The Wall St. Journal, and perhaps other outlets, published an open letter to Ben Bernanke pleading for the immediate discontinuation of QE2:

We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances.

The letter has 20+ signatories. It is noteworthy how outrageously wrong most of this team of incompetents were — on the recession, the credit crisis, and the markets; James Grant and Seth Klarman being notable exceptions.

Many of the names you will recognize (there are some I don’t) appear to have hard right conservative leanings. Paul Krugman takes down a couple of the signers, wondering what economic credentials William Kristol has (Or credentials of any sort for that matter).

Of course, one might level the same charge at another of the letter’s signers, former Bear Stearns economist David Malpass. BR has taken down Malpass here and here (to cite but two), but I don’t think Barry ever got to this one, in January 2008 (what we now know was the second month of the worst recession since the Great Depression):

Malpass’s message minimized the impact of both the ongoing U.S. housing recession and the credit crunch.

To an audience of guests representing top French financial institutions like BNP Paribas, Calyon and Natixis — all of which have been singed by the subprime crisis — Malpass sided with what appears to be a majority of U.S. economists in predicting that the U.S. economy would skirt the current crisis without falling into a formal recession.

“We will have a slowdown month by month for the next six months,” Malpass said. “But we will look back and we will say there was not a material recession.”

And here’s open letter co-author Kevin Hassett from the American Enterprise Institute (June 2008) in an article titled Seeing Recession When There’s None to Be Found, displaying near perfect partisan hackery, the lede of which was:

Are we in a recession? Despite what the media has led the public to believe, director of economic policy studies Kevin A. Hassett compares today’s economy to past recessions and finds that the current situation does not seem all that dire.

If a Democratic-leaning press can convince everyone that the economy is in recession, then it can influence the election. [...] The politically motivated pessimism, like the computer virus, can have real consequences.

I’d be remiss if I didn’t also note that Mr. Hassett was co-author of the timely (November 2000) howler Dow 36,000.

A third co-author, Michael Boskin, also did not see the recession that was already staring us in the face (October 25, 2007, emphasis mine):

LAS VEGAS (MarketWatch) — Despite severe problems in the housing market, a credit crunch and record-high oil prices, the U.S. economy will skirt a recession in the coming few quarters and get back on a solid growth path after that, economist Michael Boskin told real estate industry executives Thursday at the Urban Land Institute fall conference.

Another co-author who is uniquely unqualified to discuss recession (or anything economic for that matter) is Amity Shlaes. Back in July 2008, while we were into the 8th month of the recession — just weeks before the entire financial edifice collapsed — Shlaes wrote a Washington Post OpEd, titled “Phil Gramm Is Right.” Shlaes was defending Gramm, who had  said “the country was not in a true recession but a “mental recession.” He also said, “We have sort of become a nation of whiners. (Nice call, superlative timing).

Charles Calomiris is yet another co-author. Up until 2007,  he was the codirector of AEI’s Financial Deregulation Project; he spent the years since trying to blame Fannie Mae/Freddie Mac for the collapse, insisting that radical deregulation had nothing to do with crisis.

Peter  Wallison is Calomiris’ co-author on this WSJ OpEd: Blame Fannie Mae and Congress For the Credit Mess, as well as the QE letter. As prime proponents of the radical deregulatory scheme that contributed so mightily to the credit collapse, they have desperately sought some other McGinty to blame for the crisis — anything but their own fecklessness. Wallison is, for lack of another adjective, hallucinatory.

Also on the list: Cliff Asness of AQR Capital Management is another co-author. According to Bloomberg, his flagship Absolute Return fund went the wrong way three years ago, as the credit crisis was starting, falling more than 50%.

So how’d those calls work out? Many of the people who are criticizing the Fed Chief aren’t capable of seeing the worst recession in generations halfway through it; Why on earth should anyone care what their views on Quantitative Easing might be? These people should be working at Mickey Dees, not think tanks and hedge funds.

