Bernanke Defends the Fed’s Independence
This mornings must read work is an article in the Sunday Washington Post by none other than Ben Bernanke, titled The right reform for the Fed.
It is a rational pushback against the like of Ron Paul and Chris Dodd’s programs to either hamstring or completely get rid of the Federal Reserve.
As I have previously noted, being the only country with out a Central Bank would be like unilateral nuclear disarmament. Its a nice theory, but you will eventually be destroyed by your enemies.
Here’s helicopter Ben:
“These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.
The proposed measures are at least in part the product of public anger over the financial crisis and the government’s response, particularly the rescues of some individual financial firms. The government’s actions to avoid financial collapse last fall — as distasteful and unfair as some undoubtedly were — were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity, with profound consequences for our economy and society. (I know something about this, having spent my career prior to public service studying these issues.) My colleagues at the Federal Reserve and I were determined not to allow that to happen.”
The key line in Bernankes impassioned (or is that dispassionate?) defense is simply this: Independent does not mean unaccountable.
If he can sell that to the public, the White House and just a few Congress critters, he will avoid seeing the Central Bank neutered . . .
>
Source:
The right reform for the Fed
Ben Bernanke
Washington Post, Sunday, November 29, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/27/AR2009112702322.html
November 28th, 2009 at 9:27 am
[...] Bernanke defending the Fed and its independence. (BigPicture) [...]
November 28th, 2009 at 9:41 am
“As I have previously noted, being the only country with out a Central Bank would be like unilateral disarmament.Its a nice theory, but you will eventually be destroyed by your enemies.”-BR, above
BR,
That Conclusion, above, sounds intelligible, but, pray tell, what are your Premises?
or, differently, how would ‘other’ Countries gain a competitive advantage by having a CB?
past that, what about this: “These measures are very much out of step with the global consensus on the appropriate role of central banks..” isn’t a Logical Fallacy?
or, this: “…(I know something about this, having spent my career prior to public service studying these issues.) ..” in a similiar vein..
Also Known as: Fallacious Appeal to Authority, Misuse of Authority, Irrelevant Authority, Questionable Authority, Inappropriate Authority, Ad Verecundiam
and, to make it easier to commit
simply, YGTBFKM~
~~~
BR: In Bailout Nation, the first few chapters looks at how the Fed came into existence, and what happened in other countries.
The flow of capital following the San Francisco earthquake in 1906 and the panic in 1907 was the example.
In short, there was an enormous advantage between the countries with a Central Bank versus those without . . .
November 28th, 2009 at 9:48 am
If the money power was returned to the Constitutional government, the Treasury would become the central bank; run by the executive, policed by the courts, funded by congress.
This is not “unilateral disarmament”; this is self defense of the people against the aristocracy.
~~~
BR: Congress? THATSyour BEST argument?
I blame the Fed (mostly Greenspan) for alot of what happened, but the idiots in Congress are even worse . . .
November 28th, 2009 at 9:49 am
Ben is trying his best putting on a positive spin about his Fed, but there is no trust in the Fed. However, there is no alternative to the fed at the moment. Until you admit to all your failures, not just your successes and put all the cards on the table there can be no trust. The fed has yet to prove that it can regulate.
November 28th, 2009 at 9:49 am
Ahhhhhhhh, an article that says nothing, other than please don’t…………….
Basically you promise to regulate better when you have failed numerous times. If you were any regular employee you would have been fired a long time ago. Still under THE INSANITY CATEGORY, imho
If you were honest you wouldn’t care. You say you are audited, you say you freely publish information…which I agree with that one for the most part……then why should you care at all, even one iota…..no soup for you
November 28th, 2009 at 9:51 am
I would say to Prof Bernanke, Welcome to politics.
Had you (and Paulson and Geithner and Summers) advocated more for Main Street, and for holding Wall Street accountable for its serial failures, you might not now be so worried about the cold winds of popular outrage that are starting to sweep through DC.
Who knew the riff-raff might eventually run out of patience?
November 28th, 2009 at 9:56 am
“These measures are very much out of step with the global consensus on the appropriate role of central banks”
Isn’t this global consensus exactly what got us into this mess?
When Bernancke mentions the Fed’s role in trying to prevent us falling off the cliff without any mention of who got us to the edge of the cliff, then I am sceptical.
The fact that we are even having this discussion, rather than a discussion about what to replace the current system with, shows the overwhelming nature of the power of the financial sector.
November 28th, 2009 at 10:02 am
“The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.”
I note that although claiming substantial credit for averting disaster, Mr. Bernanke makes no mention of the Fed’s role in the creation of the circumstances that allowed the problem in the first place.
“I know something about this, having spent my career prior to public service studying these issues.”
And this is nothing but thinly-veiled arrogance.
November 28th, 2009 at 10:10 am
Look at what the Fed presided over…
http://www.urbandigs.com/2008/08/peak_credit_what_that_may_mean.html
If they don’t figure out how to reverse it, the point will be moot…there will be nothing left of us to audit. Ben…answer the two questions posed in this piece…
“The use of debt in the 1930s was a direct response to the Great Depression! We used debt to get us out of the depression. Recently, we used debt for an entirely different reason: TO SUSTAIN ECONOMIC GROWTH! My two questions are, who are we going to borrow from this time to get out of this mess + how are we going to service our current levels of debt?”
November 28th, 2009 at 10:14 am
I have a limited knowledge of the Federal Reserve Bank System. What I do know is from crack pot videos and other fringe viral media. Hey, where else can one get information on the Fed that isn’t Fed propaganda? Really, everything with the Fed is so hush hush…
Having said that, IMO the Fed just seems dirty and crooked.
