This week Fed. Chairman Ben Bernanke announced that the Federal Reserve will buy up Mortgage Backed Securities (MBS) to the tune of $40 billion dollars a month; with this action being open ended or without an end date. His rationale in doing so is that it will lower interest rates and stimulate borrowing to buy everything from cars to houses to washing machines; thus creating jobs.
We've already completed $2 trillion dollars of Quantitative Easing (QE) stimulus in the last 3 years. Yet, unemployment has remained high. As far as borrowing is concerned, interest rates on loans are already at near historic rates. So, why would anyone think another round of QE will matter to this economy?
To me, Bernanke is "Keynesian economics" and "Monetarist economics" out of control. He is called "Helicopter Ben" for a reason. Like most Keynesians, he believes that just introducing a lot of money into the economy will stimulate growth. But, my god, between a near trillion dollars from Obama and $2 trillion from Bernanke, the economy and jobs are still limping along and none of those trillions have done much to fix anything.
All that Bernanke's QE3 will do is make a lot of people rich who now hold Mortgage Backed Securities. These people finally have a sucker to buy all these junk securities that they've been stuck with since the housing collapse. As far as lowering interest rates is concerned, a lot of average people with money in the bank will just get less interest on their accounts; making them feel less wealthy and less confident in spending the kind of money needed to grow our economy. At the same time, food, energy, and import prices will go up; again, forcing consumers to watch their wallets. And, it is this praxeology (or human behavior) that both Bernanke and Obama and most Keynesians never seem to understand. People aren't buying houses because interest rates aren't low enough, they simply can't afford the 20% that is "now" required to buy a home. Hardly anyone has that amount of money just lying around. For sure, having higher food, energy, and import prices doesn't help anyone save the kind of money needed to buy a house, car, or whatever. The bottom line is that when things are tight, rational people don't spend their savings.
Bernanke and Obama need to stop this top-down money-spending belief that it will somehow grow the economy. They both need to look to the consumer and what the consumer is contending with and formulate a solution to address it. Otherwise, our economy will remain stagnant for decades.
Showing posts with label ben bernanke. Show all posts
Showing posts with label ben bernanke. Show all posts
Friday, September 21, 2012
Wednesday, November 30, 2011
Cheaper Dollars Means More Inflation
This morning, it was announced that our Federal Reserve, along with the Bank of England and the Central Banks of Europe, Japan, Canada, and Switzerland would all lower their dollar interbank lending rate by 1/2 percent. In doing so, it is expected that the world economies will be stimulated.
Once again, you have the monetarist, Federal Reserve Charmian Ben Bernanke, believing that he can kick start the worlds economy through an easy money policy. A policy that he's tried in this country and that has failed miserably to stimulate anything. To me, the only thing that will happen is that the value of our dollar will fall again; making those things we import more expensive for us to buy. In fact and true to form, as soon as this banking arrangement was announced, the dollar sank in value and oil prices jumped above $101.
As I have written before, import price inflation just shrinks the total amount of products and services that a consumer can afford to buy. In other words, less bang for the buck. As a result, discretionary spending declines and the economy starts to contract. Let's never forget, much of what we buy in this country is imported. Even if a product says "Made in America", it was probably assembled using imported parts.
The big problem with this interbank lending policy is that it doesn't really address the underlying debt crisis in Europe. And, unless countries like Italy and Greece get their spending under control, we are still at risk for world wide economic collapse.
Once again, you have the monetarist, Federal Reserve Charmian Ben Bernanke, believing that he can kick start the worlds economy through an easy money policy. A policy that he's tried in this country and that has failed miserably to stimulate anything. To me, the only thing that will happen is that the value of our dollar will fall again; making those things we import more expensive for us to buy. In fact and true to form, as soon as this banking arrangement was announced, the dollar sank in value and oil prices jumped above $101.
As I have written before, import price inflation just shrinks the total amount of products and services that a consumer can afford to buy. In other words, less bang for the buck. As a result, discretionary spending declines and the economy starts to contract. Let's never forget, much of what we buy in this country is imported. Even if a product says "Made in America", it was probably assembled using imported parts.
