My Bet on Bernanke

Since everyone else is throwing in their two cents about 1) whether Ben Bernanke should be reappointed to a second term as Federal Reserve chairman; 2) what moves the FOMC will (or should) make next; and, 3) the policymaking and regulatory role the Fed will (or should) play in future, I figured I might as well do the same.

Although I didn’t quite plan it this way, below are three posts — my six cents, you might say — published today by Going Concern, Sense on Cents, and Wall St. Cheat Sheet, respectively [all of which have long been on my blogroll, as it happens], which should give you some sense of where I stand when it comes to Mr. Bernanke and our nation’s central bank:

„Jr Deputy Accountant and Michael Panzner Discuss 2010 Part II: The Impotent Fed; An Election Year; Waiting for the Recovery” (Adrienne Gonzalez, Going Concern)

In case you missed part one of JDA’s 2010 Outlook interview with Financial Armageddon’s Michael Panzner, you can find it on Going Concern here.

For the first half of my 2010 talk with Panzner, I focused on the other shoes left to drop; commercial real estate, political backlash, and the threat of the massive bubble still being inflated in China. But even bears have their bright sides and Panzner is no different. So what do we have to look forward to this year? Oh crap, more doom and gloom; sorry, I got my interviews mixed up.

Panzner points to our leaders’ missteps throughout the crisis as a major factor that could place a damper on any hope of recovery. “Many of the problems and imbalances that helped about the crisis have gotten worse,” he says, “That means people have less in reserve than they did before, and many have not positioned themselves for a ‘new normal.’ That suggests the next leg down, economically speaking at least, could be much worse than what we’ve experienced so far.” If only we’d been prepared for the worst instead of coddled into believing everything is better, eh?

When asked to take a guess as to when the Fed would finally raise interest rates, Panzner gave an interesting answer. “In my view, the Fed is no longer in control – of the economy or its destiny. For the most part, market and other forces, not the FOMC, will determine what happens to interest rates in future.” So I guess it doesn’t matter when they’ll raise rates, markets are no longer listening. Or are they?

A big picture sort of guy, Panzner identifies sociopolitical threats as another major concern this year, and with this being an election year (hello, Scott Brown anyone?), I’m willing to go on the record as agreeing wholeheartedly with him (shock). “Wait and see what happens to the social and political mood if and when the economy rolls over,” he says ominously.

Oh, believe me, JDA is waiting. And waiting. And waiting. Still no rollover but dammit, I’ll still be here twiddling my thumbs.

Hopefully I’ll get a chance to check in with Panzner again come summer to see where we are.

„The Federal Reserve Has Failed Miserably” (Larry Doyle, Sense on Cents)

How are we to judge the Federal Reserve? The Fed by its very nature has been an opaque institution. What truly goes on behind the closed doors of the Fed? What are the relationships amongst the Fed Chair and Fed governors? How about the relationships between Fed representatives and political operatives?

While volumes have been written about the history of the Fed, to the American public the Federal Reserve remains a mystery. How can we lift the veil on this mysterious institution? Let’s “kiss” the Federal Reserve. What? Oh no, LD, where are you going with this? Let’s plant a big “kiss” on the Fed. That is, keep it simple stupid.

What are the mandates of the Federal Reserve? In the Fed’s own words, the primary mandate of the Federal Reserve from its inception in 1913 has been:

“conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices (LD’s emphasis), and moderate long-term interest rates.”

How is the Federal Reserve doing in pursuit of these stable prices? Thanks to Michael Panzner who, in my interview with him last evening on NQR’s Sense on Cents with Larry Doyle Welcomes Back Michael Panzner, pointed out that the Fed has failed miserably in its pursuit of stable prices. Panzner specifically highlighted that the dollar has lost 95% of its purchasing power since the Federal Reserve was founded in 1913.

I will admit that I found that number shocking! Major high five to a loyal Sense on Cents supporter who listened to last night’s show and then did a little homework of his own to check Panzner’s statement. He wrote to me after the show and provided an interesting link. What do we learn from The Inflation Calculator?

What cost $1000 in 1913 would cost $21520.32 in 2008.
Also, if you were to buy exactly the same products in 2008 and 1913, they would cost you $1000 and $47.10 respectively.

Rest assured, the Fed would spin this number so hard that America would vomit from the motion sickness. The Fed’s excuses may only be rivaled by the nation’s middle school students who lost their homework to the voracious appetite of the family dog.

Regardless of how anybody spins it, a grade of 5 (we’ll round the 4.7 up) is a failure. Are greater failures approaching Zimbabwean magnitude to come?

Might the members of Congress care to question Mr. Bernanke on this? No dog excuses allowed.

Thank you Mr. Panzner for bringing this to our attention. Thank you WB for verification.

What do you think about the Fed now?

„Michael Panzner: If I were Federal Reserve Chairman I Would …” (Wall St. Cheat Sheet)

If I were Federal Reserve Chairman I would figure out why:

  • The value of the dollar has declined more than 95 percent since the Federal Reserve was created in 1913, given that one of the Fed’s two mandates is to promote “long-term price stability” (the other is “full employment”);
  • Many banks were allowed to loosen or abandon traditional lending standards, ramp up leverage, concentrate their credit exposure in risky sectors (e.g., commercial real estate), and skirt rules designed to protect the financial system, given that the Fed is charged with regulating and supervising the sector; and,
  • Monetary policies ostensibly aimed at smoothing the peaks and troughs of the business cycle and ensuring that the U.S. economy remained on an even keel spawned numerous asset and credit bubbles and laid the groundwork for the biggest financial crisis this century.

After that, I would take Jim Rogers’ advice and call it a day.


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