It was conceived at a meeting of eight bankers and one U.S. Senator (from a large banking family) on Jekyll Island, Georgia in 1910. These gentlemen represented near to 1/4 of the worlds wealth. They wanted to create a cartel to protect their interests. They finally succeeded in 1913 in Congress and the large banks have been advantaged ever sense. They have succeeded in destroying the value of the U.S. dollar by deliberately causing inflation by expanding the money supply at the request of the Treasury. The Treasury simply asks the Fed for money and magically, poof it springs into existence by the very fact that the Fed ‘writes the check’ to the Treasury. Much easier then Congress going to the public for the money by raising taxes or by cutting programs/expenses. In the end, the public is taxed by the erosion of their wealth.
Why is there so much secrecy surrounding the Fed? Why can’t they be audited. It is not a government department and yet it has all the advantages the government has to offer. It’s not a private enterprise so it is not regulated as such. Huh, it is not a private company nor a government department. What the heck is it? I don’t trust them. Bernanke is a liar.
I don’t like them and I have no problem with the idea of dismantling the system.
November 28th, 2009 at 10:30 am
Sorry BR but I’m not buyin’ it. Prior to the creation of the Fed the value of the Dollar fluctuated widely but over the long term was relatively stable. Since the creation of the Fed, it has lost over 95% of its value. Could any realistic alternative be worse?
~~~
BR: Since the creation of the Fed, the creation of the Automobile, and Federal income tax, and Federal deficits.
Why are you so sure its the Fed that is totally to blame?
November 28th, 2009 at 10:32 am
I liken the fed to the Iraq war.
Fed supporters believe that Fed is needed but it needs to do a better job. Just like Iraq war supporters believed that the war was needed but we didn’t plan or execute well.
The problem with Iraq war wasn’t the mismanagement of war, it was immoral, wrong and stupid and should have never happened. So is fed.
November 28th, 2009 at 10:33 am
I don’t see Bernanke’s statement as much of a ‘defense’. Saying something is ‘out of step’ is neither criticism nor praise and his general allusion to the boogyman outside the door, with the Fed as our defender, is particularly dumb, given that the Fed itself may have been the boogyman.
November 28th, 2009 at 10:38 am
I forgot, this from the group of men who allowed banks to lever up 40-1 in aug of 2004, no soup, no crackers, get out of my store, you and only you.
BR: That was the SEC, not the FED
November 28th, 2009 at 10:41 am
“Independent does not mean unaccountable”.
Yes. The Fed should have some leeway to make judgements; but once those judgements have been made, they should be explained fully.
November 28th, 2009 at 10:50 am
this will be like the Goldman bonus thread, all rage against the Fed.
OT, yesterday’s debate about credit/money/black swans was so enjoyable. it was like the cultural wars, everyone stuck to his gun, and talked pass everyone else. this is how money was created http://bit.ly/7bjYbJ live http://bit.ly/8QGPTj
November 28th, 2009 at 10:54 am
Mark Pittman of Bloomberg has passed away. Guy behind FOIA court case. Do wonders never cease?
November 28th, 2009 at 11:33 am
“The Fed played a major part in arresting the crisis . . .”
___________
The crisis may have been arrested, but it’s only temporary, and will cost us dearly in the long run. Those doing the “arresting” were the same ones who were engaged in the crime spree in the first place. If Bernanke thinks the “arrest” of the crisis has made a big difference in the ultimate outcome of our financial system, he should have no problem showing the evidence that led to the “arrest” (an audit is in order), and how maintaining the status quo will lead to a more stable, fair (his word) and equitable economic situation for the common citizens of the US, moving forward.
We should revisit his comments one year from now. In the meantime, we should be building stocks and gibbets on the National Mall (immediately in front of the Fed).
November 28th, 2009 at 11:40 am
you kill me BR- milktoast justification for the Fed- well if everyone else has one . . .
let’s see now- over the past decade- moving from one crisis to another with the same responses which fosters the next crisis . . . but now w/ the added dimension of QE . . .does not instill confidence in a country’s economy-
as the old saying goes . . .what have they done for us lately?
i will also add that they are part of the problem and not the solution- eliminate and eradicate that which does no good . . .
but keep on w/ the same ol’ moderation theme BR- seems to be your mantra lately
~~~
BR: Your reading comprehension blows. I have hardly been calling for moderation — RTFB please!
November 28th, 2009 at 11:42 am
BB putting Capitalism 2.0 to work
Capitalism 2.0 ( gangster, crony, your adjective here ) is a universal law among elites that they will pass on their problems ( i.e. excessive greed, debt obligations and so on ) to an available middle class, not necessarily on a contiguous land.
case in point: Too bad Dubai does not have a viable middle class to pass its debt to like the elites do here http://www.usdebtclock.org/
November 28th, 2009 at 11:53 am
russian train bombings, u can’t tell me georgia didn’t do itm, or some p’offed georgians, what you sow you reap
November 28th, 2009 at 11:57 am
An audit compromises no integrity or independence. For the Fed to pretend otherwise makes me and others highly suspicious they are hiding something.
November 28th, 2009 at 12:04 pm
Man – no need to read the article. Just look at the comments. It is refreshing to see how many people are just pisssssssssed
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/27/AR2009112702322_Comments.html
November 28th, 2009 at 12:07 pm
May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”
June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”
November 29, 2009 Rutters – ” Trust me. I know what I’m doing.” – Ben Bernanke
November 28th, 2009 at 12:19 pm
Even a referee in the NFL has a rulebook to follow. You can be independent with oversight.
November 28th, 2009 at 12:21 pm
I for one am looking forward to the audit. I’m just curious as to how far back this audit is going to go. It appears to me that whenever Congress mandates looking into anything they restrict the inquiry to a date range or a select cast of characters or events that always leaves out the key dates, key players, or key events depending on the nature of the inquiry.