The big problem with this interbank lending policy is that it doesn't really address the underlying debt crisis in Europe. And, unless countries like Italy and Greece get their spending under control, we are still at risk for world wide economic collapse.
Tuesday, July 27, 2010
Democrats For The Bush Tax Cuts?
If you read the New York Times or the Washington Post or watch NBC, ABC, CBS, CNN, or MSNBC, the chances are pretty good that you wouldn't know that there is a growing chorus of Democrats who want to extend the Bush Tax cuts; especially those for the wealthy (Click here to See Story: Divisions among Dems over tax cuts for affluent).
Senate Democrats like Evan Bayh, Kent Conrad and Ben Nelson are the real leaders on this. Actually, you have most of the fiscally conservative "Blue Dog" Democrats in the House and Senate who believe that the tax cuts should be extended.
The thing is, that all these Democrats understand that lower taxes help drive the economy. This is something that Nancy Pelosi, Harry Reid, and Barack Obama aren't willing to admit to their political base of fiscally and financially challenged voters who only see the rich as fat cats and ignore the thousands of small business owners who employ almost 70% of the workers in America, and who are taxed at the highest rates. Like it or not, the Bush Tax Cuts helped the economy after the massive plunge following 9/11. Much of the "deficit" that the left constantly complains about wasn't due to the tax cuts. It was due to all that was done after 9/11 to create new government agencies such as the TSA, and to completely rework our national security operations and harden government sites in the U.S. and around the world. And, despite the massive costs of two wars, the Bush deficits had been dwindled down to just about $185 billion in 2007; a year before the current recession hit.
The fact is that federal tax revenues grew by 37%, or from 1.7 trillion to $2.4 trillion from 2003 to 2006 (Click here to See Congressional Budget Office Report: Growth in Federal Tax Revenues From 2003 to 2006). This helped offset much of the spending that took place during this time. The Iraq and Afghanistan Wars had cost almost a trillion dollars through 2007. Yet, the total combined deficits by the Bush Administration from 2003 through 2007 was about $1.4 trillion; meaning that, if you exclude the cost of those two wars, the 5-year adjusted deficit spending was really only about $50 billion a year. Compare that to the current-year Obama budget deficit of $1.47 trillion.
Last week, Ben Bernanke argued before Congress that the Bush Tax Cuts should be left in place and not allowed to expire in January (Click here to See Story: Bernanke Says Extending Bush's Tax Cuts Would Maintain Economic Stimulus). I really think Pelosi, Reid, and Obama would be smart to heed that advice. In fact, I think this economy would be in worse shape today without them. Extending them will give businesses the reassurance that they can operate effectively without another government burden (ie. ObamaCare, Financial Regulation, Cap and Trade, Card Check, etc.) being hoisted upon them. Maybe then, corporate America will start spending the near 1-1/2 trillion dollars that is estimated to be held in reserves for fear of further government regulation and taxes.
Senate Democrats like Evan Bayh, Kent Conrad and Ben Nelson are the real leaders on this. Actually, you have most of the fiscally conservative "Blue Dog" Democrats in the House and Senate who believe that the tax cuts should be extended.
The thing is, that all these Democrats understand that lower taxes help drive the economy. This is something that Nancy Pelosi, Harry Reid, and Barack Obama aren't willing to admit to their political base of fiscally and financially challenged voters who only see the rich as fat cats and ignore the thousands of small business owners who employ almost 70% of the workers in America, and who are taxed at the highest rates. Like it or not, the Bush Tax Cuts helped the economy after the massive plunge following 9/11. Much of the "deficit" that the left constantly complains about wasn't due to the tax cuts. It was due to all that was done after 9/11 to create new government agencies such as the TSA, and to completely rework our national security operations and harden government sites in the U.S. and around the world. And, despite the massive costs of two wars, the Bush deficits had been dwindled down to just about $185 billion in 2007; a year before the current recession hit.