Is this a crew to which Bernanke should be paying any attention whatsoever? This is not a time for our economic policies to be hijacked by partisan ideologues who, frankly, don’t seem to be offering up any viable alternatives.

~~~

For what it’s worth, the Empire State Manufacturing Index printed this morning, and the number — along with most of the underlying components — simply tanked.

>

>

Empire State Manufacturing Survey:

The Empire State Manufacturing Survey indicates that conditions deteriorated in November for New York State manufacturers. For the first time since mid-2009, the general business conditions index fell below zero, declining 27 points to -11.1. The new orders index plummeted 37 points to -24.4, and the shipments index also fell below zero. The indexes for both prices paid and prices received declined, with the latter falling into negative territory. [Invictus: emphasis added]

A veritable trifecta of bad news — poor headline, crappy new orders and shipments, and disinflation/deflation in prices paid and received. Astute students of the economy will note that in “mid-2009″ we were emerging from recession. We’ll see what we get out of Philly on Thursday morning, but the news out of NY is clearly not good. (Separately, Retail Sales were about as expected.)

Krugman rightly asks what the letter writers are modeling, and as best he can ascertain, it’s “wild stories about how Obama’s Sharia-law Marxism has unnerved business, or something, with the effects mysteriously spreading to Spain and Latvia.”

ADDING: Should anyone care — and I can’t fathom why anyone would — in the pre-recession era I was volunteering my services over at Blah3.com.  Those who’d like to examine my public record in the fall of 2007 and early 2008 are invited to peruse these search results (or this Sept. 2007 post in particular:  “The labor market — which Bush and his sycophants have repeatedly pointed to as evidence of our economy’s strength — is clearly showing signs of fatigue, and has been for some time (the vaunted 4.6% unemployment rate notwithstanding). Bush’s economic policies will have failed before the end of his term — with higher unemployment, insignificant wage growth, tax cuts for the rich, and a recession as his legacy. This much becomes more and more clear with each new economic data point we receive. The question now would seem to be how much the economy will slow and how deep the recession might be.”).  Or view my entire body of work there, if you are having trouble sleeping.

SECOND ADD (Nov. 16):  John Mauldin puts up a very interesting piece in the Think Tank, and in it essentially sums up my own thoughts:  “If it had been my call, I would have punted and told the guys in the Capital that the ball was in their court to get their fiscal house in order, because that is the main source of the problem. But Bernanke and the Fed felt they had to “do something,” to demonstrate they got the seriousness of the situation. If the only policy tool you have left is the hammer of printing money, then the world looks like a nail.”

Previously:
The “Chutzpah” of Bear Stearns (August 7th, 2007)

Smackdown: Paul Kasriel vs Michael Boskin (September 10th, 2010)

Michael Boskin on “The Obama Crash” (December 7th, 2009)

Why Michael Boskin Deserves Our Contempt (January 19th, 2010)

Category: Current Affairs, Data Analysis, Economy, Federal Reserve, Really, really bad calls, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

101 Responses to “An Open Letter to Bernanke of Dubious Authorship”

  1. I am glad you tore this stupid letter apart. That Wall Streeters would put their name on a letter with Bill Kristol proves how unserious these people are.

  2. IS_LM says:

    Well done, sir. Well done.

  3. Joe Friday says:

    BR: “The Wall St. Journal, and perhaps other outlets, published an open letter to Ben Bernanke pleading for the immediate discontinuation of QE2: … The letter has 20+ signatories.”

    The Wrong-Way Rough Riders.

  4. heh heh — as much as I’d like to take credit, this angry missive is the work of Invictus, not I.

    All I did was some light editing . . .

  5. Jack Damn says:

    I actually like the original headline. “Clueless” is an underused today.

  6. Jack Damn says:

    “…is an underused word today.”

  7. valuewalk says:

    The dubious? Like Seth klarman? James grant? How about many others who came out real strong against qe2but were not in the letter? I will just name a few; nassim taleb, David einhorn, John hussman, bill gross, jeremy grantham, Michael burry and many others.

  8. Ned Baker says:

    Interesting. I hope no one makes investment decisions based on this “Wall St. Journal” you refer to.

  9. Molesworth says:

    Invictus-
    Who did see the recession coming?
    I know Lakshman Achuthan of ECRI called it fairly early.
    But who else? Please share what you know.
    Thank you.

  10. MayorQuimby says:

    Yeah well…even a blind squirrel finds a nut once and a while.

    Seriously everyone – WE’VE RESORTED TO NAKED PRINTING OF FRN’s. This monetary system has run its course. Dollars need to be produced BY THE SYSTEM – a system which will tell you how many $$$ there should be.

    A credit contraction is a healthy thing. It is the financial system’s way of ‘vomiting’. It says that prices are too high (too many $$$).

    Bernanke thinks he can prevent vomiting by holding his hand over the patient’s mouth.

    Good luck with that.

    Ben is becoming a market fade. Let that sink in for a while.

  11. MayorQuimby says:

    “Who did see the recession coming?”

    A ton of folks.

  12. franklin411 says:

    Your comments about Amity Shales are outrageous, Invictus! How dare you imply that having a Bachelor of Arts in English does not give one qualifications as an economist!

    ;-)

  13. valuewalk says:

    It is not only the dubious. Joseph Stiglitz, Nassim Taleb, Seth Klarman, Jim Grant, John Hussman, Jeremy Grantham, Bill Gross, David Einhorn and many other really great investors and economists are against QEII. Gross went as far as to call it a ponzi scheme.

  14. JimRino says:

    Economics has become Politics.
    And the US Economy is the punching bag for the “right” wing, who don’t really give a damn about this country.

  15. JimRino says:

    Major,
    This is not the first recession, where we used stimulus to recover.
    Ask the people who worked for Reagan.

    The only difference is the “right” isn’t in the driver seat, and they’ve got to come up with something to carp about. Incompetent carping, but still carping.

  16. machinehead says:

    Yeah, and why’d he leave out Dan Senor, whose main claim to fame is that he once served as ‘the Voice of the Chimp’?

  17. Bruman says:

    Bravo, Invictus.

    My reaction to this letter is “my, the Right is really incredibly organized and incredibly hardlined, and also incredibly wrong.”

    Increasingly, I feel as though I’m on the Titanic and can see the iceberg approaching, but no one on the bridge is even looking.

