Tuesday, July 21, 2009

• Bernanke And The Super Fed Say It's Over

The loud, national sigh we heard this week was America gratefully, but suspiciously, acknowledging Ben Bernanke’s claims that, well, it’s over. The Fed Chair is satisfied that the recession is in a turn around mode, or at least stabilizing. Covering his backdoor, he added that America can look forward to a sluggish recovery. Just in case anyone missed it, he added, with all the vigor and compassion of a snail, “Unemployment will stay high for some time. It’s not going to feel like a very strong economy.”

You cannot get more confident than that, can you? With that level of insight you can now go out and make major decisions for your own future, such as, whether or not to buy a house, upgrade your car, perhaps even fly to Europe on the wings of hope. No? This is the kind of foggy thinking and direction we have come to expect from the independent organization that controls America’s most important economic element – America’s money. Did he define an exit strategy for the money being fed into the system? Did he even describe where, or how, that money is doing anyone any good? Not so much.

Bernanke is the same expert who only last year told Congress wonderful fairytales about housing, the markets, and the economy just as the bubble was beginning its implosion. This is the also the Bernanke who, along with Geithner, in a desperate moment of panic made a deal with J.P. Morgan, taking on $30 billion of toxic derivatives from Bear Stearns. Even former Fed Chairman Paul Volcker thought the deal impelled the Fed to, “extend to the very edge of its lawful and implied powers.” What an incredible understatement. The agreement viewable here, was not a loan as claimed, but an outright purchase of an ephemeral mountain of garbage. It was in effect a gift. Did anyone in Congress jump on this breach of law? Of course not. No one would dare question The Fed. Did anyone explain why Lehman was sent over into the abyss, but not Bear? Don’t ask. You don’t want to know. You also won’t be told how it was possible that giant firms including A.I.G., were allowed to gamble with complex derivatives that their own executives didn’t understand. The crumbs leave a trail from Wall Street, all the way to Congress.

You will note that the first signature on the hastily created agreement (linked above) is Tim Geithner’s. You can judge for yourself with a little analysis of Tim’s “signature,” what help such a massive ego (IMHO), will bring to your neighborhood. While you’re at it, also check out Morgan CEO James Dimon’s scribble on the signature line. Let me know what you think he’s all about. Looking at that signature, I doubt anyone really knows, but in the meantime, understand that he has more influence on your life than most of your friends do. These are some of the egos that were so overwhelmed with arrogance, and so confident in self intelligence, that there was nothing that the economic super-bubble would throw at them which couldn’t be handled. As the world economy melted about their ankles, all they could do was panic, and in turn panic everyone around them.

Bernanke, Geithner and their buddies are effectively in charge of taking good care of the largest members of the banking industry. This does not include your pocket book, or your wellbeing. Although Greenspan was vilified, and slapped into anonymity for having completely missed the housing bubble, Bernanke was right there with him promoting almost non-existent interest rates, downplaying obvious dangers of the bloated borrowing, and belittling concerns of inflation. The fact that no one in America was saving a dime since there was no Interest incentive to do so, didn’t seem to matter. In fact, it still does not seem to matter to Bernanke. How much are You getting on your savings account? How’s your borrowing capacity coming along? Getting any good business loans at cheap interest rates lately? Wall Street will make money if you spend, if you churn, but not so much if you build equity in those resources that matter most to You or if you invest in yourself.

When you listen to The Fed Chairman's claim that he can tighten monetary policy, and actuate programs such as selling securities from its portfolio to take cash out of the market, as needed to head off inflationary pressures, .... based on past record, you can now bet against him. Beyond applying common sense to his present prognostications, his track record suggests that he will not be able to reign-in inflationary pressures. You can assume that with the fast expanding money supply, inflation is returning for a visit that may be reminiscent of the late ‘70s. The amounts flying into the system are enormous, and making the assumption that The Fed will be able to “repurchase,” or appreciably retract the process, is to assume the improbable will occur. When Bernanke says things like, “I don’t regret anything we’ve done,” heed the arrogance in the context of the domain which is his sovereignty. Most importantly take everything else he says with a grain of salt, and let's remember that he’s referring to such things as taking taxpayer money/debt for the bailout of institutions that should have been left to flail in the currents of the options available to them in law.

Are we to believe anything Bernanke, or his pal Tim, tell us? Nothing he did or said in the past was either rational, intelligent, or truthful. Alright, so it’s easy to beat up on him. Oh, but wait, he’s still in charge of The Fed. Along with Geithner, he remains in complete control of all things monetary in America. Why? Because neither the President nor Congress have either the knowledge or the backbone to question The Fed and its friends on Wall Street. They certainly don’t have the intellectual or emotional capacity to implement any serious change at the top of the money food chain where it is most needed.

It is unclear what has misfired in the President’s acumen when we hear yesterday from Bernanke that Obama wants to give The Fed new supervisory powers to oversee the financial system. Isn’t that just what you wanted to hear? The same Fed and Bernanke who have been so intuitive, diligent and ingenious over the past decade will be given more power? They don’t report to anyone now, if they’re not in the mood, so how will more influence be of advantage to the overburdened taxpayers, exactly? How about calling for the observance and application of existing laws, or implementing current oversight capabilities before expanding and swelling expensive government bureaucracies? How about appealing to Washington politicians for some demonstration that they understand why taxpayers have elected them? How about demanding a little transparency? Apply the controls available, without inventing new ones, and refrain from creating a Nation dependent on its government (through politicized cronyism) for financial success. Prosperity has no address on that road.