The fact is that federal tax revenues grew by 37%, or from 1.7 trillion to $2.4 trillion from 2003 to 2006 (Click here to See Congressional Budget Office Report: Growth in Federal Tax Revenues From 2003 to 2006). This helped offset much of the spending that took place during this time. The Iraq and Afghanistan Wars had cost almost a trillion dollars through 2007. Yet, the total combined deficits by the Bush Administration from 2003 through 2007 was about $1.4 trillion; meaning that, if you exclude the cost of those two wars, the 5-year adjusted deficit spending was really only about $50 billion a year. Compare that to the current-year Obama budget deficit of $1.47 trillion.
Last week, Ben Bernanke argued before Congress that the Bush Tax Cuts should be left in place and not allowed to expire in January (Click here to See Story: Bernanke Says Extending Bush's Tax Cuts Would Maintain Economic Stimulus). I really think Pelosi, Reid, and Obama would be smart to heed that advice. In fact, I think this economy would be in worse shape today without them. Extending them will give businesses the reassurance that they can operate effectively without another government burden (ie. ObamaCare, Financial Regulation, Cap and Trade, Card Check, etc.) being hoisted upon them. Maybe then, corporate America will start spending the near 1-1/2 trillion dollars that is estimated to be held in reserves for fear of further government regulation and taxes.
Tuesday, September 15, 2009
A Year After the Lehman Collapse
It has been a year since the Wall Streeter, Lehman Brothers, filed for bankruptcy. It has been a year since the magnitude of the "toxic asset" situation was really exposed to sunlight. And, it has been year since we finally realized that the world's banking system was on the verge of becoming the economic equivalent of the Titanic.
While Obama seems to tout that it was his actions, since taking office, that kept our economy stabilized, the true savior of our economy was those actions that were taken by then-Treasury Secretary, Henry Paulson, and the current Fed Chairman, Ben Bernanke, in October of 2008. Their simple, but very expensive solution, was to use bailout money for our banks in what we now refer to as TARP. If those remedies had not been implemented as quickly as they were, we truly could have had a complete pancaking collapse of the world's banking systems; not just ours. That's because, at the time, there was a massive amount of world banking interdependency that was built heavily on a massive amount of extremely toxic home loans. The money that was infused by the Treasury and the Federal Reserve in October of last year provided just enough cover for any massive bank losses that could have resulted; and, that simply helped to prevent the potential domino effect of one bank collapsing after another as millions of mortgage loans began defaulting.
So, that disaster was averted. However, we are not out of the woods yet. Banks continue to go belly up and foreclosures are an ever-present problem; especially when commercial loans start defaulting. The FDIC, who is responsible for insuring our banks against any depleted funds, is becoming depleted, itself.
On Monday, Obama proposed new, more stringent regulation of our banks. However, to me, the need for new regulation isn't really warranted. We just need to restore those laws that were replaced during the Clinton Administration and to eliminate one very glaring law that was passed under Jimmy Carter. Then, too, we need to make sure that oversight is re-established to prevent any of this from ever happening again. Laws are fine as long as they are enforced; otherwise they are just another hidden piece of paper in a file cabinet.
Just remember, it wasn't the lack of laws that allowed Bernie Madoff to defraud all those people with his Ponzi scheme. Instead, it was the lack of oversight and investigation that allowed him to steal millions upon millions of people's hard-earned money. The same is true for the housing collapse and all those subprime loans that were allowed to go forward with many of our government agencies and lawmakers ignoring the impending doom.
As I alluded to before, the problem of the subprime loans goes back to the Community Reinvestment Act that was passed by Jimmy Carter and the dominant Democratic Congress at that time. That was really the genesis of all these toxic loans that have permeated our banking system and that nearly brought it to its knees. It is the law that allowed groups like ACORN and other activist groups to push banks into giving an increasing numbers of low income and high risk loans. Loans that would have otherwise been denied.