I want to know where those Billions went that were doled out by the Fed before TARP. In fact while having hearings on TARP the Fed was spending like an 18 year old with their first credit card on Black Friday.
November 28th, 2009 at 12:26 pm
Steve Barry,
With all due respect, given your peak credit hypothesis — why do you suppose that treasury yields remain so low? It seems that public debt is still easily financed.
November 28th, 2009 at 12:33 pm
And now for something completely different:
HAPPY BIRTHDAY JON STEWART!
November 28th, 2009 at 12:38 pm
I have to think that if the dollar were once again ‘as sound as a dollar’ it’s reserve status would be as desired as gold is now. And that triggers another thought. With no central bank rigging the price would not the dollar trade more like gold (when that is not being rigged [as much] by the money people, of course).
That second argument may sound crazy but it is really not when you think about it
November 28th, 2009 at 12:43 pm
Long time Fed watcher at Economist’s View Tim Duy wrote this last week. The entire article is worth a read. He calls a spade a spade, instead of joining the academic chorus around Bernanke. He used to be a Fed supporter.
http://economistsview.typepad.com/economistsview/2009/11/fed-watch-the-fed-in-a-corner.html
to quote a few key bites..
.
……To be sure, there were plenty of other regulatory failures along the way, but the Fed – an independent Fed – should have been in a much better position to raise regulatory and supervisory roadblocks during the debt build-up compared to other, more politically susceptible agencies. The Fed’s independence should have allowed it to be a leader, not a follower. Ideological objections to regulation, apparently, prevented the Fed from looking for problems in their own backyard. ….
.. the Fed stepped too deep into the realm of fiscal policy in an effort to keep the trains running on time. But that mission creep was simply incompatible with the Fed’s desire for secrecy. This was all to predictable: Like it or not, you cannot commit literally billions of dollars of taxpayer money and in the process secretly funnel money through AIG to the investment banking community without expecting just a little blowback. The last I checked, this was still a democracy. …..
When did the purpose of finance evolve into simply a mechanism to enrich the relative few at the expense of many? And when did policymakers embrace this view?…
The second is the unquestioned assumption that is stated by Bernanke in the said article
“…The government’s actions to avoid financial collapse last fall — as distasteful and unfair as some undoubtedly were — were unfortunately necessary to prevent a global economic catastrophe ….”
There is this cockamamie world where it was either those _particular_ actions or _no_ actions. This is bullshit. Better actions could have been taken. For eg: It was not just “bailout AIG fully or not”? It could very have been “bailout creditors with 20% haircut or 10% haircut?”. The strawman choice that it was 100% bailout or no bailout at all is fraudulent. This article by Bernanke should be entirely discounted because he perpetuates that fraud.
Third, the Fed is still trying to regulate TBTF. A honest Fed would at this point be saying – noting can get to be TBTF, so anything TBTF is too big to exist, and must be broken up. This is the correct policy response for the Fed’s past mistake. Everything else is a continuation of the status quo.
And finally, that word in that Duy post -”democracy”. In the end, the people rule. Congress is the will of the people. There is no “divine right of economists” or “divine right of experts” any more than there is “divine right of kings”. However educated, technically and scientifically “correct” the policy is, it has to be for the benefit of the people.
The Fed took independence to mean only “independent” of the people. (yeah, lunatics, Congress, unwashed, riff raff). It was OK for the Fed to be entirely captured by the bankers as long as they were independent of the dirty masses.
There is only one reason we are all discussing Fed independence today. Only one reason. The Fed acted as if independence meant it was independent from the people to serve the bankers.
P.S. I am a long time reader of BP, CR, Econ View, naked cap, NR, JD Hamilton.. more or less from when they started. But on this, I felt that I should open an account just to write this comment. I want my views also to be heard and it is being heard in Congress. That is what is coming out of Congress, not just teabag nuttery or populism, but the legitimate concerns of people like me (and Duy). It is time the Fed served the people. Silent people like me, who never even comment, are going to vote on this next time.
November 28th, 2009 at 12:57 pm
@CTB:
“With all due respect, given your peak credit hypothesis — why do you suppose that treasury yields remain so low? It seems that public debt is still easily financed.”
Could be many reasons. First, the Fed is monetizing the debt by buying treasuries. Second, economic activity is moribund, leading to few other alternatives for risk-adjusted return. Third, it is a flight to safety. Fourth, peak credit is even more apparent in private and financial credit…government credit as a percent of GDP is not at record levels I don’t think (though deficits may be). Fifth, China needs to do something with their reserves which grow everyday with the trade imbalance.
You are correct to think yields have to rise and may do so violently. What will eventually cause this, nobody knows…it is a complex system. Probably will be something few are thinking about at the time.
In the near term, I am avoiding gold…you have record levels of speculation combined with a 34% drop y/y in demand. Gold would be a great way to back currency, but in a deflationary spiral, currency will be contracting.
November 28th, 2009 at 1:07 pm
I was right that Gov’t debt to GDP is not at a record, but aside from the spike in WWII, it is pretty darn a record.
http://www.usgovernmentspending.com/federal_debt_chart.html
The only saving grace is that other countries are worse…look at Japan.
http://investing.curiouscatblog.net/2009/03/30/government-debt-as-a-percentage-of-gdp/
November 28th, 2009 at 1:11 pm
I feel it is altogether fitting and proper on this solemn occasion to point out The Best Fed-related Song of 2009 (well, OK, it was done in 2008). Warning — if you actually listen to this, you’ll be humming it for about a month.
November 28th, 2009 at 1:50 pm
Tim Geithner in Congressional testimony said he was not a regulator as head of the NY Fed, and did not view his responsibilities to include regulatory oversight of the Wall Street banks. But Bernanke is claiming that the Fed does have regulatory responsibility. Disconnect…..disconnect….
