A Second Bernanke Term

[DUShock]

If you were a member of United States Senate would you vote to confirm Federal Reserve Chairman Ben Bernanke to a second four year term? Remember, if the chairman is not reconfirmed he will continue to have a seat on the Federal Reserve Board. Bernanke's appointment to the Federal Reserve Board expires January 31, 2020.

In Orbe Terrum Non Visi

[Maggie]

Care to explain why you would not support confirmation…I am assuming you are the no vote.

And I didn't vote, yet.

[RoyalShock]

I voted no.

I support an audit of Fed activities. Bernanke does not.

The Fed has also kept interest rates artificially low for entirely too long, which I think was a prime (not sub-prime ;) ) contributor to the housing bubble and why there are great concerns about major inflation in the not-too-distant future.

[Maggie]

I voted no.

I support an audit of Fed activities. Bernanke does not.

The Fed has also kept interest rates artificially low for entirely too long, which I think was a prime (not sub-prime ;) ) contributor to the housing bubble and why there are great concerns about major inflation in the not-too-distant future.

Of course you support an audit of the Fed – how is that legislation Ron Paul sponsored going anyway? Seriously, I know it did pick up some bipartisan support but I don’t know what became of it, if anything.

Your points regarding an excessively loose Fed monetary policy (Bernanke was a huge cheerleader) and its contribution to the crisis (which I am not convinced he recognizes or at least he has not, to my knowledge, acknowledged publicly) are, of course, valid – very, very valid. Bernanke’s stint at the Fed has been far from flawless.

But on the other hand, you must give Bernanke some credit for learning a lesson of the Great Depression: Don’t raise interest rates, and step in if the banking system becomes highly unstable.

I’m torn and don’t know how I would vote. Part of my problem is if not Bernanke…who? If you vote no, I think you should propose someone else as chairman with at least a chance of getting the president’s support and a Senate confirmation.

[SubGod22]

So nominating myself won't work? :D

[RoyalShock]

Of course you support an audit of the Fed – how is that legislation Ron Paul sponsored going anyway? Seriously, I know it did pick up some bipartisan support but I don’t know what became of it, if anything.

Your points regarding an excessively loose Fed monetary policy (Bernanke was a huge cheerleader) and its contribution to the crisis (which I am not convinced he recognizes or at least he has not, to my knowledge, acknowledged publicly) are, of course, valid – very, very valid. Bernanke’s stint at the Fed has been far from flawless.

But on the other hand, you must give Bernanke some credit for learning a lesson of the Great Depression: Don’t raise interest rates, and step in if the banking system becomes highly unstable.

I’m torn and don’t know how I would vote. Part of my problem is if not Bernanke…who? If you vote no, I think you should propose someone else as chairman with at least a chance of getting the president’s support and a Senate confirmation.

I know I'm stepping way out of my knowledge zone and right into yours, but it seems to me that just about anyone could have done what Bernanke did AFTER the hammer dropped. Once the bubble burst, credit contracted and we were in a full-blown recession, what else was there to do?

If I'm not mistaken, not only have interest rates not risen, they've been cut in hopes of not dragging down the economy even more. But is this a wise strategy? It seems to me that the Fed makes short-term decision at the expense of long-term health. Someday, all this money-printing and bond-selling has to catch up with us, right?

I realize the Fed strategy pretty much started with Greenspan but Bernanke did absolutely nothing when the signs were all there. I suspect political and Wall Street string-pullers probably had their way with him, but if true, that only makes his performance a greater failure.

I don't like the concept of central banking and think Fed policies (which I can't help but feel are currupted by outside influences due in part to the secretive nature of it's operation) created the climate that allowed the banks and bureaucrats to engage in the activities that caused our current situation.

Now I fully expect to get schooled by more financial-savvy posters than I.

But before I sign off, I nominate SubGod22 for Fed Chairman. :)

[Maggie]

Royal I don’t think you are that far off, the points you make are proper concerns, and you are certainly better informed than most.