Then, too, you have to go back to the Clinton Administration and one Republican Senator by the name of Phil Gramm to see how some new laws were passed that allowed the banks to get involved in even riskier loan behavior. Because of Clinton and Gramm, some of the regulations and protections that had kept our banks from getting into risky behavior were totally abandoned. One such law, the Gramm-Leach-Bliley Act, that Clinton signed in 1999, completely repealed the protections of the Glass-Steagal Act of 1993 and is said to have been directly responsible for much of the subprime mortgage problems as it relates to Credit Default Swaps.
Further, after Clinton left office, some progressives from his Administration populated both Freddie Mac and Fannie Mae and they pushed these agencies into offering high risk loan sub-prime, Adjustable Rate Mortgages. George W. Bush, too, was part of the problem. He kept pushing a low-income home ownership agenda and Democrats, like Barney Frank, as a senior member of the Senate Banking committee, gladly obliged.
But, let's not forget, the Bush Administration knew that pushing too hard was going to be a problem and that's why they, on more than a few occasions, issued warnings that many in Congress seem to have ignored. Again, this was a failure of oversight. Efforts to reign in Freddie Mac and Fanny Mae were tactically blocked in Congress and it's banking committee because of the ideological whims of people like Barney Frank.
Finally, the real crack in the banking system started to show up as the Federal Reserve Bank, under Alan Greenspan, started to rapidly raise rates in 2004 through 2006 (Click to see a very telling graph). Prior to this, rates were kept unattainably low in order to fight the recessionary effects of the Clinton-recession and the attacks of 9/11. During that time, interest rates were kept so low that millions of Adjustable Rate Mortgages at subprime rates were established with near zero down payments for people who otherwise couldn't have afforded them. Further, as rates started to rise, people naturally rushed in to take advantage of low interest loans before they went higher; thus aggravating the subprime loan situation. Things really started to unravel when an increasing number of those sub-prime loans began to take on their annual resets and those holding those mortgages found themselves falling behind on their mortgage payments. Eventually, the holders of the loans began a process of foreclosure and the housing market started to collapse completely. Ultimately, the housing bubble had completely burst by the end of 2007 and there were signs that we could have a massive recession on our hands.
While there are those who are quick to blame Wall Street, it was a lot of government deregulation and the "gaming" of existing laws that caused the mess we are now in. All those banks, that are now in trouble, were being pushed by a government who saw low-income home ownership as a political tool and neither the Democrats or the Republicans are blameless for that shameless behavior. Congress, more than anything, should be blamed for ignoring the warning signs and for allowing the risk.
A lot can be done, and done quickly, to reestablish order in the mortgage loan and banking system in America. Much of this should have been done by Obama when he took office. Instead, he went on to the less important things like the reform of health care. He was more concerned with closing Guantanamo and paying back his campaign donors than modifying the laws that would protect Americans from another banking collapse.
First and foremost, we need to do something with the Community Reinvestment Act. Either rescind it or modify it in such a way as to insure that it doesn't become an overriding factor for traditional, disciplined loan activity. Whatever is done, this law should no longer be used as a "hammer" by outside groups, like ACORN, to force banks to abandon ethical loan behavior. Secondly, all those Gramm/Clinton laws should be looked at and modified to insure that loan loss reserves are being maintained and aren't being undermined by derivative investment instruments like the Credit Default Swaps. Glass-Steagal should be pulled out of the trash, dusted off, and at least partially reenacted. Lastly, it is paramount that oversight be restored. No one person, like a Barney Frank, should be able to push banks into giving loans that are outside the norms.
Freddie Mac and Fannie Mae should probably be divorced completely from the influences of our Senate Banking Committee. I think these two semi-government agencies should report to a Board of Directors who is partially nominated by the stockholders and partially nominated by the Executive Branch of Government and approved by Congress. The General Accounting Office (GAO) should conduct annual audits and those results should be made public without any prior Congressional review or tampering. Further, an independent non-government auditing firm should continue the normal quarterly audits.
We don't need new laws. We just need the laws put back in place that adequately protected us from the 1930's forward; like Glass-Steagal. We also need to shore up the ones that were passed in the late 1990's because the laws must be current for a modern banking system. Somewhere we need to make sure that there is clear oversight and protections of an annual audit of our banking system.