  1. This comment has been removed by a blog administrator.

  2. Dear James,

    I am having on going problems posting comments to your essays.

    This is, for example, the second time I write this note, and sometimes it goes up to 5 times to get a comment posted.

    The error message pops up as "Internet Explorer cannot open the internet site http://.........", whichever the toolbar address reference is.

    Followed by "Operation aborted" Click OK, then an internet explorer page pops up "Cannot display the webpage".

    This is happening regularly on selecting any of your postings as well, even without an attempt to post a comment, which makes the experience a little challenging notwithstanding the pleasure of reading it when any page is finally stable.

    Would be interested to know what the issue is. Email on fbalfour@hotmail.com if you need to discuss further.

    Best regards,


  3. This comment has been removed by the author.

  4. Its a good point that TARP started with Bush - but not only does Obama continue it - but he VOTED for it. TARP is one of the largest corporate welfare setups in the history of our country. Bailed out Wall Street firms are getting record bonuses, while the rest of us are told to "tighten our belts", watch as our jobs get cut, our 401K matching disappears, our salaries get frozen. And why? Not because WE were irresponsible. I'm very frugal. I grew up in blue-collar Detroit, where one saved for a rainy day and understood economic cycles. Where one had to learn to budget. Why can't Obama "budget". Instead, its we have to support the Fed, support the Treasury, issue debt, print money, inflate the currency, let the dollar fall, penalize savers - and the federal agencies don't have to budget anything. I really wish Mr. Obama had spent some time working in the real world, understanding what real workers, who have to budget, who DON'T want welfare, but want a job to make a living, support their families, and have a sense of pride - instead of getting government assurances that this trickle down will be good for all of us. I've never been so disappointed with a Democrat in all my life...


  5. Dave,

    Your point regarding wishing Obama had spent time, "working in the real world, ..... and have a sense of pride," is very powerful.

    He has demonstrated in everything he has done, that he does not understand middle America. It voted for him, and he is not what it expected. He should spend more time revisiting Thomas Jefferson.

  6. I think the reality is that everyone needs to read and learn the Declaration of Independence and the Constitution off by heart, regardless of creed, race or nationality. Not only that, it is worth studying why Thomas Jefferson and Thomas Paine et al decided to put that much effort into those documents and their vision in doing so, as well as the philosophers that influenced them, such as Rousseau, Bentham, Mills and others.

    At the end of the day, the details and semantics are of interest as they provide feedback from the systems that are rapidly failing us. But we should avoid getting trapped into a detail focus on regulatory tweaking and individual cases.

    The system is sick, has become extremely sick over the past two hundred years, but especially in the past 20 - 40 years.

    What is required is a refocus on vision, a holistic approach to treating the cancer in the patient. The cancer is there for all to see, but we need to understand the causes of the cancer, rather than treat the cancer directly. If we have no cognizance of the causes, the patient will relapse and the cancer will return, possibly more virulent than the last time, and then the patient will possibly die.

    In a similar way, I think we have ignored the hard learnt lessons and vision from our founding fathers, and it is time to relearn them. Hence my suggestion to refocus and read, not only these two key documents, but also any of their literature.

    That does not mean fanatic adherence to their thoughts. That is called dogma, and we know what happens to dogmatism, when the earth has moved from being flat to being round, and camels are no longer the only means of transport.

    But let them challenge each of us from beyond the grave. For they have a voice that should be heard.

    As regards our President, I understand that he writes a lot of his speeches by himself which is an extremely important fact, so we know that what he says is well meant and sincere. He did in fact read Thomas Jefferson and the others and makes great effort to relate his speeches back to them, as for example, in his speech in Cairo where he referred to Jefferson numerous times.

    I think he needs to learn that there are two distinct facets to his job, an inhumane one at that, and easy to criticize. The problem is that nowadays, in the absence of any other country and people having the ability, the President of the USA has become the de facto President of the world. So he has two hats, and ideally someone with equal calibre should assist him with the job. You wouldn't have this situation in the corporate world either.

    What President Obama has to understand, in the absence of such a second equally strong and committed individual, and I hope he will soon, is that cleaning up home is of much more priority at this point in time than the moral support to countries outside the USA.

    The world has got into a rut because of the bad policies of the USA which were unsustainable. An intelligent plan to kick start the US economy will equally pull the rest of the world out of trouble and create a platform to spread a valid and thoughtful message in the future under the second hat.

    At the moment, the piecemeal fixes and plainly wrong responses in the USA are not making the grade. Serious effort is required to call a spade a spade and deal with all the substandard behaviour on display, including the bonuses being touted by our friends at Goldman Sachs.

    Regardless of brilliant and moving speeches overseas, everyone can see through the troubled facade that is being created on the home front.

    The concept that "Noblesse Oblige" is as valid today as it was yesterday. Or put rather more bluntly, "talk the talk and walk the walk".