    I think Mohammed El-Arian really had it right when he said that the big problem is that we are treating this recession as if it is a cyclical event, and not a structural one. (Well, it is presumably a cyclical event that is made far more serious by structural problems). Structural problems need structural solutions, and the criticism of the Fed is mostly about worries that might make sense if one expects that after all this suffering is over, we’ll get back to “business as ususal.”

  18. Molesworth says:

    MayorQuimby wrote:
    November 15th, 2010 at 6:07 pm
    “Who did see the recession coming?”
    A ton of folks.

    My request to Major Quimby,
    Please name names.

    Bruman mentions El-erian commenting on current plans, but I wasn’t following him pre-disaster. Did the folks at Pimco sound warning sirens in advance?

  19. Molesworth says:

    MayorQuimby wrote:
    November 15th, 2010 at 6:07 pm
    “Who did see the recession coming?”
    A ton of folks.

    My request to Major Quimby,
    Please name names.

    Bruman mentions El-erian commenting on current plans, but I wasn’t following him pre-disaster. Did the folks at Pimco sound warning sirens in advance?

  20. Invictus says:

    @Molesworth

    Please see my addendum. And you can certainly count David Rosenberg among those who were very worried in the summer and fall of 2007.

  21. ewmayer says:

    Grammar quibble: “…of dubious authorship” implies the actual origin of the letter to be in question … I think you mean something more akin to “authors having little credibility”.

    Invictus, my main objection to your post is that the “outrageously wrong” criticism can be just as well applied to the chief author(s) of QE1 and QE2 as it can to the “luminaries” who penned the above letter. E.g. Bernanke who claims “bubbles are impossible to spot in real time” even though he was complicit in blowing the biggest one in history, one which was obvious from glancing at the Case-Shiller home price chart and simply comparing RE price trends versus incomes, or examining total debt trends.

    So while both sides here have little credibility, I will say this: Only one is actively trying to debase my savings and earnings power in order to fulfill the “free lunch” theory it subscribes to.

  22. Joe Friday says:

    BR: “heh heh — as much as I’d like to take credit, this angry missive is the work of Invictus, not I.”

    Sorry Invictus.

    That’s what I get for trying to do three things at the same time. So much for multi-tasking.

    BR, when you gonna add an edit function to this contraption ? Even if it was a short window of hours so folks couldn’t go back and change history.

  23. Molesworth says:

    I,
    Thank you.

  24. Invictus says:

    @Joe Friday

    I’d expect better attention to detail from the star of one of my favorite television shows.

    :-)

  25. MayorQuimby says:

    “Please name names.”

    No. Do your own research. Tons of folks saw the collapse. There are New Yorker articles about hedge funds shorting the crap out of financials, Schiff, Denninger, traders etc.

    But remember – there are always people on both sides of things. Somebody’s always right. Somebody’s always wrong.

    And that’s what makes a market.

  26. Mannwich says:

    Seeing this list of incompetents makes me want to change my mind on QE2. I’m getting closer by the minute.

  27. gman says:

    CNBC as usual (except when Barry is on) failed its viewers today with their coverage of this topic today.

  28. holulu says:

    Ok Barry, which one is it you do not like, the “message” or the “messengers” ?

  29. cpd says:

    Honestly, I don’t get this stuff. It may be that some of the people that signed the letter didn’t do a good job of forecasting. But, Bernanke wins the award for being totally wrong leading up to the crisis. Where do you point that out? And QE is not rocket science. I agree with them that QE should be stopped. And, as far as I can see, the only people arguing for it to continue are the speculators that like chasing asset bubbles , irregardless of fundamentals. We would be a lot better off with less of those people.

  30. Mannwich says:

    @Molesworth:

    Barry Ritholtz
    Yves Smith
    Taleb
    Nouriel Roubini
    Mish
    SEVERAL other regular commenters here and at other blogs who were apparently “nobodies” in the eyes of the elites who keep leading us into disaster after disaster, but making out even richer afterwards so they don’t seem to care or learn from those “mistakes”.

  31. Mannwich says:

    Speaking of being “wrong”, S&P predicts home prices to fall another 7-10% through 2011. Might they be right this time?

    http://www.calculatedriskblog.com/2010/11/s-predicts-house-prices-to-fall-another.html

  32. Invictus says:

    @cpd

    Funny you should ask. I called out Bernanke on some shenanigans right here. Just to set the record straight. That said, I do not believe he is wrong on QE2 or that it should be discontinued. Just pointing out that I’m an equal opportunity critic.

  33. Enm says:

    I don’t get this post. Who cares who endorsed the letter? QE2 is damn nonsense and the wsj letter is spot on. The chance of any American getting a job from QE2 (outside of Goldman Sachs) is zip, whereas the change of lasting harm to our nation’s financial system is substantial.

  34. techperson says:

    Bernanke’s biggest flaw is that he thinks this is only a credit contraction recession, so he can fix it with credit expansion tools. He doesn’t realize that he is up against (1) a generational shift to the Gen Xers who got buried in student loans, and view credit very differently from the Baby Boomers, (2) the retirement of said Boomers, the pig in the python with the largest cohort turning 48 ( the year of peak consumption per Harry Dent) in 2005 – did something change after that? And (3) technology, which slashes prices every year (OMG – deflation!). SurviveTheGreatInflation.com the book launches tomorrow – Bernanke isn’t going to change – given his history, he can’t – and Obama doesn’t have any idea how awful his appointments were.

  35. MayorQuimby says:

    “I do not believe he is wrong on QE2 or that it should be discontinued.”

    The 30 year bond disagrees with you Invictus.

  36. Invictus says:

    @MayorQuimby

    For now, perhaps. There’s still plenty of story left to be told.

  37. MayorQuimby says:

    @tech

    The system is self-correcting if left alone. Let’s say there isn’t ENOUGH $:

    If that’s the case then you will see more banks open up and lend new capital into the market. Credit will expand.

    If the system (aka working class) demands lower prices, they do so with their actions – by defaulting on loans.

    That is the system’s way of telling everyone that prices are too high. Those prices must be burned off and drop to a reasonable level. IOW – there are TOO MANY $$$ of credit in the system.

    It self-corrects.

    But Ben (and gvmt) doesn’t want this. Of course not – it might mean debt default but even if it doesn’t – it means DEBT CONSTRAINT (aka spending restraint) – a politician’s worst nightmare because people elect politicians to spend MORE than the people themselves make. Don’t believe me? Look at the past 65 years!!!

