undoing-the-federal-reserves-monetary-easing/2012/03/28/gIQAIG5OhS_allComments.html?ctab=all_&#comments
Read what others are sayingAbout Badges
- Top Comments (11)
- All Comments (45)
You conclude, with evident certainty, that "it would have been far worse" without the bailouts; without saving those who were "too big to fail."
And how, precisely, are you so certain that the Bush/Obama "solution" did not, in the long-term ensure total catastrophe?
Your arrogance is stunning;
And how, precisely, are you so certain that the Bush/Obama "solution" did not, in the long-term ensure total catastrophe?
Your arrogance is stunning;
There is a limit to the ability of fiscal and monetary policies to continually prop up the economic fiasco that previous fiscal and monetary policiies created. When foreign and domestic buyers of U.S. debt realize they are continually losing value due to inflation, the buying will stop. Interest rates will rise, causing capital losses on pre-existing, low interest debt. That will cause owners to exit faster than before. I predict the Fed will not be able to resolve the problem. Additional liquidity will create more inflation and less liquidity will cause interest rates to rise even faster. As it unfolds and thereafter, Fed officials will deny any complicity, just like they did on the dot-com bubble and housing bubbles. This time, I do not think their rewriting of history will work..
I would suspect what they are doing is keeping the stock market up since no one can afford to put money into savings at 0%, if they had any. So now only the giant investor bulk investment class is riding on an unnatural stock market propped up for big funds and putting up a good face too in a bad economy except for speculative buying power until it pops.
Keep up the good work Dr. Bernanke. Plenty of time to change course once the economy is rolling again. The list of what we have to do though to get the economy back on a sustainable path is daunting.
1) Long-term deficit reduction measures, such as raising the retirement age, reducing the cost of living adjustment for Social Security, attacking the drivers of healthcare costs such as fraud and obesity, and planning to bring defense spending back to 3% GDP from its swollen 5% GDP.
2) We start investing for the future. Whether its nuclear, wind and solar plants, office building conservation measures (where 40% of our electricity is used), it must have long-term payback like you would expect any business investment to have.
3) We recognize deleveraging (read: household debt reduction via mortgage balance reductions across the system) is also a form of stimulus. We think of monetary and fiscal policy as our key levers but ignore debt reduction. If our problem basically is too much household debt, then let's reduce it. Household debt grew from 66.1% GDP to 100% GDP from 1997-2007. We have to get that back down.
4) Before we're going to give the government more authority to borrow, let's talk about breaking up the big banks, putting serious campaign finance reform in, and term limits. Government lost its credibility in this crisis, which the pro-stimulus crowd continues to ignore. Global politics has shifted to the right because government hasn't taken steps to fix the root causes of this ongoing crisis.
5) Our economy won't rebound until we repair our jobs engine. Start with the $700 billion goods trade deficit, which is roughly half our unemployment problem. Tax companies that offshore production and sell the goods in the U.S. for the wage differential. For Apple, this is 700,000 workers X $20/hour wage differential X 2,000 hours year = $28 billion, roughly half its net income.
In other words, convince me we're going to repair the severed artery and not just keep piling more bandages on.
1) Long-term deficit reduction measures, such as raising the retirement age, reducing the cost of living adjustment for Social Security, attacking the drivers of healthcare costs such as fraud and obesity, and planning to bring defense spending back to 3% GDP from its swollen 5% GDP.
2) We start investing for the future. Whether its nuclear, wind and solar plants, office building conservation measures (where 40% of our electricity is used), it must have long-term payback like you would expect any business investment to have.
3) We recognize deleveraging (read: household debt reduction via mortgage balance reductions across the system) is also a form of stimulus. We think of monetary and fiscal policy as our key levers but ignore debt reduction. If our problem basically is too much household debt, then let's reduce it. Household debt grew from 66.1% GDP to 100% GDP from 1997-2007. We have to get that back down.
4) Before we're going to give the government more authority to borrow, let's talk about breaking up the big banks, putting serious campaign finance reform in, and term limits. Government lost its credibility in this crisis, which the pro-stimulus crowd continues to ignore. Global politics has shifted to the right because government hasn't taken steps to fix the root causes of this ongoing crisis.
5) Our economy won't rebound until we repair our jobs engine. Start with the $700 billion goods trade deficit, which is roughly half our unemployment problem. Tax companies that offshore production and sell the goods in the U.S. for the wage differential. For Apple, this is 700,000 workers X $20/hour wage differential X 2,000 hours year = $28 billion, roughly half its net income.