November 28th, 2009 at 1:57 pm
Ok, I think I get it. As long as the Fed arrests the crisis that they have created then we should leave them alone. Nice! I wish I had gone to Princeton.
November 28th, 2009 at 2:04 pm
that’s great that he noted how the fed helped cushion the crash of the bubble. where’s the part where he admits the fed helped make it?
November 28th, 2009 at 2:11 pm
Note that I hold Alan Greenspan and the Fed to blame for a lot of what went wrong –but there is http://www.ritholtz.com/blog/2009/06/who-is-to-blame-1-25/” rel=”nofollow”>plenty of blame to spread around:
In Bailout Nation (Chapter 19), my list went something like this:
1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
10. Congress
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18. President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk
November 28th, 2009 at 2:26 pm
Maybe it’s just me, yet, I’ve always solved things by doing what’s important first, and then going down the list………..thusly
We should go about by
1. the fed
2. ratings agencies
3. sec
4. mortgage originators and lending banks
5. congress
6. wall street
7. mortgage brokers
8. appraisers
9. cdo’s, sivs, derivatives
let’s see, what we got, hmmmmm, all the ones left standing had a hand it all the crap
just me, but it would seem, you get the fed, get the sec too get some balls, etc.
oh, crap, i forgot the whole ben plan is too keep home prices up, to get real estate taxes for broke states…………..and the beat goes on de dah de dah de dah du
i still say, you do tarp in a week, 13 months later, not one friggin law, pretty disgusting
November 28th, 2009 at 2:26 pm
Yeah… the Fed may have gotten us out of this mess, but they got us into it. After two bubbles/crashes in ten years they’ve proven they’re definitely not immune to political pressure either. It’s time to try something different. Bernanke can save it.
November 28th, 2009 at 2:31 pm
B.R. @ 2:11
I’d like to add one more:
34. All of the people who vote for politicians that promise a “free lunch”, or “painless prosperity”.
November 28th, 2009 at 2:34 pm
torrie-amos @ 2:26
“…you do TARP in a week, 13 months later, not one [new] friggin’ law, pretty disgusting”.
Yeah, that says a lot about where we were, and where we’re going.
November 28th, 2009 at 2:45 pm
So the USA has recently had a criminal who has committed the simplest of fraud – selling bad paper – as head of Treasury. It is clearly fraud to knowingly misrepresent the risk of securities that you sell. But yet Paulson nor any of his criminal gang are going to jail. Even though the size of the fraud has resulted in a depression.
We now have a tax cheat as head of Treasury who was complicit in the fraud, and worse, is the architect of transferring taxpayer wealth to the criminals who committed the fraud.
The US financial system = fraud.
November 28th, 2009 at 3:10 pm
as a former mortgage originator, i blame the other mortgage originators, irrational exuberance, the Internet boom and bust, the ownership society. East Anglia emails, Obama, the CRA and Barney Franks, CNBC, Cramer
what about NAR and homebuilders, do they skate the blamestorming?
hishamsh, read any comments at WaPo or NYT, (or any blog) they’re pissed about any and everything.
der fuhrer is pissed http://bit.ly/5pyGc0
November 28th, 2009 at 3:20 pm
Utter and absolute moron!
November 28th, 2009 at 3:28 pm
BR, there seems to be quite a bit of mystery about the Fed. Maybe you could do a few posts on the details? For example: Who owns it, exactly; how the governors are selected; its rights to create money and the mechanisms used; and what actions it has taken over the past 15 months.
Personally, I am insulted that Bernanke would think me so dumb that I would buy his logic that the Fed would be able to objectively manage and regulate its own shareholders rather than the other way around. Or that such regulation would be in the best interests of the public rather than those shareholders. Or that the Fed’s future performance would differ from its past performance.
Bernanke’s consistent drumbeat on his theme makes clear that he does think I am that dumb, and that we all are. The remedy for that, BR, is to give the public some education.
November 28th, 2009 at 3:34 pm
Yes Mr. Bernanke people are angry and we would be a lot more angry if we knew how the Feds are spending our money.
I hope Bernanke is right in that if the bailout had never taken place we would have had the second great depression. What we call this situation is the “worst recession since the great depression”. That is kind of funny that we would say that, “the worst recession since the great depression”. Now I know there is nothing funny about the situation that we are in but the Feds need to be accountable.
My gut tells me that this isn’t 1929 and a student of the great depression might be a little off. My gut tells me that the economy just isn’t strong enough to maintain the standard of living that we are use to. That the economy will not be able grow because have too much money sitting on the sidelines and nowhere to invest it. My gut tells me that the TALF dollars will be devalued. My guts says how can the TALF funds to anything but decline in value since the purpose is to move troubled money from one agency to another.
November 28th, 2009 at 3:46 pm
BR . . . have you considered that when you have a list of 33- the blame gets so spread around that everyone can point a finger- you know- we all fucked up- but no-one’s to blame-
i don’t buy it- the Fed has done what it wanted- in secret and unaccountable- they are the catalyst for reckless speculation- dot com, housing, oil, commodities, equities, etc, etc, etc-
that the congress has to legislate the ability to audit the Fed should speak volumes- why so much power beyond the reach of the people?
and to your argument that everyone else has a central bank . . I say-
who cares-
what have they done for us lately?
Cranker- good post
November 28th, 2009 at 4:09 pm
@MarcP — Federal Reserve Wiki Page
November 28th, 2009 at 4:18 pm
So you are making arguments in your blog without giving us your reasoning except to say “read my book.” You have to be kidding me.
November 28th, 2009 at 4:20 pm
I worked in a Big 4 Accounting Firm. We audited the books of many large entities. I can’t recall once that we ever compromised the independence of the corporation we audited.
