Apparently Bernanke is not able to rule the Federal Reserve System with as tight of an iron fist as Greenspan did. Some soundness of thought is creeping in between his fingers.
From the New York Times:
A lone dissenter on the Federal Reserve’s policy-making committee warned Friday that the central bank’s monetary strategy could backfire and touch off a new boom-and-bust cycle.
Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, dissented on Tuesday when the Federal Open Market Committee voted 9 to 1 to invest proceeds from the Fed’s mortgage-bond portfolio in longer-term Treasury debt. The decision was the Fed’s clearest signal yet that its confidence in the pace of the recovery was waning.
“Monetary policy is a useful tool, but it cannot solve every problem faced by the United States,” Mr. Hoenig told local Chamber of Commerce members in a speech at the University of Nebraska, Lincoln. “In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”
Mr. Hoenig added: “I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no shortcut.”
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A glimmer of light…
Actually, come to think of it, didn’t Greenspan say a lot of positive things as well?
I believe they call that “Talking the Talk, but not Walking the Walk”.
Dissent In The Covey Of The Federal Reserve OMC!
To me it didn’t seem like Greenspan ruled with an iron fist but rather with a mesmerizing crystal ball, a wand, and a pointed hat! Spellbound, the economically illiterate Congress, the befuddled public, and the hypnotized bishops of the Federal Reserve system watched as Greenspan pulled rabbits out of his hat and cut damsels in half!
Bernanke, on the other hand, is not a prestidigitator. Bernanke is an enabler, pure and simple (with emphasis on simple). Being a simpleton he sees the world as a variant of the Great Depression and being a simpleton he has a solution that only a simpleton could believe in. Since his solution is exactly what the unConstitutional coup wants and needs Ben Bernanke was chosen and was reappointed as the chief counterfeiter.
Anyone with any economic knowledge will oppose his preposterous schemes and since there are no more smoke and mirrors there is bound to be dissent. The question is: “Why is there not more dissent?”
It is a complicated mix of reasons: bribery, ambition, embarrassment, pride, arrogance, fear of consequences, fear of accountability, etc.
Bruce, you are correct that Greenspan ruled the Congress and the public with his crystal ball. But, that wouldn’t have been enough to bring fellow economists who work with him face-to-face to heel. Thus, the iron fist. Lew Rockwell writes:
Interesting!
http://www.econtalk.org/archives/2010/01/belongia_on_the.html
belongia would include outright duplicity in greenspan’s toolbox. a must-listen, russ roberts interview on the inner workings of what was a one-man-band.
A story in the NY Times, of all places (http://www.nytimes.com/2010/08/14/world/europe/14germany.html?_r=1&th&emc=th) begins::
“Germany has sparred with its European partners over how to respond to the financial crisis, argued with the United States over the benefits of stimulus versus austerity, and defiantly pursued its own vision of how to keep its economy strong.” Statistics released Friday buttress Germany’s view that it had the formula right all along. The government on Friday announced quarter-on-quarter economic growth of 2.2 percent, Germany’s best performance since reunification 20 years ago — and equivalent to a nearly 9 percent annual rate if growth were that robust all year.”
If it is safe to assume that members of the Obama administration and many congresscriters read this, how many of these folks, who are watching the US economy teeter on the edge of a double-dip recession, and who argued for stimulus (federal deficit spending), and are currently arguing for more stimulus, will change their stripes and become austerity mavens?
My guess is no one, because the real purpose of stimulus is not to assuage the plight of the unemployed and those otherwise hurt by the recession, rather stimulus is essentially to ensuring that incumbents keep their jobs with all those munificent emoluments by ladling gobs of fed funds (aka, OPM, which sounds like opium, is equally addicting, and stands for Other People’s Money) into the troughs of those who can and will “get out the vote”–for the incumbent, of course.
…..strategy could backfire…….Committee voted 9 to 1 to invest proceeds from the Fed’s mortgage-bond portfolio in longer-term Treasury debt. The decision was the Fed’s clearest signal yet that its confidence in the pace of the recovery was waning.
“Monetary policy is a useful tool, but it cannot solve every problem faced by the United States,” Mr. Hoenig told local Chamber of Commerce members in a speech at the University of Nebraska, Lincoln. “In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”
maybe a huge bridge rapair campain is what the money will be used for. maybe more rails to reduce shipping rates. maybe it wil go to power utilities to better balance elctrical loads throught the day and make mor eefficient use of power plants.
maybe the story is fake
Hoenig is right about monetary policy not being able to solve everything, but I have trouble understanding what they’re calling monetary policy.
Investing the proceeds from the toxic mortgage securities into treasuries isn’t monetary policy in the technical sense, right? As I understand it, monetary policy involves the printing press (or the magic spreadsheet if you like,) reserve requirements, the primary dealers, and the US Treasury.
Being the Fed, all they want to do is inflate. So, why not get the excess reserves out? Why use the toxic asset money at all? And re: the mortage money, how much is there really? Is there really enough to inflate like the way the would want to inflate via standard monetary policy? And if this really was monetary policy, why not use the usual tools?
Maybe this is just lip service for Hoenig, but I appreciate his dissent. I think on this one point, he has the right answer, even if his theoretical framework to get there is wrong. I expect that this lone voice of reason to get ejected somehow by Bernanke. In times like these, with so much attention on the Fed, any sign of dissent is not something they’d welcome at all.
It’s a new twist on the printing press. Everyone by now understands that actually printing money is bad, what with the Weimar inflation and the now-declassified plans in WWII to destroy each others’ economies by dropping banknotes from airplanes.
But it’s the same scam. The old way was to assign high value to worthless pieces of paper which have been freshly printed with the words “One Hundred Dollars”. The new technique is to assign high value to worthless pieces of paper which some time in the past had “Mortgage Backed Security” printed on them. You declare the worthless paper to be valuable, pass it off on unsuspecting people (mostly middle and lower class and foreigners), mount a gigantic campaign of deception to disguise the facts, and buy physical assets as fast as you can.
The government on Friday announced quarter-on-quarter economic growth of 2.2 percent, Germany’s best performance since reunification 20 years ago — and equivalent to a nearly 9 percent annual rate if growth were that robust all year.”If it is safe to assume that members of the Obama administration and many congresscriters read this, how many of these folks, who are watching the US economy teeter on the edge of a double-dip recession.
Hoenig’s concern is justifiable. Monetary stimulation is like plant food. Too much and the roots get burned. Too-fast growth causes the plant to keel over and die.
Not enough plant food and it grows up spindly. It never flowers or puts out fruit. Hoenig just wants to preserve the plant’s viability until it sets seed, so that the next generation can grow up healthier.
michael, I agree 100% – monetary stimulation is definitely one kind of fertiliser!
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