Today's Worry is Deflation, Not Inflation

According to James Surowiecki of the New Yorker (2013, April 8):

The war-on-savers crowd makes Bernanke out to be a wild-eyed ideologue, willfully risking hyperinflation and sacrificing the well-being of retirees to his reckless schemes. But, if you look at the US economy, you don’t see any of the signs you’d expect if the Fed were acting recklessly: the money supply is not growing rapidly, and inflation is trivially low. If anything, Fed policy has been too cautious; it could have done more to rev up the economy. Sumner has argued that the Fed could have set a public target for nominal GDP and committed itself to printing as much money as needed to get there. And a new research paper from the New York Fed suggests that we should have aimed at a higher rate of inflation, which would have stimulated spending and investment by making it less attractive to just park money in the bank. Bernanke’s critics like to point to the still weak job market as evidence that the Fed’s policy hasn’t worked. It’s far more likely evidence that the Fed hasn’t gone far enough.

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Let's face it, inflation today is tame. The bigger near-term worry is deflation.

Source: Surowiecki, J (2013, April 8), Shut Up, Savers! New Yorker.

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Central Banks Make Historic Turn

Writes Anatole Kaletsky in Reuters (2012, September 19):

When the economic history of the 21st century is written, September 2012 is likely to be recorded as a defining moment, almost as important as September 2008. This month’s historic events – Ben Bernanke’s promise to buy bonds without limit until the US returns to something approaching full employment, Angela Merkel’s support for the European Central Bank bond purchase plans and the Bank of Japan’s decision to accelerate greatly its easing program – may not seem earth-shattering in the same way as the near-collapse of every major bank in the US and Europe. Yet the upheavals now happening in central banking represent a tectonic shift that could transform the economic landscape as dramatically as the financial earthquake four years ago.

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I tend to believe that global austerity measures have yet to run their full course, especially in public sectors. Nevertheless, all indications are that central banks are seeking ways to inject liquidity into the global economy in ways that will foster consumption. Quantitative easing to date in the US has been about capitalizing producers and bankers. In contrast, QE3 appears to be solidly focused on creating demand, which is a major change...

Source: Kaletsky, A (2012, September 19), Central Banks Make an Historic Turn, Reuters.

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Main Street USA Primary Beneficiary of QE3

The primary beneficiary of QE3 will ultimately be Main Street USA -- the Federal Reserve Board's newly announced bond buying actions will cut a wide swath through the existing inventory of mortgage-backed securities -- QE3 will place money into the hands of those who deal in mortgage-backed securities -- now is the time to look carefully for real estate acquisitions along Main Street USA -- record low prices and interest rates make now an ideal time to acquire some "boring" Main Street properties -- small investors who hold and rent real estate stand to do very well as a result of QE3.

I applaud this latest move by Dr Ben Bernanke and the Federal Reserve Board -- this is the first US stimulus action since the financial crisis began in 2008 that targets dollars directly toward Main Street growth -- "to big to fail" banks and multinational companies in the US will decry QE3 as misguided because these firms are not the direct beneficiaries -- again, bravo to Dr Ben Bernanke and the supporting members of the Fed Board for their courageous and timely monetary actions designed to benefit Main Street USA home owners and real estate investors specifically.

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Explaining the Federal Reserve's Complacency

According to Matthew Yglesias (2012, July 10) of Slate:

So why doesn't the Fed ease...? The costs to workers and to the real economy are a quite serious matter. But as for the Fed's reputation, I'm much less sure. It seems sort of odd to think that the Fed is persistently missing its inflation target on the downside while also leaving millions to languish unemployed.... Ben Bernanke has brought us the lowest inflation of any Fed chairman of the postwar period. You may call it prolonged mass unemployment, but he may see it as a huge success.

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Dr Ben Shalom Bernanke (1953- )

My fear is that Dr Ben Bernanke's tightfisted approach to monetary policy has less to do with what is best for society, and everything to do with Dr Bernanke's self-aggrandizement as a champion inflation fighter. History will be the judge...

Source: Yglesias, M (2012, July 10), Explaining the Federal Reserve's Complacency, Slate.

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Well Said...

"There are no atheists in foxholes or ideologues in a financial crisis."

~ Ben Bernanke

Dr Ben Shalom Bernanke (1953- )

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Bernanke's Doublespeak

Here is an example of Dr Ben Bernanke's style of doublespeak quoted from his Jackson Hole remarks today:

To achieve economic and financial stability, US fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time...  Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery...  Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

Dr Bernanke should simply say what he means...

Source: Wessel, D (2011, August 26), Key Passages from Bernanke's Jackson Hole Remarks, Wall Street Journal Online.

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America's Main Street Depression

I regret that while public corporations in the US have been experiencing a profit rebound in recent months, Main Street America remains in economic depression. The decoupling of our nation's largest "too big to fail" public corporations from Main Street has created widespead economic turmoil and hardships for small companies and familes in America. The continuing demise of Main Street began when US monetary and fiscal policy-makers unwisely posited "too big to fail" as a governing principle.

Treasury Sec Henry Paulson and Federal Reserve Chief Ben Bernanke (2008)

Keep in mind that "too big to fail" was the conceptual argument invoked back in 2008 by the US Federal Reserve lead by Dr Ben Bernanke, and the US Treasury lead by Treasury Secretary Henry Paulson. Today, gigantic "too big to fail" public corporations enjoy tacit financial guarantees from the Federal government, while small companies and businesses along Main Street are essentially left out in the cold.