In other words, convince me we're going to repair the severed artery and not just keep piling more bandages on.
Clearly we are on course to " out-Japan " Japan.......now entering its 3rd decade of rolling recessions, 33% underemployment and debt-to-GDP of 240%. Their 10-year JGB rate has hovered around 1% for the last 16 years. A movement to 2% shuts down the entire debt casino. Japan is THAT fragile over all this time.
This is the price paid on three continents to sustain an unsound, highly leveraged , too-big-to-fail banking system. An organic economy cannot be found in the midst of all the central banking interventions added to a Mount Whitney of unsustainable sovereign debt. The evidence is pretty clear that politicians will not be responsive to this unfolding debt catastrophy until the central banks quit backing their play or a systemic collapse occurs. How much net debt issuance will the Fed need to buy up in 2013 ??....70%, 80% ?? I think this is called a revolving door ponzi scheme.
Bernanke reminds me of the fast moving duck on the pond. Relatively calm above the water line. Beneath the water, the duck is paddling furiously.
This is the price paid on three continents to sustain an unsound, highly leveraged , too-big-to-fail banking system. An organic economy cannot be found in the midst of all the central banking interventions added to a Mount Whitney of unsustainable sovereign debt. The evidence is pretty clear that politicians will not be responsive to this unfolding debt catastrophy until the central banks quit backing their play or a systemic collapse occurs. How much net debt issuance will the Fed need to buy up in 2013 ??....70%, 80% ?? I think this is called a revolving door ponzi scheme.
Bernanke reminds me of the fast moving duck on the pond. Relatively calm above the water line. Beneath the water, the duck is paddling furiously.
Mr. Bernanke and Western Central banks are the source of the worldwide income problem. For more than a decade they engaged in the anti-employment policy of inflation targeting (IT), which reduces the money in circulation and decreases aggregate demand. Every recent recessions has been preceded by a rise in the federal funds rate or what amounts to the Federal Reserve (Fed) draining money from the banking system, see http://www.jethroproject.com/tjpexcessreserves.htm...
Central banks, such as the Fed are the entities that mismanaged the economy by claiming the low and stable inflation creates economic growth. The Great Recession of 2008 proved them wrong. In fact, the Fed in the fourth quarter of 2008 reserved course and increased the money supply by approximately 1.6 trillion dollars. Clearly, they recognized, all be it late, that the recession was due to restriction of the money supply. Otherwise, they would not have raised it.
Bernanke does not deserve any praises, since he was the source of the problem. And, the irony is that he knows better, but he chooses to sacrifice the middleclass and the poor by restricting full employment for the benefit of rentiers.
Central banks, such as the Fed are the entities that mismanaged the economy by claiming the low and stable inflation creates economic growth. The Great Recession of 2008 proved them wrong. In fact, the Fed in the fourth quarter of 2008 reserved course and increased the money supply by approximately 1.6 trillion dollars. Clearly, they recognized, all be it late, that the recession was due to restriction of the money supply. Otherwise, they would not have raised it.
Bernanke does not deserve any praises, since he was the source of the problem. And, the irony is that he knows better, but he chooses to sacrifice the middleclass and the poor by restricting full employment for the benefit of rentiers.
I am so sick of the phrase "we all bought in to it"; meaning use your house as an ATM so you can satisfy your stupidity. In fact, millions of Americans did not buy in to this Federal Reserve plan to jack up the economy so the American middle class could feel good about the global economy. Millions of American savers did the right thing and saved their money, paid their debts, and planned for retirement. Millions of Americans did the right thing..... needs to be said a lot more often. Now the undisputed king of failed American institutions, the Federal Reserve, has put in to action a plan to punish those Americans. Instead of those savings earning modest but safe rates of return for retirement they are earning NOTHING and the Federal Reserve gets accolades for trying to clean up the mess it created. Wow, I mean how many of you would be rewarded with a pat on the back if you totally screwed up the job you were paid to do? Not one single Federal Reserve official has been fired; worse is the fact that TOO BIG TO FAIL is still alive and well and living on the back of the American taxpayer. Ben Bernanke is the poster child for what is wrong in this country and it is simply this: the Federal Reserve is a private business whose only job is to help the big banks make money no matter what and to heck with seniors and savers.
From Harvey Organ...