We found what amounted to fraudulence in several of these companies, prepared a slate of internal controls to go along with our opinions, usually rendered on a going concern basis.
The entities’ Treasurers, Controllers, or audit managers rarely welcomed us into their companies. But the laws of the SEC said we had to do it to protect shareholder interests. I can state for a fact that our audits never resulted in the dismantling of a company. And our recommendations were rarely implemented. Too many times the Treasurers said, “we’ll just go ahead and book budget”.
Even if the FED is audited I expect little change.
Ol’ Hickory managed, thru a populist obsession to get rid of the Second Bank of the United States, THE funding source for Government. He pissed off Biddle and all his richer than midas cronies who, like Bernanke and his Men Behind the Curtain (MBTC) were dead set against being tossed out on their asses. It was supposed to be a huge victory for the people but in the succeeding Martin van Buren adminstration it turned out to be nothing but an empty, pyhrric one. The economy headed then to the Panic of 1837, a monstrous debacle akin to what we now are going thru (and going to see a hell of lot worse of).
The audit, should it ever come to pass, a highly doubtful proposition at best, will do nothing but tell us where some bodies are buried and will not result in the abolishment of the FED.
Those, like Biddle, at the top of Second Bank, who now control the money will never allow it to happen again, and if miraculously forced to give up control will find yet another way to tank the economy.
November 28th, 2009 at 4:26 pm
100 Years of Collective and Disastrous Ignorance of the Principles Saturation Macroeconomics
Two depressions of unprecedented magnitude (the second in its early stages) and still the central bankers, academic economists, and politicians fail to understand the consequences of artificially manipulating interest rates ‘to maintain price stability and full employment.’ Adam Smith’s lever of supply and demand has been bent back and forth so many times by central bank interest rate manipulation and lending parameter policies that the real operating economy is now broken. Now the fractured lever end has been reached where US unprecedented Central Bank ex nihilo monetization is necessary to maintain payrolls.
Savers must be rewarded for saving. Prices must have correlation to wages. Wages must be appropriate in a global market. Policies must be directed toward useful societal goals. Manipulation of credit derivatives to create money must be watched, regulated, policed, and taxed. Entitlements must be appropriate and based on real actuary principles.
Central Bankers will be unsuccessful in nullifying the natural laws of saturation macroeconomics. Perhaps their replacements will acquire an understanding of how the economy works.
http://www.economicfractalist.com/
http://theeconomicfractalist.blogspot.com/2009/05/july-2005-nonstochastic-saturation.html
November 28th, 2009 at 4:38 pm
BR says: Congress? THATSyour BEST argument?
I blame the Fed (mostly Greenspan) for alot of what happened, but the idiots in Congress are even worse . . .
______________
At least we can vote Congress out. The Fed is immune to control by the government/people. That is precisely why we are where we are (of course, the government — Congress and the Executive, with support from the Courts — allowed the Fed in the first place), and that is precisely why they resist any superior authority.
November 28th, 2009 at 4:55 pm
BR,
that’s a very interesting set of circumstances, no doubt..as: “The Panic of 1907 is an important episode in American financial history because it led, in part, to the creation of the Federal Reserve. Although much has been written about the crisis, little has been said about its underlying causes. This study identifies the San Francisco earthquake and its subsequent conflagration as the proximate cause of the panic. London fire-houses insured San Francisco during this period. The payment of claims by British insurance companies following the quake and fire produced a large capital outflow in the fall of 1906, forcing the Bank of England to nearly double interest rates and discriminate against US trade bills. These actions pushed the US into a recession and made markets vulnerable to shocks that otherwise would have been transitory in nature. World financial markets crashed in October 1907 with the collapse of the Knickerbocker Trust Company in New York…”
http://ideas.repec.org/p/clm/clmeco/2001-07.html
Kerry Odell (Scripps College)
Marc D. Weidenmier (Claremont McKenna College)
get into, with footnotes
though, really, if we bother to think about, isn’t the 1906-07 ‘financial cataclysm’ much akin to the one, 2007-008, we, just, experienced? namely, if we were not for Undercapitalized Financial Institutions, in the first place, We wouldn’t have seen such a mess?
but, we get the same excuse trotted out–if we only had a ‘lender of last resort’–this wouldn’t have happened…
forget ‘Eternal Vigilance’, if we’d, only, care to crack one eye open, this scene should causing some serious Flashbacks
though, more importantly, We should make sure that we’re weaving all of the threads together..
as this ‘comment’, from the WaPo site, makes clear: ” paulinlodi wrote:
The Fed is needed — and was created for the specific purpose — to fund the United States’ wars. No Fed, no money for war. No war, no war profiteers. No war profiteers, no Big Government to herd the sheeple and keep them in a constant state of fear and helplessness. Audit the Fed now, and the wars come to an end, with the entire American economy, since the only thing keeping the economy humming along, sputtering along, is armaments.”
while the specific accusation, “The FedRes was created to fund the US War Machine”, need not be wholly accurate, the, general, observation: “The FedRes and the USGovt are a Duopoly, wholly divorced from any, necessary, public funding” is, indeed, sadly, accurate.
We have, in that Combine, created the means of our own Destruction–Physical, meta-, and otherwise–herd the sheeple and keep them in a constant state of fear and helplessness.
You like to make fun of the blithering ‘Idiots’ in Congress, you may do well by casting an eye upon those who Fund the majority of their Campaign costs..
While the FedRes is extant, creating the, false, dichotomy between them, and Congress, is, really, as useful as the other, infamous, Hobson’s Choice of (D) or (R)..
November 28th, 2009 at 5:06 pm
Everyone is to blame and no one admits fault.
Bottom line – who benefits?
