Should we start blaming ... Janet Yellen?

Sometime tomorrow, before the football games begin, at least some of the students in my classes will start thinking about the final papers and readings and assignments.  I hoped they thanked me for all that!  Hey, a man can wish for that, can't he? ;)

It also means that I have to prepare for the flood of assignments and papers and final exams.  Students never fail to point out that I can easily make lives easier for all of us, including me, if I didn't have all those readings and require all that work.  We ought to thank the stars for the humor that we have, which greases the otherwise ever present friction that threatens to stop us from moving forward.

But, of course, every once in a while even the best prepared will not turn in the work on time.  In the old, old days, the joke was that the dog ate the homework.  But, we live in a modern era.  So, the last few years, we blamed it all on ...

I wonder whether every morning the last few years Ben Bernanke woke up feeling awesome that he has the best job in the world.  If Bernanke didn't do his work, I wonder whom he blamed!

Soon, his turn will be over.  We will have to update ourselves and start blaming Janet Yellen for the homework that students don't complete.

Source

As long as I am not blamed ... ;)

Students' excuse for not doing homework? It is Bernanke's fault :)

ht

Ben Bernanke caused the Arab "cereal" revolutions?

Yes, our Federal Reserve's Bernanke.  No, he doesn't command over a military, and no he doesn't really print money.  So, what is the link you ask?

Step back for a second.  Back in October, I blogged about the aggressive approach that Uncle Ben was taking, and quoted Martin Wolf of the Financial Times, who explained how the global "economic" war was being fought:

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.

I liked his phrasing of "no limit to the dollars the Federal Reserve can create" for the powerful simplicity.  Inflation in the rest of the world--particularly in all those countries like India and China and the rest where economies were growing.  Inflation then would show up in various commodity prices, and food in particular.

And, boy, did food price inflation happen!  For instance, India's coalition government was all shook up when onion prices zoomed faster and higher than the rockets its space agency launched. More from Derek Thompson:

Dramatic inflation in corn, wheat and other agricultural products is feeding discontent throughout the Middle East, where families spend up to 40% of their income on food. When you glance at how the average Egyptian spends his money, you understand why food inflation can traumatize a country.

But what the heck does U.S. monetary policy have do with the price of wheat in Egypt? Remember that Bernanke's policy of "quantitative easing" aimed to stimulate the U.S. economy by printing trillions of dollars to encourage lending and spending. Easy money seems to have driven up equity prices (look at the stock market), but it might also have encouraged banks to plow their liquid cash into commodities -- like petroleum, copper, and wheat.

Of course, Bernanke doesn't think so.  He has been making the rounds defending his policies and offering  counterarguments to his critics.  I am thinking, hey, take a bow--you have done the world a huge favor by ridding a few dictators already, and it appears that quite a few more will follow suit.

Bravo, Ben Bernanke!  You did with paper what the mighty American military could not have ever achieved ...

We are now incompetent even in printing money?

One of the conversation topics in India was about the state of the US economy.  A friend who is an investment partner with a couple of ventures commented that the only reason the US was still going on was because of the ability to print money that is used all over the world.
Now, upon returning to the US, I scanned a few news and blog items I had missed thanks to the trip, and came across this gem (ht) that shows that we now aren't even good at printing money :)  Hilarious!

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Big Bank Theory
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog</a> The Daily Show on Facebook

I still place my bets on the US though.  The Euro area is in a worse crisis.  China's reality depends on the Communist Party, and who knows where that will be at the end of the decade.  India's growth rate is impressive, yes, but inflation is currently ahead of the growth rate.  To some extent, the inflation rate of food and shelter is making the poor and lower classes worse off by the day.  The stark contrast between the affluent middle and upper classes and the rest is horrendous.
If I were a young undergraduate student in India, there is a good chance I might have made the stupid decision to join the bomb-throwing Maoists.  While I don't support the violence and destruction carried out by the Maoists, the fundamental reasons why the Maoists are in it are real. Tragically real.

Quantitative Easing: an episode from the Twilight Zone?

This is simply hysterical; see if you can watch it without laughing louder than a hyena :) (ht)

Paul Krugman has drawn out all his weapons and calls the opposition to QE2 the "axis of depression"

Graph of the day: currency wars and competitiveness

Was it a month ago that I quoted Martin Wolf, who wrote in the Financial Times that:

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.

In the graph below, the impacts even before the latest US Fed/Bernanke strategy which has pretty much the entire world up in arms

Strong dollar?  Ha!

Why isn't uemployment a topic anymore?