"The Gold Wars have significantly changed in the last two years in particular. From 2004 to 2009, the battle was to win a fair higher gold price. No longer. The war has turned the corner and reached an end game scenario. The objectives have changed. The tactics used have been altered. The upper hand by the Good Guys against the Crooked Boyz is evident. Some new confusion has entered the room. The objective is to remove gold from the bullion bank inventories and major bank inventories, all of it. This is a new battlefield in the war. Being a Zombie bank means losing all the gold in reserves, in a time hourglass process that reflects the reality of their balance sheets. By the end of 2013, no big bank will own any physical gold. They cannot defend against off-side positions in the sovereign bond market and the currency market. See what happened to JPMorgan in such a case, as it preyed upon MFGlobal accounts. Other big banks are losing all their gold from the balance sheet. UBS is a dead body on the field, their false story of a rogue trader having provided a little distraction. Few if any financial press stories are honestly told anymore. Certainly not the Libya story, where 144 tons of gold were confiscated as war booty by London. That supply filled some gaps but only temporarily.
Price implications are part of the sacrifice, as the Good Guys will help to push down the Gold price at times in order to kill a gold cartel player. Like right here, right now. Every couple months (the last being in January), a massive group of orders must be filled at a low price, for the benefit of the Good Guys, with an evil player in a vulnerable position, who knows he is dead and must forfeit its gold. The gold market stalls until the hairball is passed and another gold cartel player is gutted, carried off the battlefield under the cover of press darkness. Therefore the Gold price stays down until the order is completely filled, and only then will recover a couple hundred dollars in price per ounce, but only after this gold cartel player is killed off. The player will be identified later, in the fair market obituaries known to the internet journals. The tombstone epitaph will be carved by an Eastern hand. The US press would never report on a cartel bank having to sell $70 to $100 million worth of gold bullion to remove their big off-side position in bonds or currencies. The Good Guys have put in a series of escalating orders at low prices, from extremely well funded accounts whose war chests boast tens of $billions. The damage done to the gold cartel is immense, yet not adequately reported. The pattern showed itself in January, when after a similar event, the gold price moved from roughly 1600 to almost 1800. By February 29th, the cartel leaped on the day into position to conduct one of the largest naked short events in history. The press never seemed to catch wind, since paid not to notice."
"The Gold Wars have significantly changed in the last two years in particular. From 2004 to 2009, the battle was to win a fair higher gold price. No longer. The war has turned the corner and reached an end game scenario. The objectives have changed. The tactics used have been altered. The upper hand by the Good Guys against the Crooked Boyz is evident. Some new confusion has entered the room. The objective is to remove gold from the bullion bank inventories and major bank inventories, all of it. This is a new battlefield in the war. Being a Zombie bank means losing all the gold in reserves, in a time hourglass process that reflects the reality of their balance sheets. By the end of 2013, no big bank will own any physical gold. They cannot defend against off-side positions in the sovereign bond market and the currency market. See what happened to JPMorgan in such a case, as it preyed upon MFGlobal accounts. Other big banks are losing all their gold from the balance sheet. UBS is a dead body on the field, their false story of a rogue trader having provided a little distraction. Few if any financial press stories are honestly told anymore. Certainly not the Libya story, where 144 tons of gold were confiscated as war booty by London. That supply filled some gaps but only temporarily.
Price implications are part of the sacrifice, as the Good Guys will help to push down the Gold price at times in order to kill a gold cartel player. Like right here, right now. Every couple months (the last being in January), a massive group of orders must be filled at a low price, for the benefit of the Good Guys, with an evil player in a vulnerable position, who knows he is dead and must forfeit its gold. The gold market stalls until the hairball is passed and another gold cartel player is gutted, carried off the battlefield under the cover of press darkness. Therefore the Gold price stays down until the order is completely filled, and only then will recover a couple hundred dollars in price per ounce, but only after this gold cartel player is killed off. The player will be identified later, in the fair market obituaries known to the internet journals. The tombstone epitaph will be carved by an Eastern hand. The US press would never report on a cartel bank having to sell $70 to $100 million worth of gold bullion to remove their big off-side position in bonds or currencies. The Good Guys have put in a series of escalating orders at low prices, from extremely well funded accounts whose war chests boast tens of $billions. The damage done to the gold cartel is immense, yet not adequately reported. The pattern showed itself in January, when after a similar event, the gold price moved from roughly 1600 to almost 1800. By February 29th, the cartel leaped on the day into position to conduct one of the largest naked short events in history. The press never seemed to catch wind, since paid not to notice."