Banks, Bankers, brokers, dealers, hedge funds, mutual funds, financial advisers, CNBC, etcetera — > 1
Joe Six Pack — > 0
Round Two: coming up next
November 28th, 2009 at 5:15 pm
being the only country with out a Central Bank would be like unilateral nuclear disarmament
That’s what Zimbabwe said.
November 28th, 2009 at 6:13 pm
I am 100% behind an independent Fed – to start you should turn in your counterfeit-dollar-making machine and get a real job! Wait….there are no jobs….Anyway, my cousin Louise has a nice 1-bedroom above her garage you could get on the cheap until a new job shows up…
November 28th, 2009 at 6:15 pm
When I look at BR’s blame list, I feel that the Fed, its chairmen and all its roles should have unified blame, not broken into separate blames…then if I weight blame by who had the power to correct the situation, and who had longevity over the whole beginning right up to now…the blame is so much on the Fed that anything else is a distant 2nd.
November 28th, 2009 at 6:24 pm
“but you will eventually be destroyed by your enemies.”
Isn’t that slowly happening now with all the debt we’re allowing them to sop up? And HOW would our enemies destroy us? If the FED is not audited for the sake of maintaining its “independence”, the USD takes a serious hit…
November 28th, 2009 at 6:30 pm
The NY Fed directed the AIG bailout.
We don’t abdicate constitutional power in perpetuity but that’s exactly what we did with the Fed.
Creating the Fed was a way of enacting neo-Hamiltonian thinking in the early 20th century. It’s continued existence has made the US more rigidly capitalistic in the Hamilton model when that’s one of those social mood cycles that swings over time and should be reflected in policy. The Fed is now a religious symbol instead of a tool. That kind of institutional rigidity is a big problem in representative democracy.
It’s alleged “independence” is a complete joke. It’s as idealogical an institution as idealogical gets. Idiots rode EMH into the ground. Not to mention completely beholden and comprised of Hamilton’s beloved banks.
Hamilton was a great man in many ways but there were reasons why he had mortal enemies. Supreme arrogance was one reason.
November 28th, 2009 at 6:52 pm
Steve Barry: “You are correct to think yields have to rise and may do so violently. What will eventually cause this, nobody knows…it is a complex system.”
So you say that you know for a fact that yields will rise, but that nobody knows why that would happen.
OK. That. Makes. Sense.
November 28th, 2009 at 7:06 pm
@Scepticus:
I’ll clarify my statement, ok…yields are at very historically low levels and will rise over the coming years. I cited 5 potential reasons why yields are so low, even in the face of record high issuance. If any one or more of those reasons reverses suddenly, yields could rise violently. Neither I nor anyone else knows what will be the exact catalyst for this event or when exactly it will happen. That is the nature of manipulated (some might say bubble) markets. It could be an unforseen catalyst.
November 28th, 2009 at 7:17 pm
steve, there is no reason to expect yields to rise in coming years.
you say if any of these trends reverse, then yields would rise. I agree with that.
yet I cannot see any reason for those trends to reverse.
yields have been falling on average since the 1950s.
what could possibly reverse those trends?
November 28th, 2009 at 7:22 pm
“yields have been falling on average since the 1950s.
what could possibly reverse those trends?”
Sarah Palin in the White House.
November 28th, 2009 at 7:30 pm
you can’t raise short term interest rates when demand for credit is lower than the existing money supply unless the increased demand for cash that would result from this action is made good by literally printing paper cash to facilitate depositors withdrawl from the banking system, because paper cash in circulation is only a few percentage points of the broad money supply.
while demand for credit is lower than existing money supply banks asset positions will decline relative to their deposit and bond liabilities which increases their leverage and will eventually bust them.
therefore unless an escape route is provided to bank deposit customers yields can’t rise, and if further deflationary impetus is not absorbed by increased public borrowing deposit rates will have to go negative to avoid wholesale bank failure.
November 28th, 2009 at 7:35 pm
The Fed thinks the original Declaration of Independence was written for agencies and corporations like itself. Or seeks to defeat is like he is the King who seeks financial independence over those he governs. You have a group of five appointed governors. In comparing old english law, with their attitudes toward the public, feudal governors = federal governors (board of governors having independence over legislators and judicial branch officers). See the original declaration:
November 28th, 2009 at 7:47 pm
The Fed (and all central banks) exist as an engine of credit, pure and simple. By removing the fear of liquidation in a panic, it allows market participants to extend loans in greater volume and with less attention to the soundness of the borrower and his collateral than they otherwise would. We’ve seen the kind of lending this system produces.
The Fed is actually a means of bypassing a form of regulation that would otherwise be imposed by the Mr. Market itself. In the place of the frequent, sharp, short panics that happened in the nineteenth century, you pile up excesses and malinvestments in the system until 2008-thru-? rolls along and you get The Big One.
Jim Grant puts it best: human beings are not competent to administer a system of fiat currencies backed by nothing.
But hey! I’m sure they’ll get it exactly right if we give them ONE LAST CHANCE ….
November 28th, 2009 at 7:48 pm
“Independent does not mean unaccountable.”
Really?
Then, Ben-O, pray explain this: http://www.youtube.com/watch?v=Mj0JAfq4esk
where one of your VP refuses to account for anything at all.
This guy truly think we’re all idiots.
November 28th, 2009 at 8:20 pm
What I don’t understand is Bernanke said “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.” So why doesn’t he just not quit before the sh-t hits the fan for real? Is he that clueless?