    Trying to push prices up is ABSURDLY foolish and yes Ben will fail. Those that don’t see this will wonder one day how they could NOT see this. It is so obvious.

    Weaker $ and lower yields DESTROY PURCHASING POWER. That in turn feeds into defaults but more importantly – even if it doesn’t IT HAMPERS SPENDING and HEALTHY CREDIT CREATION.

    ANYONE that supports QE 2.0 believes that RAW PRINTING of $ actually works.

    They teach us in Eco 101 that that is an impossibility.

    Mathematically speaking…

  38. call me ahab says:

    I do not believe he is wrong on QE2 or that it should be discontinued

    as if we couldn’t figure that one out-

    you’re always good for a laugh Invictus

  39. beaufou says:

    William Kristol?
    It takes too long to collect all the links, but this is a neocon lobby effort.

    I don’t agree with QE2 because of the size and allocation but those guys are the same dirt bags who saw nuclear weapons in Saddam’s backyard.

  40. rootless says:

    @Molesworth:

    Who did see the recession coming?

    Not many, but there are some, e.g., Hussman, Steve Keen, Nouriel Roubini, Dean Baker, Yves Smith, Ritholtz. Most economists, analysts and financial advisors hadn’t seen it coming, indeed.

    Hussman is a sharp critic of the Fed’s (unconstitutional) backdoor fiscal policies, e.g. just the other week:
    http://www.hussmanfunds.com/wmc/wmc101108.htm

    He also had issued a new recession warning this summer. BTW: BR has ridiculed the current “recessionistas” in recent month here in his blog repeatedly. I wonder whether this will disqualify him later too, if the warning that a new recession was likely, turns out to be correct.

    Steve Keen has criticized Bernanke’s economic views in his blog, http://www.debtdeflation.com/blogs/ , repeatedly. He saw the economic crisis coming, based on his modeling approach of the economy. He has a quite pointed view toward the neo-classical mainstream economy, to which Bernanke’s views belong, and why many mainstream economists had been unable to understand the causes of the crisis and that the failure to see the crisis coming comes from the flaws in the economic theory, on which those views are based.

  41. mharring says:

    Hmmm. Wonder why we’re discussing the 20 names instead of the views presented in the criticism of QE2? Why care Who? – why not What? I’d buy a good argument from Mickey Mouse.

    Certainly the biggest blame for the credit bubble can be laid on Mr. Bernanke himself. Didn’t see it coming? Jeez, he was driving the train. Still is. Hold on.

  42. wmjack50 says:

    Gentlemen:
    If you haven’t gone to Utube and watched” the Creature from Jekyll Island” you don’t know the story about the FED. and it’s true purpose of saving it’s owners at the expence of the American citizens’ wealth.

  43. MayorQuimby:
    So you are advocating mass poverty and starvation? Good to know. I agree that QEII isn’t the way to go. I advocate sending every American over 21(if there are 200 million of them) a $5,000 check. That would come out to about $1.5 trillion. Is that big enough stimulus? I think so.

  44. gman says:

    ” Bernanke isn’t going to change – given his history, he can’t – and Obama doesn’t have any idea how awful his appointments were.”

    Ben was a Bush appointee.

  45. Mannwich says:

    @Calvin: But that would be “socialism” for the Sheeple. We can’t have that, but we can have some distorted form of it (“trickle down” – and then some) for the banking criminal cartel and their elite friends. And a wing and a prayer for everyone else.

  46. MayorQuimby says:

    “So you are advocating mass poverty and starvation? Good to know”

    WTH is that crap?

    In fact it’s the opposite – Greenspan and Bernanke are complicit in the creation of bubbles that have now burst. The rich are protected when they burst. The sheeple are not.

    Are YOU advocating ANOTHER bubble in which the top 5% will increase their net worth by another 25 – 50% and the bottom 40% see the train pull away even farther???

    No???

    WELL THAT IS EXACTLY WHAT IS HAPPENING.

    Do you think FORTY TWO MILLION PEOPLE saw any benefit from the stock rally?

    Do you think dollar dilution actually WORKS?

    All will be clear over time.

  47. MayorQuimby says:

    “Ben was a Bush appointee.”

    And is now an Obama appointee.

  48. DeDude says:

    Love their answer to the right wing clown parade. If this illusory inflation due to QE2 should show up, we can reverse the policy. They are also spot on in pointing out that government actions are needed, but we just elected gridlock so they have to take care of it without help from there. As Japan has shown, the federal reserve bank is very limited in its ability to control deflation after it takes hold. Inflation however is no problem for a modern monetary system. It is not pretty to do a Volker, but its pretty easy and effective.

  49. MayorQuimby says:

    “It is not pretty to do a Volker, but its pretty easy and effective.”

    Spoken by someone who wasn’t alive back then.

    And HOW MANY years did that take to correct?!

    Finally – commods have skyrocketed this year and the pass through will bring higher prices and lower margins early next year.

    Forget it though – if you honestly think raw printing of unbacked currency actually can work I have a bridge I can sell you CHEAP.

  50. MayorQuimby says:

    MY BET:

    Supporters of QE 2.0 are 90% long the market.

    Detractors are 90% short (I’m not btw).

    J6P is watching tv.

  51. call me ahab says:

    . . .and you have to admire the central bank of a country- whose stated goal (via QE2) is to force stock prices up so people will spend more- and (via QE2) to lower rates (that are already rock bottom)- so people will borrow and spend more (maybe those few basis points will make all the difference?)

    All I can say- it makes me feel confident we got the right man in the right job- dude really knows what he’s doing

  52. ewmayer says:

    I guess Joseph Stiglitz is a clueless neocon economist-wannabe, too -

    —–

    [Nov 11] Stiglitz to Obama: You’re Mistaken on Quantitative Easing

    http://blogs.wsj.com/economics/2010/11/11/stiglitz-to-obama-youre-mistaken-on-quantitative-easing/

    Nobel Prize-winning economist Joseph Stiglitz, dismissing the Federal Reserve’s quantitative easing as a “beggar-thy-neighbor” strategy of currency devaluation, called on America to learn the art of stimulus from China.

    —–

    Not sure about the “learn the art of stimulus from China” bit – looks to me like they got a credit and RE bubble going there, too. Then again Stiglitz was speaking in Hong Kong, so this may have been more “kiss up to the hosts” than anything else.

  53. MayorQuimby says:

    “If this illusory inflation…”

    http://www.finviz.com/futures_charts.ashx?t=CT&p=d1
    http://www.finviz.com/futures_charts.ashx?t=LB&p=d1
    http://www.finviz.com/futures_charts.ashx?t=ZC&p=d1
    http://www.finviz.com/futures_charts.ashx?t=HO&p=d1
    http://www.finviz.com/futures_charts.ashx?t=ZW&p=d1
    http://www.finviz.com/futures_charts.ashx?t=FC&p=d1

    You were saying?

    ~~~