In passing, I noted in an op-ed that policymakers do not seem to be worried about unemployment rates as much as they ought to be.  Daniel Gross wonders why the Fed chief, Bernanke, seem to have removed this from his considerations, and writes:

Could Bernanke go down in history as the Federal Reserve chairman who won the crisis but lost the recovery? If I were in Congress, in the White House, or at the Fed, and we were facing 9.7 percent unemployment, my hair would be on fire. In May, according to the Bureau of Labor Statistics, 6.8 million Americans had been out of work for more than a half a year, up 67 percent from May 2009. As this table shows, the long-term unemployed account for 46 percent of the total unemployed, up from 28 percent a year ago.

The NY Times has a discussion on what can be done about this.  I have to note a local connection here: one of the economists at the table there is Mark Thoma, who is an economics professor at the University of Oregon :)

Quote of the day: on the fiscal mess we are in

Robert Reich:

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999 they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking. By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.
At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives, when its director began to worry that derivative trading already was getting out of control.
Yet Greenspan continues to take no responsibility for what occurred. In the interview he just completed he avoiding saying anything about the failure of the Fed under his watch to adequately oversee the banks, and the absence of sufficient financial regulation to begin with.
I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry the nation is not on the right economic road, and that these individuals — one of whom advises the President directly and the others who continue to exert substantial influence among policy makers — still don’t get it.

Meanwhile, there is a talk that Summers is leaving the administration ...

Deflation just round the corner?

Krugman wants us to worry about it and even sarcastically adds a "san", a la Japanese, to Bernanke.

20 percent unemployment, but gas prices rise?

Two months ago, I blogged about the real unemployment rate at 15.6 percent. This is the overall rate of unemployment, also referred to as the U-6 measure. One of my favorite urban researchers/blogger, Richard Florida, writes that it is now at 16.4 percent.
(U-6 is total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.)

So, let us do some crude math. The national unemployment rate is at 9.4 percent, but the U-6 measure is at 16.4 percent.
In Oregon, unemployment is at 12 percent. Which means, it is not unreasonably to think of Oregon's U-6 measure to be at 20 percent. This is some Great Recession!

But, here is what I don't get: why are oil prices increasing this rapidly then? For crying out loud, it oil prices broke the $70 mark for the first time since the phenomenal plunge last year. The more I think about it, the more I am convinced that the jump in oil prices is not because of an anticipated fast global economic growth. Instead, it is because (a) investors are betting on it, as much as they bet on share prices, and (b) the dollar is losing value, and oil exporters always raise prices to factor in the loss in the greenback's worth.

On March 4th, I euro got 1.2555 dollars. The latest? 1 euro = 1.4177 dollars. That is 16 percent in three months. No wonder then that Geithner is on a mission to convince the Chinese that the dollar is ok. And Bernanke is worried about the deficits. Hey guys, talk up the dollar.

The world could have ended on September 18, 2008

Here is a calm explanation possible only on C-Span--far away from the shoutfest at the news channels.  There was an electronic run on the banks that day, and $550 billion was withdrawn from the money markets within two hours!  

It is a 6-minute clip--watch it with patience, and you will be stunned.    

Here is how the NY Times reported about the meeting that Paulson and Bernanke had with Congressional leaders:

It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.

Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.

“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”

Although Mr. Schumer, Mr. Dodd and other participants declined to repeat precisely what they were told by Mr. Bernanke and Mr. Paulson, they said the two men described the financial system as effectively bound in a knot that was being pulled tighter and tighter by the day.

“You have the credit lines in America, which are the lifeblood of the economy, frozen.” Mr. Schumer said. “That hasn’t happened before. It’s a brave new world. You are in uncharted territory, but the one thing you do know is you can’t leave them frozen or the economy will just head south at a rapid rate.”

As he spoke, Mr. Schumer swooped his hand, to make the gesture of a plummeting bird. “You know we’d be lucky ...” he said as his voice trailed off. “Well, I’ll leave it at that.”

As the folks at Motley Fool write:

Britain we know came within 3 hours of utter collapse, and now we see that the U.S. came just as close a month prior! Indeed, the entire world economy came within a day of systemic failure. It makes you wonder... how many hours do we stand from such a scenario at the moment? Further, what warnings can officials from the new administration utilize to influence Congressional votes that could possibly trump those warnings of Paulson and Bernanke on that Thursday evening back in September? These are fascinating and perilous times, and I urge all Fools to keep watching intently. Our modern financial system is gravely ill, and may never recover... 

The C-Span link thanks to Andrew Sullivan for the link to Zero Hedge.  