November 28th, 2009 at 8:36 pm
Bob Hoye has an excellent takedown of the theory behind central bank administration of the supply of credit here: “Authoritarian Audacity is Going to Crash” http://safehaven.com/article-15135.htm
November 28th, 2009 at 8:42 pm
“yields have been falling on average since the 1950s. ”
That is not true…from 1948 to 1981, the 10 year went from 2% to 14%.
http://www.hussmanfunds.com/wmc/wmc070820.htm
November 28th, 2009 at 8:50 pm
steve, there is no reason to expect yields to rise in coming years.
you say if any of these trends reverse, then yields would rise. I agree with that.
yet I cannot see any reason for those trends to reverse.
Neither could U.S. banks in the early 1950s, just at the start of a multi-decade rise in yields and secular bond bear market. http://content.screencast.com/users/texana44/folders/Jing/media/93347218-e46b-4b1f-81a0-3ea58587753c/2009-11-28_1350.png
Just as every great inflation eventually comes to an end, every great disinflation/deflation does as well. There is no “reason” for these trends and cycles to reverse … they simply reach their natural limit and give way to their opposite.
Personally I don’t think we’re anywhere near the bottom in yields because the volume of bad debt is so large (made possible in part by the Fed of whose existence BR is such an advocate). But the idea that yields will forever remain at today’s super-low levels is one that flies in the face of hundreds of years of financial history.
November 28th, 2009 at 9:27 pm
ACS wrote, ” Prior to the creation of the Fed the value of the Dollar fluctuated widely but over the long term was relatively stable. Since the creation of the Fed, it has lost over 95% of its value. Could any realistic alternative be worse?”
Since the creation of the Fed we have tremendously increased our standard of living, medical science and longevity.
We have profoundly improved civil rights and social justice in this country to levels never before achieved in the history of the world.
We won two world wars and defeated communism. We are the world’s sole superpower.
We are still the world leader in innovation, higher education, and the world’s #1 economy.
And we (our Fed and Treasury) have avoided GD2 after the housing/financial collapse.
So how has the Fed hurt us since 1913? Or, instead, has it actually helped enable all the great achievements of this country over the past 96 years?
November 28th, 2009 at 9:33 pm
“Prior to the creation of the Fed the value of the Dollar fluctuated widely but over the long term was relatively stable.” If you study the economic and financial history of the 1800’s you have to grasp how silly that sounds. I might as well claim I don’t need a heating system in central Ohio since the temperature fluctuations over the entire year average out to a relatively comfortable number. It is the wide fluctuations themselves that can destroy you, whether it’s the temperature or dollar value. Their average is simply not part of a logical argument. http://jpetervanschaik.googlepages.com
November 28th, 2009 at 9:35 pm
And we (our Fed and Treasury) have avoided GD2 after the housing/financial collapse.
The advocates of economic interventionism should really be more careful about pronouncing the avoidance of Great Depression 2.0 a fait accompli. If nothing else it betrays remarkable hubris to make such a claim before all the evidence is in.
A period of wonderful economic expansion also accompanied the period of free banking and the gold standard in the United States in the 100 years before the Fed’s creation. Correlation is not causation.
November 28th, 2009 at 10:00 pm
KJ Foehr-
wow- dude-
put me to sleep already-
keep trumping up past accomplishments-
what have we done lately that assures our future prosperity?
nothing-
but keep living in the past if it makes you feel good
November 28th, 2009 at 10:05 pm
Graphite wrote: “The advocates of economic interventionism should really be more careful about pronouncing the avoidance of Great Depression 2.0 a fait accompli. If nothing else it betrays remarkable hubris to make such a claim before all the evidence is in.”
I was expecting this retort.
So let me add, “thus far”.
I am not a blind optimist. And even though may be free money, I remain skeptical that there is such a thing as a free lunch.
However, I do believe the eventual consequences will not be a deflationary depression as we experienced in the GD, but most likely, a much less painful period of inflation like the ’70s.
It’s not hubris; it is just my opinion, which is often less than 100% correct.
November 28th, 2009 at 10:11 pm
“However, I do believe the eventual consequences will not be a deflationary depression as we experienced in the GD, but most likely, a much less painful period of inflation like the ’70s.”
wow again-
i guess we never have to pay for the excesses of the past- as long as the Fed is around to iron shit out real smooth-
keep hope alive- lol
November 28th, 2009 at 10:16 pm
call me ahab wrote: “but keep living in the past if it makes you feel good” and “what have we done lately that assures our future prosperity?”
As is attributed most often to Yogi Berra, but to others as well,
“It is difficult to make predictions, especially about the future”
So what else do we have to gauge success by if not our past accomplishments?
And if the Fed has done us damage since 1913, then we should be able to see evidence of it in the same period. Where is it?
November 28th, 2009 at 10:37 pm
Fed has powers equivalent of dictator. Some how, my heart says Ron Paul is honest. It is not the issue of independence. It is all about secrecy. Fed do not want transparency.
Anyway, President is going to appoint the Fed chairman. Obviously, he is going appoint some one to implement his pet schemes. It is just my opinion.
November 28th, 2009 at 10:52 pm
Since the creation of the Fed we have tremendously increased our standard of living, medical science and longevity.
We have profoundly improved civil rights and social justice in this country to levels never before achieved in the history of the world.
We won two world wars and defeated communism. We are the world’s sole superpower.
We are still the world leader in innovation, higher education, and the world’s #1 economy.
And we (our Fed and Treasury) have avoided GD2 after the housing/financial collapse.
You forgot atomic energy, KJ. The Fed perfected the Special Theory of Relativity and extracting enriched uranium. The Fed invented sulfa drugs, The Pill, and wrote Stairway to Heaven. The Fed charged pill boxes on Iwo Jima, won 5 gold medals at the Munich Olympics, sang a beautiful version of a Les Mis song on Britain’s Got Talent and invented the Internet.
Oh sorry. I was confusing the Federal Reserve with people. Who do stuff. Little causation issue KJ.