    BR: I was saying i wish more readers understood the difference between trading and consumer inflation.

    But if you want to play that way: You seemed to have omitted a chart — Sugar
    http://www.finviz.com/futures_charts.ashx?t=SB&p=d1

    Sugar dropped 23% this week — so according to your approach, does that mean we have deflation?
    (Quite the incidental omission on your part!)

  54. NormanB says:

    Being that Fed action is something I don’t know shit about (like Global Warming) I’m assuming that Bernake is pretty close to being correct although his predesessor made all of the serious mistakes that Central Bankers could possibly make in the next 100 years. So, coming off of Greenspan’s Follies maybe some think Bernake is just following in the same line. Again, I don’t know shit.

    Before anyone stomps on Bernake I think they should also tell us why China’s buying of mostly US debt to the tune of about $500B per year for about five years is any different than us buying $600B of our own? They’ve got to be printing money to buy the stuff and so will we. Heck if Bernake is being taken over the coals the Chinese should all be put in a blast furnace. BR: any comments on this as you would know?

  55. Bill W says:

    Krugman’s greatest failing as a failing as a Keynesian is his lack of opposition to bad government spending. I can remember his saying that too big too fail is no big deal.

    It actually is a big deal, because it ticked people off. Trust in the system matters.

    The country now has stimulus fatigue. If Krugman wants people to support bridge building and unemployment benefits, he needs to be just as critical of Bernanke’s dubious track record as he is of Bill Krystol’s.

  56. ReadingFundamental says:

    Excellent summary! Once my WSJ subscription ends I’m not renewing it. I’ve had enough of the nuts on the editorial pages there and the influence of the new owner.

    I read this blog every day. I also read Angry Bear, Calculated Risk, Economist’s View and ZeroHedge. Can we get Tyler Durden at ZeroHedge into some kind of deprogramming program? He has bought into this political crap about QE2 hook line and sinker and it saddens me as some of his posts over there are very good – primarily the ones about foreclosuregate.

    Personally I oppose QE2 because I think it’s a horribly inefficient way to try to get where we need to be and we should have another round of fiscal stimulus instead. However, I’d never sign anything any of those nuts at AEI would sign.

  57. Molesworth says:

    @Invictus
    Checked out your links and there’s some good stuff there. Do you only blog here? I’d like to follow your work.

    @Mannwich: Thank you
    Glad to learn Mr Ritholz is one. I’ve just discovered him recently and he appears to be a very smart and clever person.

    @MayorQuimby.
    I understand your sentiment but it’s not as easy as it sounds. I’m just a poor schmuck in Podunksville USA without access to broadband. (That’s right; there are still places in USA without broadband capability.) I want to preserve and grow what I have as best I can.
    I’m just trying to figure out which economists were figuring it out in advance and alerting people. (I’m not certain that hedge fund managers would have been broadcasting their short bets on the economy.)
    This blog appears to have some high flying finance managers following it and I think it’s fair to pick their brains. It’s ok with me if you don’t want to share.

  58. deanfv says:

    OK. Show me one thing that Bernanke has gotten right.

  59. Invictus,

    you should have trotted this: “ADDING: Should anyone care — and I can’t fathom why anyone would — in the pre-recession era I was volunteering my services over at Blah3.com. Those who’d like to examine my public record in the fall of 2007 and early 2008 are invited to peruse these search results (or this Sept. 2007 post in particular: “The labor market — which Bush and his sycophants have repeatedly pointed to as evidence of our economy’s strength — is clearly showing signs of fatigue, and has been for some time (the vaunted 4.6% unemployment rate notwithstanding). Bush’s economic policies will have failed before the end of his term — with higher unemployment, insignificant wage growth, tax cuts for the rich, and a recession as his legacy. This much becomes more and more clear with each new economic data point we receive. The question now would seem to be how much the economy will slow and how deep the recession might be.”). Or view my entire body of work there, if you are having trouble sleeping…”

    out, long ago..

    for reminder’s sake, take a page from BR — He posts a Record, and, from What I can tell, freely refers to it, right or wrong..

    personally, I think it, well, separates him from the, far too many, Pretenders/ “Pro” ‘Lip-flappers’..

  60. Petey Wheatstraw says:

    As it it has been since credit got so far out ahead of money supply, our options are to deflate (no QE, massive public and private defaults, and the indebted majority get crushed while America is sold off in huge chunks for strong dollars returning home), or to inflate (QE of an amount and allocation to offset public and private debt, the wealthy have their holdings devalued, and the devalued dollar prevents the wholesale liquidation of American assets and resources).

    The only stick in the mud is how to allocate the new money (and there will have to be shitloads of it if it’s going to offset the debt) so that it ends up in the hands of the indebted (QE would be better spent on labor projects than to use it to have the banks stimulate borrowing, as new debt cannot cure old debt).

  61. louiswi says:

    One thing for sure and is loud and clear. The WSJ is a crap newspaper. Didn’t used to be but sure is now.

  62. rootless says:

    @NormanB:

    Before anyone stomps on Bernake I think they should also tell us why China’s buying of mostly US debt to the tune of about $500B per year for about five years is any different than us buying $600B of our own? They’ve got to be printing money to buy the stuff and so will we.

    I’m not sure what you are saying here. Are you saying China is printing US-Dollar to buy US-debt? This is unlikely. They are getting the US-dollar from you through their trade surplus with US. Then they lend the dollars back to you so that you can buy more of their factory output.

  63. MayorQuimby says:

    @BR-

    “Sugar dropped 23% this week — so according to your approach, does that mean we have deflation?
    (Quite the incidental omission on your part!)”

    http://www.finviz.com/futures_charts.ashx?t=SB&p=w1

    Huh?

  64. MayorQuimby says:

    “I was saying i wish more readers understood the difference between trading and consumer inflation.”

    No offense BR but you’re smarter than that.

    Higher commod prices mean:

    1. Higher consumer prices

    OR

    2. Lower margins

    OR

    3. More layoffs/lower wages.

    There IS a net negative wealth effect created at some point along the chain.

  65. Invictus says:

    @Molesworth