An economic martial law in the US?

George W. Bush and Dick Cheney have not, as far as anyone can tell, been steering the ship. According to The Wall Street Journal, Bush was briefed on the rescue after it was in play. And even then, he was only "briefed." There's been no effort on the part of the White House to even advance the idea that Bush is an engaged participant who's actively signing off on these actions, possibly because suggesting his involvement in a crisis of this complexity would cause the stock market to run and hide in a corner.
Congress, too, has been cut totally out of the loop. The AIG bailout -- in fact, all of the bailouts -- have been conceived entirely without their involvement. Indeed, the Federal Reserve and the Treasury Department have been acting, over the course of this crisis, as if they are the sum total of the government. And that may be the correct approach: Neither the president nor the legislative branch possess the expertise or speed to be involved in the real-time crisis management that Bernanke and Paulson are trying to manage. They could, presumably, reverse decisions after the fact or change the contours of the law, but for now, the ship is being steered by the Chairman of the Federal Reserve, the Treasury Secretary, and an informal working group of Wall Street CEOs and banking powerhouses. And the government, as we normally think of it, has basically accepted their temporary authority. You've heard of martial law? We're currently in a state of market law.

That was EzraKlein Archive The American Prospect via Brad DeLong.

I am not at all ok with the idea that we are under some kind of an economic martial law. Paulson and Bernanke are the economic martial law administrators? There is something in this analysis that bothers me, but I can't quite figure out what exactly that is. Anyway, DeLong responds to that with the following comment:

This is how things have been since 1979--when Carter appointed Volcker to head the Fed, Volcker decided he was going to stop inflation no matter what the cost and would dare anyone else to try to block him, and congress and the president decided that challenging the Fed meant taking responsibility for inflation and thus blame if anything went wrong. Congress and the president occasionally show up to pass tax cuts--and twice, in 1990 and 1993, to take action to try to balance the budget. But otherwise the technocrats at the Fed and the Treasury run things.
This is the Age of Central Bankers.

Certainly not the Age of Aquarius!
But, aren't we granting too much of "war powers", so to say, to Paulson and Bernanke? Of course, they will not misuse it unlike the president who misused the war powers that Congress gave. But, are we putting too much of faith in Paulson, Bernanke, et al? Very troubling. Somehow this does not resonate well with how democractic societies are supposed to respond.
BTW, if we think that Paulson and Bernanke can steer the ship, how come the same people then distrust any form of "management" of the economy? The bottom line seems to be that government should let businesses rake in all the profits--legal and illegal--and not do anything about it. But, the same government ought to steer the economic ship when those same businesses run into icebergs. Aaaaaah!!!

Jon Stewart explains the economic crisis

I think it is one of the best ever. If only the satire weren't true :-(

The wisdom (ha ha) of Greenspan

I guess the only credit he deserves is for cautioning against "irrational exuberance." That was during the go-go-internet years of the mid-1990s--they already seem like a few hundred years ago! If only he had smarts to think about the horrible ways in which mortgage and investment bankers were inflating assests and egos; on the contrary, he was an ardent supporter of sub-prime mortgages.
Over to Bill Fleckenstein: Alan Greenspan was recommending adjustable-rate mortgages in February 2004 -- just as short-term rates were making their lows. Then, in a speech on April 8, 2005, he extolled subprime lending:
"With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. . . . This fact underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

His term ended, and Ben Bernanke took over. Bernanke was famous for his "savings glut" thesis--"the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today."

Even as Bernanke was touted as a potential replacement for Greenspan, this is what Daniel Gross wrote:
The savings-glut meme changes the terms of the conversation about global imbalances. It's not our fault that we rely on foreigners to fund our desire to spend in excess of our resources. Au contraire. Our extreme consumption and failure to save become something of a virtue. Somebody has to keep the world's factories humming and absorb all the products made in Japan, China, and elsewhere. And until the rest of the world becomes More Like Us in its consuming habits, the imbalances are likely to persist.
The savings glut may be an accurate and subtle take on the world's economic imbalances. But less subtly, it minimizes the impact of the potentially destructive monetary and fiscal policies pursued by the U.S. over the last five years. It also lays the responsibility for change squarely on the backs of foreigners and makes a virtue out of what appear to be our own failings. No wonder Bernanke is so popular at the White House.

And, ironically enough, it is Bernanke trying to manage a liquidity and credit crisis. So quickly we burnt up all those savings, eh? Well, as Bernanke, Paulson, and the Congress pour billions more down this sinkhole, let us turn to The Onion for the best report of all:
"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."