While Obama seems to tout that it was his actions, since taking office, that kept our economy stabilized, the true savior of our economy was those actions that were taken by then-Treasury Secretary, Henry Paulson, and the current Fed Chairman, Ben Bernanke, in October of 2008. Their simple, but very expensive solution, was to use bailout money for our banks in what we now refer to as TARP. If those remedies had not been implemented as quickly as they were, we truly could have had a complete pancaking collapse of the world's banking systems; not just ours. That's because, at the time, there was a massive amount of world banking interdependency that was built heavily on a massive amount of extremely toxic home loans. The money that was infused by the Treasury and the Federal Reserve in October of last year provided just enough cover for any massive bank losses that could have resulted; and, that simply helped to prevent the potential domino effect of one bank collapsing after another as millions of mortgage loans began defaulting.
So, that disaster was averted. However, we are not out of the woods yet. Banks continue to go belly up and foreclosures are an ever-present problem; especially when commercial loans start defaulting. The FDIC, who is responsible for insuring our banks against any depleted funds, is becoming depleted, itself.
On Monday, Obama proposed new, more stringent regulation of our banks. However, to me, the need for new regulation isn't really warranted. We just need to restore those laws that were replaced during the Clinton Administration and to eliminate one very glaring law that was passed under Jimmy Carter. Then, too, we need to make sure that oversight is re-established to prevent any of this from ever happening again. Laws are fine as long as they are enforced; otherwise they are just another hidden piece of paper in a file cabinet.
Just remember, it wasn't the lack of laws that allowed Bernie Madoff to defraud all those people with his Ponzi scheme. Instead, it was the lack of oversight and investigation that allowed him to steal millions upon millions of people's hard-earned money. The same is true for the housing collapse and all those subprime loans that were allowed to go forward with many of our government agencies and lawmakers ignoring the impending doom.
As I alluded to before, the problem of the subprime loans goes back to the Community Reinvestment Act that was passed by Jimmy Carter and the dominant Democratic Congress at that time. That was really the genesis of all these toxic loans that have permeated our banking system and that nearly brought it to its knees. It is the law that allowed groups like ACORN and other activist groups to push banks into giving an increasing numbers of low income and high risk loans. Loans that would have otherwise been denied.
Then, too, you have to go back to the Clinton Administration and one Republican Senator by the name of Phil Gramm to see how some new laws were passed that allowed the banks to get involved in even riskier loan behavior. Because of Clinton and Gramm, some of the regulations and protections that had kept our banks from getting into risky behavior were totally abandoned. One such law, the Gramm-Leach-Bliley Act, that Clinton signed in 1999, completely repealed the protections of the Glass-Steagal Act of 1993 and is said to have been directly responsible for much of the subprime mortgage problems as it relates to Credit Default Swaps.
Further, after Clinton left office, some progressives from his Administration populated both Freddie Mac and Fannie Mae and they pushed these agencies into offering high risk loan sub-prime, Adjustable Rate Mortgages. George W. Bush, too, was part of the problem. He kept pushing a low-income home ownership agenda and Democrats, like Barney Frank, as a senior member of the Senate Banking committee, gladly obliged.
But, let's not forget, the Bush Administration knew that pushing too hard was going to be a problem and that's why they, on more than a few occasions, issued warnings that many in Congress seem to have ignored. Again, this was a failure of oversight. Efforts to reign in Freddie Mac and Fanny Mae were tactically blocked in Congress and it's banking committee because of the ideological whims of people like Barney Frank.
Finally, the real crack in the banking system started to show up as the Federal Reserve Bank, under Alan Greenspan, started to rapidly raise rates in 2004 through 2006 (Click to see a very telling graph). Prior to this, rates were kept unattainably low in order to fight the recessionary effects of the Clinton-recession and the attacks of 9/11. During that time, interest rates were kept so low that millions of Adjustable Rate Mortgages at subprime rates were established with near zero down payments for people who otherwise couldn't have afforded them. Further, as rates started to rise, people naturally rushed in to take advantage of low interest loans before they went higher; thus aggravating the subprime loan situation. Things really started to unravel when an increasing number of those sub-prime loans began to take on their annual resets and those holding those mortgages found themselves falling behind on their mortgage payments. Eventually, the holders of the loans began a process of foreclosure and the housing market started to collapse completely. Ultimately, the housing bubble had completely burst by the end of 2007 and there were signs that we could have a massive recession on our hands.