    I contributed for years over at Blah3.com, almost entirely on the economy (as you can see if you review my record there). I then posted for a bit with Bonddad – my stuff is still in his archives, too. As I got to know BR and the opportunity to play for a larger audience presented itself, I jumped at the chance. I only wish I had a complete record of my efforts stored in one place.

    @ahab

    Right back atcha, buddy.

  66. bocon007 says:

    The middle class can’t survive another Republican Revolution.

  67. ewmayer says:

    @MayorQuimby:

    Right – “Ignore the doubling in price of sugar over the preceding 6 months … the recent drop is clearly deflationary…”

  68. Mannwich says:

    Although I have a hard to time remotely agreeing with the set of ideologues, incompetents and idiots that are listed in Invictus’ post, I have to say, I kind of side with Mayor Quimby here. There has to be a more effective (and efficient) way to stimulate the real economy than QE2. If there isn’t, then we are truly screwed.

  69. MayorQuimby says:

    Fiat currency is currency created by fiat and backed by future labor (aka growth, farming, manufacturing, technology etc.).

    When fiat currency is backed by future creation of fiat currency well, Houston – we have a problem.

  70. Bruman says:

    Well, admittedly, there is a problem, which is that it is fiscal stimulus that the county needs, not monetary stimulus. This is because fiscal stimulus can be targeted, and monetary stimulus really cannot. But the only alternatives on the table right now are monetary stimulus or nothing. In fact, fiscal contraction is likely, and this could in fact push us back into a double dip recession.

    Those with assets and those who hold debt are naturally worried about inflation eating away those asset values, and are perfectly content to let the unemployment rate soar in order to protect themselves. It is tricky for some debt holders, because too much deflation will increase defaults and and too much inflation will erode value.

  71. MayorQuimby says:

    http://www.finviz.com/futures_charts.ashx?t=SB&p=w1

    Price has gone up…

    FIVE HUNDRED PERCENT

    since 2002.

    Everyone raise their hands if their SALARIES have gone up 500% in that time (in which case you would have BROKEN EVEN as regards sugar!!!!).

  72. Mannwich says:

    Great passage from that article:

    “This policy of saving banks at the cost of breaking the back of entire countries is a disaster,” said Daniel Gros, director for the Center for European Policy Studies in Brussels. “Ireland is beyond fiscal plans as long as one cannot see the bottom of the losses in the banking sector,” he said. The only way to “stop the rot,” he added, “would be to let the Irish banks go under” and then use the European funds to “tide over the government until markets and the economy recover.”

  73. pintelho says:

    great work Invictus

    I will say this…I didn’t know anything about David Malpass until 2008/2009….Malpass was piping loud bullishness as the market was crashing…

    Then…right around March 2009…he turned bearish…

    That is when I decided the bottom was in…

    So add David Malpass to the contrarian indicators…he will be bearish until the Bull Market top is in…when David Malpass publishes his first Bullish missive…SELL SELL SELL as fast as you can

  74. Invictus says:

    @Mannwich

    There has to be a more effective (and efficient) way to stimulate the real economy than QE2. If there isn’t, then we are truly screwed.

    I don’t disagree with that statement at all. Unfortunately, I believe those ways are beyond the capabilities of the Fed and lie (gulp!) with Congress, which we all know won’t be doing anything any time soon (at least as relates to stimulating the economy). And I think Bernanke recognizes that. So, if QE2 is all he can do, then that’s what he’s gonna do.

  75. bocon007 says:

    Love ‘em or hate ‘em, the Republicans know a win-win situation when they see one:

    When QE2 doesn’t lead to measurable economic improvement detectable on main street, they’ll hang it around Obama’s neck in 2012. If QE2 does produce measurable improvement, they’ll tell the masses it was due to the future “tax cuts.”

    They’re already framing the debate for next election cycle.

  76. soloduff says:

    Childish article; nothing easier than exposing the ignorance of the political right. The author forgets to mention that the political left was every much as oblivious to the coming of the Great Recession. (Krugman even wrote a NYT confessional entitled, “How the Economists Got It All Wrong,” and he manfully included his own creed–academic Keynesianism–in the loser’s circle.) The author of today’s article could had been of use if he had but addressed two questions: (1) Why are the ideologues, left and right, so spectacularly wrong concerning the meaning and direction of the system (capitalism) that they worship? (2) What is the best case for QE, what are the downsides, and what is the state-of-the-art academic scholarship in this regard? (By the latter I do not mean simply regurgitating the Keynesian mantras of Bernanke, Krugman, Stiglitz et al.–doctrinaire bromides and earnest wishes do not a cogent argument make.)

  77. Invictus:
    So why can’t Bernanke send everyone of legal drinking age $5,000? Wouldn’t that do better than QEII?

  78. the bankster says:

    yeah soloduff, bernanke, the board of governors, their staffs and the fed’s entire research dept (what’s that, 1ooo+ PhD economists?) — who are lined up against the authors of this open letter in favor of QE2– were just as clueless in 2008.

  79. A ton-o-comments in a short period of time. You guys are encouraging Invictus to keep dabbling in politics.

    I gotta find a project for him to get him back on wonky economic data analysis !

  80. utiliguy says:

    BR, thanks for calling it like it is.

  81. NormanB says:

    @rootless: The way I see it and I could be wrong, the Chinese make all of this stuff and sell it to us. They get dollars for it. The Chinese Central Bank then buys the dollars by printing yuan (how else can the do it?). Now the CCB has dollars. They take those and buy mostly our Treasuries. So, in the case of China the holding of our Treasuries entailed them printing yuan. For Bernanke, now, he’ll be printing dollars. We print currency, they print currency so what the hell is China complaining about; They are worse than us. So, that’s how I see it but maybe I’m wrong.

  82. Snickers says:

    I haven’t read the letter and I’m no economist. What I’d like to ask is how stuff like the rehypothication of dodgy debt increased the effective money supply during the boom, how the collapse of high-rated commercial paper drove the ’08 collapse, and why some people who rave about “money printing” by the Fed were copacetic when their (imaginary) “free market” printed a shit-load of money (in the form of AAA-rated debt and derivatives of such).

  83. mote says:

    “(1) I should agree that the present recession is partly due to an ‘error of optimism’ which led to an overestimation of future demand, when orders were being placed in the first half of this year. If this were all, there would not be too much to worry about. It would only need time to effect a readjustment;—though, even so, the recovery would only be up to the point required to take care of the revised estimate of current demand, which might fall appreciably short of the prosperity reached last spring.”

    “The benefit from the momentum of recovery as such is at the same time the most important and the most dangerous factor in the upward movement. It requires for its continuance, not merely the maintenance of recovery, but always further recovery. Thus it always flatters the early stages and steps from under just when support is most needed. It was largely, I think, a failure to allow for this which caused the ‘error of optimism’ last year.”

    ——–John Maynard Keynes’s Private Letter to Franklin Delano Roosevelt of February 1, 1938.

    Key on “when support is most needed.” and “failure to allow for this…” Keynes appears to be saying that even upon clear evidence of a recovery, you do not remove the constant attempts of stimulus.

    I think Chairman Benanke is following Keynes prescription, only to find himself mired
    in the recent winds of political change. As Invictus points out in his comment above, QE2 becomes the last stimulus game in the casino.

    “But I don’t run the Fed. Maybe Chairman Bernanke’s ideas are better than mine and, in any case, the planned QE2 is far better than doing nothing. It is not a shot in the dark, not a radical departure from conventional monetary policy, and certainly not a form of currency manipulation.”

    “I know Ben Bernanke. Ben Bernanke is a friend of mine. And critics ranging from Mr. Schauble to Ms. Palin are no Ben Bernankes.”

    From: “Binder defends Benanke,” by Alan S. Blinder, Wall Street Journal, November 15, 2010

    Albeit, casino is a bad word choice, but considering what just may soon unravel, wherein congressional mind games will be played with the “full faith and credit clause” of our Constitution, where the mean spirited will display an utter barrenness for empathy, and the global constituency will still wail over $600 billion that represents a mere ½ per cent of the value of all global bonds and equities, political storm warnings are in order. But such is the “art”of politics, not markets.

  84. Joe Friday says:

    Calvin,

    “So why can’t Bernanke send everyone of legal drinking age $5,000? Wouldn’t that do better than QEII?”

    Unlike passing out cash, the QE2 is an unwindable position.

    The Fed will create money out of thin air with a keystroke and purchase treasuries. At any point they can sell the treasuries into the marketplace and then uncreate the money.

    This is also why I don’t get the concern about the QE2 supposedly being inflationary.

  85. Fred C Dobbs says:

    Why is this headlined: ” An Open Letter to Bernanke of Dubious Authorship”? The adjective that modifies ‘authorship’ under ordinary rules and meanings of English sentence structure and words, suggests that some doubt exists over the identify of whoever authored (wrote) the letter. Is there any doubt who wrote the letter? Yes, for no where is the writer identified. On the other hand, it appears a fair number of people ‘signed’ the letter. That doesn’t mean any of the signers wrote the letter. Many signed the Declaration of Independence but not all who signed participated in its writing. Few confessions are written by the confessor; usually the confessor signs what someone else wrote. So it is true that no one knows who wrote it, but is it important to know who wrote the letter? If not, if it was unimportant for the headline to call attention to “dubious authorship.” Are we trying to suggest that, because it may be argued the authorship is dubious, what the letter says is false? If so, wouldn’t it be simpler and more direct to state the letter is incorrect, and give the reasons why it is incorrect? Why not make your contribution to solving a problem no one has an answer to.

    Shifting attention to what is said about the letter, are you prepared to look me in the face and tell me you actually know what to do? I don’t think so. Neither you, nor I nor anyone else know exactly what to do. We have ideas, some based on a few meager facts, and others based on no facts at all, but if you think Big Government is going to listen to you, you are smoking something.

    As for the track record of those who signed the letter, I am not surprised to find they are often wrong, for Buffet is often wrong too. I understand a study of his bets resulted in the discovery he is right about half the time, about as often one can be flipping coins. Some of the ‘early adopters’ of the belief that a crash was coming in 2006, have been living off that prophecy a long time, and, if not careful, might turn into ‘one trick’ ponies.

    It might be interesting for you to compare how much money you have made with the amount those who signed the letter have made while practicing economics and betting on the ponies in the market. In the last analysis, people act in their own self-interest, and it seems reasonable to assume they have put their information, knowledge, and experience into building up as good reputation they can for being right, and playing the market. I don’t know how you can do this, but you might give it a try. If you have made as much or more than they, should we pay more attention to what you say or what they say?

  86. nemo says:

    “Paul Krugman takes down a couple of the signers, wondering what economic credentials William Kristol has (Or credentials of any sort for that matter).”

    The presence of Dan Senor also indicates this letter is a political statement, not an economic one. Senor’s main credential is that he was the senior advisor to Paul Bremer, the most incompetent of a crew of incompetents running Iraq shortly after Bush’s invasion.

  87. plantseeds says:

    The best part about Invictus is that it’s treatable. Because it’s symptoms are easily recognizable you can preempt full blown exposure by quickly administering the cure.

  88. Hugh says:

    I was hoping that after the mid-terms we could leave politics alone for 48 hours or so. Oh well.

    Invictus, you have written long pieces on Sarah Palin’s shopping basket and now on the authors of this letter to the WSJ. You clearly enjoy preaching to Barry’s choir.

    I am more interested in QE2 as policy – is it good? bad? the least bad alternative? Two years ago I might have found useful analysis or pointers on the Big Picture.

    But now I just get this.

  89. Bokolis says:

    If I would eat at Mickey Dees, I would take exception. They attract flies. Keep these jokers where I can see them.

  90. BR –

    OK, the letter was ‘signed’ by several economists who conservatives or Republicans….

    So – does that make the policy of government printing money to buy its own bonds (representing the amount of the budget deficit) wise, prudent, effective ?????

    BR, as you say, ‘look at the data’. Forget the messenger, what data is there from history or economics that would support this policy?

    If any data or precedent supported this policy, wouldn’t other countries have done it successfully before now ?