November 28th, 2009 at 11:24 pm
Now Piss Off
November 29th, 2009 at 12:11 am
Adult Franklin411 wrote, “Oh sorry. I was confusing the Federal Reserve with people. Who do stuff. Little causation issue KJ.”
I have a causation issue? and they don’t???
I am saying if the Fed is so bad for the country, then how the hell did we get to be so good?
I didn’t say the Fed CAUSED these things, but it apparently didn’t STOP them, and PERHAPS it even helped to enable them.
Where is their causation? Where is the evidence that the Fed has harmed this country or the economy?
I give up. Believe what you will.
November 29th, 2009 at 1:25 am
If there are so independent of government why is their domain federalreserve.gov?
Furthmore, check out the load of crap they put on their homepage:
“The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.”
November 29th, 2009 at 5:28 am
“Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”
-Karl Marx
Communist Manifesto
November 29th, 2009 at 7:21 am
Yves Smith:
“The worst is the folks at the Fed clearly believe the bogus stress tests were a meaningful exercise. That alone should disqualify them from getting a bigger role in bank supervision. And if you read their pronouncements, they plan to continue to use them, and have the process run by….monetary economist! Help me! Bernanke also conveniently ignores the fact that the rally might also have a wee bit to do with the fact that he threw a bit over $1 trillion at the markets, as announced in mid-March.”
November 29th, 2009 at 8:27 am
Where is their causation? Where is the evidence that the Fed has harmed this country or the economy?
You have nothing to compare it to. Who knows what the economy would have turned into if inflation wasn’t skimming (taxing) the economy at 3% – 5% per year. If you compound that wealth and put it back into the pockets of American citizens then maybe you will begin to get an idea of what people have lost over that time.
For one thing you probably wouldn’t have to borrow money to own a home. At least not in a significant way. That was what it was like in the 40’s. Also, the wives of the country could probably stay home and raise the kids (child rearing is a wealth intangible but the state of today’s kids shows its value) as opposed to almost being forced into the workforce in order to put a roof over their (smaller) family’s head.
How many people can afford multiple children these days? That is another effect of the hidden tax
Here is an interesting read on the effects of the work of people like Greenspan. It wasn’t the one I was looking for but I picked an older article to show that their work is entirely predictable:
….and once again this is yet another article that shows that there were many around that did see the housing bubble and its potential effects:
Pop Goes the Weasel
Greenspan and the Housing Bubble
November 29th, 2009 at 9:53 pm
http://www.ledeagenda.com/2009/11/28/the-feds-zero-intrest-rate-is-designed-to-empower-central-banks/
Saturday, November 28, 2009
The Fed’s Zero-Interest Rate Is Designed To Empower Central Banks
From the Mises.org:
The zero-interest-rate policy of the Fed is sold to the public as a benign economic rescue in the public interest. The stark reality is that this policy is a disguised tax implemented by the Fed. It takes income from savers and hands it as a subsidy to borrowers. It also facilitates and funds the fiscal deficit policies of central government. Such a well disguised tax is a boon for governments. The cruelest tax of all is this 100 percent tax on interest income, disguised and rationalized as “good” policy.
The zero-interest-rate policy deserves closer scrutiny. Would a saver willingly agree to an economic environment of zero interest rates? Certainly not. Would a debtor prefer a zero interest rate? Absolutely. The saver and the debtor would, under normal, willing-economic-participant conditions, negotiate a “price” for the use of money saved. That price for the use of funds is interest.
The central bank enters the negotiation between saver and borrower, and by counterfeiting money it destroys the negotiating base of the saver. Counterfeiting money through policies of unlimited liquidity provision is a “price control” over interest rates, instituted to force interest rates down and eventually spiral them downwards out of control to zero. The interest income of the saver is eventually taxed to extinction at zero interest rates.
It is basic economic theory that price control actually reduces the availability of the item subject to the control. It should therefore come as no surprise that available credit is falling despite unrestrained liquidity provision at zero interest rates. Banks have no direct cost implication when they hold funds at zero (apart from opportunity cost). Thus there is no direct cost penalty for doing nothing.
Not exploiting a lending opportunity in a high default-risk environment, where the margin between a zero-interest cost of funds and the lending rate is insufficient to protect bankers against default risk, is an entirely rational choice for bankers. While the intended consequence is to increase the availability of credit, the ultimate “zero-rate” intervention actually reduces credit availability. One wonders how significant this unintended consequence would be in the absence of Cash for Clunkers, the now-expanded subsidy policy for housing purchases, and the constant Fed, Treasury and Federal Housing Finance Agency support for Freddie Mac and Fannie Mae. We shall find out when fiscal deficits can no longer fund such excesses.
November 30th, 2009 at 6:25 am
The issue is as I see at and I believe Jefferson, Jackson, Lincoln, and Kennedy seem to have projected, that any such Central Bank function be of a US. National Bank variety and not Privately- Owned by a select and shadowy few of the top ten banks in the US. These elite banks and now GS has been inducted into the fold, privately profit by excess credit creation and get first dibs on the fallout when the house of cards that comes back to bankrupt you fails..i.e. “they” always win. And you better believe it. Unfortunately BR, you seem to be conflating the existence of an National Good emergency provider of Credit with a Private corporate entity out for its own survival rather than the Public interest first.
November 30th, 2009 at 8:12 am
We need an audit to begin to move toward a more transparent and therefore modestly accountable Fed.
Who really knows WTF they have been doing, what models do they use? How do they go about forecasting? What markets are they active in? What are they doing with foreign CB?
Half the actions they took to ’save’ the system were probably avoidable had they not been beholden to the banksters who in turn own the congress via lobbyists and contributions.
There are more open questions as to what they have been doing and why, the rationale, then answers.
Will they be under ‘exigent’ rule forever?
December 18th, 2009 at 12:23 pm
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