America's emerging consolidated banking system is now laced with systemic risks extending from Wall Street into every facet of regional banking. In my view, the nation's banking needs would be better served by many thousands of smaller community and regional banks, instead of a few "too big to fail" financial institutions aligned with Wall Street. The economic risks associated with building and maintaining "too big to fail" corporations are not well-understood. Nevertheless, our nation's central banking system continues to grow larger while Main Street America is left to languish.

I cannot help but think that the powershift from Main Street to America's center will eventually lead to new unforeseen difficulties for America. History tells us that over centralization carries risks. Recall that the former Soviet Union was never able to marshal the human know-how and technical resources to manage and direct a massively centralized command economy. Is capitalism somehow different? I doubt that the US will be able to manage from the center indefinitely.

Years from now, a comfortably retired Dr Ben Bernanke will write in his memoirs something like this:

"...I wish we at the Federal Reserve would have paid closer attention to the impact of monetary policy on small businesses and community banking in America -- in reflection, I would have been more attentive to the plight of small businesses and regional banking across the nation -- however, we had no choice but to save the largest "too big to fail" institutions in America because we felt that saving Federalism was our mandated priority..."

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On “Macroprudential Oversight”

Economists must sometimes scrutinize political rhetoric and terms that allude to well-understood economic concepts, albeit with "spin." For example, the terminology of "too big to fail" is widely used by political commentators as justification for an expansion of regulatory controls over the financial services industry (for more about the meaning of "too big to fail," visit my related post entitled, Too Big to Fail, or Just Too Big?).

Lo and behold, we are now witnessing the arrival of a new political rhetoric that takes the false concept of "too big to fail" to the next level. This new terminology is encapsulated by the notion of "macroprudential oversight," which Dr Ben Bernanke, Chairman of the Federal Reserve Board, describes as follows:

Under our current system of safety-and-soundness regulation, supervisors often focus on the financial conditions of individual institutions in isolation. An alternative approach, which has been called system wide or macroprudential oversight [italics added], would broaden the mandate of regulators and supervisors to encompass consideration of potential systemic risks and weaknesses as well.

For the record, the terminology of “macroprudential oversight” is not found in the standard macroeconomics lexicon (and neither is the phrase, “too big to fail”). Moreover, I fear the public is being bamboozled into believing these concepts carry clear economic meanings, which is not the case. From where I sit, the quasi-economic notions of "too big to fail" and "macroprudential oversight" are experimental hypotheses at best. The public should be suspicious of claims that the Federal government has the regulatory know-how to institute "macroprudential oversight" of systemic risks and weaknesses within the US economy. I maintain that the more pragmatic approach for managing systemic risks within the financial services industry is to view firms that are "too big to fail," as also being "too big to keep around."

Source: Bernanke, B (2010, August 2), Bernanke's Speech on Economy at Jackson Hole Conference (Text), Bloomberg.

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Too Big to Fail, or Just Too Big?

Bernanke Scolds Congress

Federal Reserve Chairman Dr Ben Bernanke had this to say in his prepared remarks before Congress today:

The CBO's long-term budget projections, by design, do not account for the likely adverse economic effects of such high debt and deficits. But if government debt and deficits were actually to grow at the pace envisioned, the economic and financial effects would be severe. Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on US output, incomes, and standards of living. Moreover, diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil. In a vicious circle, high and rising interest rates would cause debt-service payments on the federal debt to grow even faster, resulting in further increases in the debt-to-GDP ratio and making fiscal adjustment all the more difficult.

I guess this means that Dr Bernanke would prefer not to print money, which will be the more likely outcome if fiscal policy continues on its current course. I read Dr Bernanke's comments above as an inflation warning...

Source: Indiviglio, D (2011, February 9), Bernanke Scolds Congress on Deficits, But Provides Little Guidance, Atlantic.

Fiscal Policy or "Fantasy Football"?

I watched Dr Ben Bernanke's interview on "60 Minutes" this weekend, and I was struck my the Federal Reserve chairman's candor with regard to the possibily of deflation in today's economic environment. Yet, austerity hawks around the US are continuing their calls for fiscal policy measures that address the risks of inflation, which remains essentially non-existent today. From where I sit, calls for anti-inflationary measures are akin to playing "fantasy football" against a non-existent threat. If Dr Bernanke's views are accepted at face value, then the US is at risk of deflation and depression in the near-term, and that is the threat that our nation's fiscal policy-makers should be actively engaging...

John R Talbott: The Real Reason Geithner Is Afraid of Elizabeth Warren

John Talbott's recent editorial expose (2010, The Real Reason Geithner Is Afraid of Elizabeth Warren) regarding his views on the underlying strategy driving current fiscal and monetary policies in the US is instructive for those seeking to better understand what is happening with the economy. Clearly, Federal Reserve chief Ben Bernanke and Treasury Secretary Tim Geithner are being less than transparent in their motives and intentions. In particular, their alleged strategy of rebuilding Wall Street at the expense of Main Street account holders is deflating America.

The times of elites like J P Morgan ruling over the US economy are behind us, and the American people are unlikely to tolerate these kinds of fiscal and monetary tactics and strategies over the long-term. We the people need better transparency from the Federal Reserve and Treasury Secretary in order to understand what is happening to our nation's economy.

Source: Talbott, J R (2010, July 18), The Real Reason Geithner is Afraid of Elizabeth Warren, Huffington Post.

The Future of Small Business in America

The exclusive footage below purportedly shows Fed chief Dr Ben Bernanke issuing private instructions to his board regarding how best to handle America's small business lending hassles:



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More Small Businesses Needed