While there are those who are quick to blame Wall Street, it was a lot of government deregulation and the "gaming" of existing laws that caused the mess we are now in. All those banks, that are now in trouble, were being pushed by a government who saw low-income home ownership as a political tool and neither the Democrats or the Republicans are blameless for that shameless behavior. Congress, more than anything, should be blamed for ignoring the warning signs and for allowing the risk.
A lot can be done, and done quickly, to reestablish order in the mortgage loan and banking system in America. Much of this should have been done by Obama when he took office. Instead, he went on to the less important things like the reform of health care. He was more concerned with closing Guantanamo and paying back his campaign donors than modifying the laws that would protect Americans from another banking collapse.
First and foremost, we need to do something with the Community Reinvestment Act. Either rescind it or modify it in such a way as to insure that it doesn't become an overriding factor for traditional, disciplined loan activity. Whatever is done, this law should no longer be used as a "hammer" by outside groups, like ACORN, to force banks to abandon ethical loan behavior. Secondly, all those Gramm/Clinton laws should be looked at and modified to insure that loan loss reserves are being maintained and aren't being undermined by derivative investment instruments like the Credit Default Swaps. Glass-Steagal should be pulled out of the trash, dusted off, and at least partially reenacted. Lastly, it is paramount that oversight be restored. No one person, like a Barney Frank, should be able to push banks into giving loans that are outside the norms.
Freddie Mac and Fannie Mae should probably be divorced completely from the influences of our Senate Banking Committee. I think these two semi-government agencies should report to a Board of Directors who is partially nominated by the stockholders and partially nominated by the Executive Branch of Government and approved by Congress. The General Accounting Office (GAO) should conduct annual audits and those results should be made public without any prior Congressional review or tampering. Further, an independent non-government auditing firm should continue the normal quarterly audits.
We don't need new laws. We just need the laws put back in place that adequately protected us from the 1930's forward; like Glass-Steagal. We also need to shore up the ones that were passed in the late 1990's because the laws must be current for a modern banking system. Somewhere we need to make sure that there is clear oversight and protections of an annual audit of our banking system.
Tuesday, February 24, 2009
Bernanke Pushes Stocks Up
Almost, as if any good news would be a reason to buy stocks, our stock markets are "all" up over 3 percent and the "Dow Jones Industrial Average" finished up 232 points. Fed Reserve Chairman Bernanke seems to be the primary driver for this rally. In a Congressional hearing, earlier this morning, Bernanke said that the recession "could" be over in '09.
Now, before you uncork the champagne and start buying up all the beat-down stocks you can find, you would be well advised to look at what this "Carnac the Magnificent", Mr. "Big Ben" Bernanke, said to Congress in April of just last year: "Recession is possible, but recession is a technical term ...I'm not ready to say whether or not the U.S. economy will face such a situation..." (See Full Story)
Now, for me, I don't think Bernanke can really be trusted with his defective little crystal ball. If what we are going through, right now, is just some kind of "technical" situation, I'd really hate to see what an actual, not "technical," recession looks like.
Now, before you uncork the champagne and start buying up all the beat-down stocks you can find, you would be well advised to look at what this "Carnac the Magnificent", Mr. "Big Ben" Bernanke, said to Congress in April of just last year: "Recession is possible, but recession is a technical term ...I'm not ready to say whether or not the U.S. economy will face such a situation..." (See Full Story)
Now, for me, I don't think Bernanke can really be trusted with his defective little crystal ball. If what we are going through, right now, is just some kind of "technical" situation, I'd really hate to see what an actual, not "technical," recession looks like.
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