Make no mistake about it, we'd all be better off today if the Fed had never existed.
Want to know why gasoline now costs $4? Think "the Fed,"
Want to know why it costs $35 or so to buy a silver dollar? Think "the Fed."
Want to know why a year at a good private college can cost $60K? Think "the Fed."
The Fed has been diluting our currency since 1913. Who benefits? The Banksters, Wall Street, and the 1%.
Want to know why gasoline now costs $4? Think "the Fed,"
Want to know why it costs $35 or so to buy a silver dollar? Think "the Fed."
Want to know why a year at a good private college can cost $60K? Think "the Fed."
The Fed has been diluting our currency since 1913. Who benefits? The Banksters, Wall Street, and the 1%.
and still not one significant indictment of a financial crookster= wall streeter, bankster and oil crooks and they decimated one of the largest mostly American made industries= real estate and building
and still the financial markets are unregulated ala Glass0Steagall and more....the same toxic derivatives are being used to manipulate basic materials, commodities, oil and food
the only ones who have paid dearly for the financial debacle are those who have lost their jobs and homes and nest eggs....
America's accomplishments= war mongering, sabre rattling, bombing, droning, invading sovereign countries and killing and maiming over 500,000 and putting Americnas future generations in deep, deep debt and the chipping away of American citizens freedoms.... of Americans freedoms...........
what a pathetic country America has become....
we can thank the military industrialists, financial crooksters and enabling politicians both repubs and demos..............
and still the financial markets are unregulated ala Glass0Steagall and more....the same toxic derivatives are being used to manipulate basic materials, commodities, oil and food
the only ones who have paid dearly for the financial debacle are those who have lost their jobs and homes and nest eggs....
America's accomplishments= war mongering, sabre rattling, bombing, droning, invading sovereign countries and killing and maiming over 500,000 and putting Americnas future generations in deep, deep debt and the chipping away of American citizens freedoms.... of Americans freedoms...........
what a pathetic country America has become....
we can thank the military industrialists, financial crooksters and enabling politicians both repubs and demos..............
The economy will crash and burn again, soon. Part of the reason will be Bernanke's bailout of sick, corrupt institutions that were "too big to fail".
And those same institutions will be there again with their hands out, when they ought to be facing a lynch mob.
How's commercial real estate doing these days?
And those same institutions will be there again with their hands out, when they ought to be facing a lynch mob.
How's commercial real estate doing these days?
Instead of a recovery. Bernanke's policies are resulting in stagflation.
The only reason that the inflation rate isn't significantly higher is that the component weightings haven't been updated to reflect buying patterns in the current downturn. During 2011 costs of items that consumers can't avoided or delay::
Food at home up 5.3%
Meets and eggs up 7.2%
Dairy up 9.0%
Fuel oil up 9.7%
Water, sewer and trash collection up 4.7%
Apparel up 4.7%
Gasoline up 9.7%
Auto parts up 5.4%
Medical care up 3.6%
Education, tuition and day care up 4.4%
Holding down the "cooked overall rates" are overweighting of purchases that consumers can cut, avoid or delay as well as the housing (up 1.9%) markets including: alcohol up 2.1%, vehicle maintenance up 2.3%, public transportation up 1.7%, recreation up 1.4%, personal care up 1.4% and communications which was down -.6% as people obviously were cutting phones, cable and personal computer purchases where prices were down -11.8%. .
The only reason that the inflation rate isn't significantly higher is that the component weightings haven't been updated to reflect buying patterns in the current downturn. During 2011 costs of items that consumers can't avoided or delay::
Food at home up 5.3%
Meets and eggs up 7.2%
Dairy up 9.0%
Fuel oil up 9.7%
Water, sewer and trash collection up 4.7%
Apparel up 4.7%
Gasoline up 9.7%
Auto parts up 5.4%
Medical care up 3.6%
Education, tuition and day care up 4.4%
Holding down the "cooked overall rates" are overweighting of purchases that consumers can cut, avoid or delay as well as the housing (up 1.9%) markets including: alcohol up 2.1%, vehicle maintenance up 2.3%, public transportation up 1.7%, recreation up 1.4%, personal care up 1.4% and communications which was down -.6% as people obviously were cutting phones, cable and personal computer purchases where prices were down -11.8%. .