  91. Oh, and Nassim Taleb is horrified by what the Fed is doing; any comments on this?

    http://alaricinvestments.blogspot.com/2010/11/nothing-is-as-permanent-as-things.html

    Thanks

  92. lineside says:

    Invictus defends Bernanke and QEII by pointing out that certain opponents didn’t see the financial crisis coming. This argument is like saying Charles Manson isn’t a murderer because some of the people that accused him were shoplifters.

    While it is certainly true that some of Bernanke’s detractors did not see the disaster coming, it would be obvious to a fourth grader how ineffectively this serves as a defense of Bernanke or his QEII, given that nobody on the planet was more clueless about the looming crisis than Ben himself. Of course Invictus fails to mention any of the many critics of BB & QEII who did sound the alarm about the crisis, who happened not to be on the letter.

  93. JerseyCynic says:

    “John has a long Mustache.”
    — – — – —- –
    -
    -
    -
    -

    “Ben has a nice beard.”

  94. DeDude says:

    MayorQuimby@7:41

    “if you honestly think raw printing of unbacked currency actually can work I have a bridge I can sell you CHEAP”

    “commods have skyrocketed this year and the pass through will bring higher prices and lower margins early next year”

    I believe that the purpose of the printing is to fight deflation, yet in the same post you are complaining both that it doesn’t work and that it is creating higher prices -duhh

    I agree that it is not the smartest or most effective way to get the job done. But with congress in gridlock it unfortunately seems the only way to block the catastrophe of deflation. A country with combined private and public debt of about 350% of GDP cannot afford deflation. Unfortunately we are in the position of having to choose a poison not choose a cake.

    I am with those who think we instead should learn from the success of China and do a sufficiently high stimulus. Lets forget the continuation of Bush taxcuts and instead send everybody a $1500 stimulus check. But with the current tea-baggers in charge of blocking legislation, that is just not going to happen – so like last time we are back to the less effective and more expensive way of getting the job done. All Bernanke can do is to beg the legislators to act, and when they don’t he has to do what he has to do.

  95. DeDude says:

    As I remember it, continuing the Bush tax-cuts next year would cost about 370 billion dollars in lost revenue. So lets not continue them but instead send that money as stimulus checks to everybody – that’s about $1100 to every person in the country. That means revenue neutral stimulus checks that do not commit us to permanent tax-cuts (which would increase our national debt by $3.7 trillion). After congress has demonstrated its ability to cut government expenses and pay back the debt, then we can talk about permanent tax-cuts.

  96. carleric says:

    So you beliee the delfation argument and your support comes from Paul Krugman….did he see all this coming? I don’t think so – a fact you conveniently ignore. It just seems so simple to me. QE2 does nothng but artifically inflate asset prices, transferring more and more wealth to fewer and fewer people, supporting irresponsble economic activity by the governemnt and support for the speculators. If that is the unstated but intended purpose, who cares who supports it or condemns it? It is simply bad policy by someone – beloved by some – who simply misunderstands the economic situation.

  97. bidrec says:

    Check out the signer Paul Singer of Elliott Associates.

    “It all started in 1996, when Elliott paid $11 million for $20 million of debt, dating back to 1983, theoretically owed by the government of Peru. … Instead of settling with Peru, as its 180 other creditors did, Elliott took the government to court. “Pay us in full or be sued,” Singer threatened.

    A federal district court in New York initially ruled against Elliott, finding that the fund had purchased the debt “with the intent and purpose to sue” and “rejected each and every opportunity to participate in Peru’s restructuring.” Elliott appealed and won. Then the fund began working the political system in New York. With the help of a lobbying firm in Albany, Elliott, through a subsidiary, persuaded the New York legislature to change an obscure law governing compound interest, increasing Elliott’s payout by $16 million, for a total, including interest, of $58 million. It was done so quietly that Peru’s lawyers didn’t find out until after the fact. A few years later the New York State Assembly eliminated another law that Peru had used to defend itself. Three months after the bill became law, Singer gave the lead sponsor, State Assembly Member Susan John, a $2,500 campaign donation.

    Elliott’s most recent target is the oil-rich but desperately poor West African nation of Congo, … In the late 1990s Elliott, through a variety of shadowy subsidiaries, bought $100 million of defaulted Congolese debt for roughly 7 to 10 cents on the dollar, according to a legal brief filed by the Congolese government. A Cayman Islands-based entity called Kensington International went to court in London and received favorable judgments, ordering repayment of the debt plus interest. Then Kensington returned to court in London and sought to prevent Congo from repaying any other creditors until Kensington was paid. This time the judge balked, saying he didn’t even know what Kensington International was and how much it had paid for the debts.

    Only when Kensington sued Congo in New York under a RICO statute (which would triple a final judgment to $375 million), was it revealed that Kensington was a subsidiary of Singer’s fund. Since then, Elliott/Kensington has pulled out all the stops. The fund retained as counsel Ted Olson, George W. Bush’s initial choice to replace Alberto Gonzales as Attorney General. Kensington has filed at least fifteen separate lawsuits against Congo and its business partners, in places ranging from the British Virgin Islands to Hong Kong to the United States…..”

    http://www.agenceglobal.com/article.asp?id=1382

    He is also suing Porsche.

    11. Posrsche’s intentional misrepresentations and manipulative acts induced the Plaintiffs to sell short the VW shares. Plaintiffs relied on Porsche’s various statements with regard to its ownership of VW sharies, and Plaintiffs relied on the absence of any disclosed accumulation of Porschee shares. Given the facts available to them, Plaintiffs determined the price of VW shares was too high and decided to short VW shares. By short selling, the Plaintiffs hoped to profit when the price of VW shares returned to levels that reflected the fundamentals of its business.

    12. Defendants’ fraud and manipulative acts had an effect on the price at which Plaintiffs entered into short sales of VW shares…..

    http://www.scribd.com/doc/25784840/Hedge-Fund-Complaint-Against-Porsche

  98. [...] we noted previously, many of the critics of QE2 have put together a pretty awful track record of analyzing markets, economy and the [...]