The point is, I guess, Bernanke could have done much worse. He initially acted appropriately after the financial meltdown – he was right to gun the printing presses in the fall of 2008 for example, although I think he has overstayed his easy-money welcome by at least six months. So Royal, I agree with you – Bernanke was seeking to stabilize the market in the short term but now he is going to have to cut the money supply and raise rates – in fact, it could be argued he should have done so already.

Another strike against Bernanke, at least in my book, is his blatant disregard for preserving a stable and strong dollar – which bugs me. Also, I take vacation in a place that uses the Euro – so if Sub is willing to back the dollar he has my support. :good:

Part of my problem with the opposition to Bernanke is the political factor. The opposition I see, from the Left and the Right, on a certain level appears to be part of a blame game which seeks to pin the full responsibility for the meltdown on the Fed. As any reasonable observer is aware there were many factors that contributed: Blame for can be assigned to the Fed because it kept interest rates too low while a bubble inflated – which gave high-risk borrowers incentives to buy houses and exploit the Community Reinvestment Act.; unscrupulous lenders; people who bought homes they couldn’t afford; Wall Street wizards who overleveraged and wrote derivatives they couldn’t pay; and a Congress that set the policy goal of universal home ownership and recklessly grew Fannie Mae and Freddie Mac to pursue that goal (which they continue to do by the way). The Fed chairmanship is too important for it to be the object of this type of game-playing.

And, again, I ask if not Bernanke then who? The decision to reappoint him should be based, in part, on what Bernanke’s continued presence at the helm could mean for the country now, not solely on what he did or did not do prior to the meltdown.

All that said, I am still not sure how I would vote.

[DUShock]

One aspect of rising interest rates (I'm an deficit & inflation hawk) is that the cost to the gov't for publicly held debt will skyrocket. Remember we are borrowing money to pay to make interest payments on borrowed money.

As much as it pains me to say the ONLY way out of the deficit mess a mix of targeted tax increases and targeted spending cuts. Please let the flaming begin by my likeminded friends, I know it’s coming...

The thing to remember with essentially zero inflation is this; Newton's third law prevails when balancing interest rates & inflationary control. I will say inflation is the greatest of the two evils (note both are evil).

For you econo-geeks like myself I highly recommend “This Time is Different: Eight Centuries of Financial Folly” by Professors Carmen Reinhart and Ken Rogoff. http://www.amazon.com/This-Time-Diff...4601828&sr=8-1

Also check out the link to the Concord Coalition http://www.concordcoalition.org/ a NON-PARTSIAN organization, the “About Us” link states:

The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy. The Concord Coalition was founded in 1992 by the late former Senator Paul Tsongas (D-Mass.), former Senator Warren Rudman (R-N.H.), and former U.S. Secretary of Commerce Peter Peterson. Former Senator Bob Kerrey (D-Ne.) was named a co-chair of the Concord Coalition in January 2002.

The Concord Coalition is dedicated to educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America's unsustainable entitlement programs, and how to build a sound economy for future generations. The Concord Coalition's national field staff and loyal group of volunteers cover the country, holding lectures, interactive exercises, conducting classes, giving media interviews, and briefing elected officials and their staffs.

[DUShock]

One more item:


Strong Dollar = Strong America

[RoyalShock]

And, again, I ask if not Bernanke then who?

If Sub can't do it, I have another nomination. A certain congressman from Texas' 14th district. ;)

[Maggie]

And, again, I ask if not Bernanke then who?

If Sub can't do it, I have another nomination. A certain congressman from Texas' 14th district. ;)

That would be the end of the Fed. :)

[Maggie]

One more item:


Strong Dollar = Strong America

Just so. :good: The dollar’s demise is a sign of global declinism for America. This could be the worst part of the whole story. When the U.S. leads, the world prospers. When the U.S. declines, as in the 1970s, the world falls apart.

With regard to your prior post - the deficit has become a huge problem but you think a "targeted" tax increase would help solve the problem (I didn’t read the links you posted, yet)? Targeted at who or what? I’m fine with postponing new spending programs, or cut existing expenditures - most likely both at once. But a tax increase?

Fed aside for a second, we need to get the economic engine moving again. Higher taxes will not promote economic growth – it will, in fact, retard growth. Higher taxes would significantly erode individuals’ incentives to work and save, start and expand businesses, hire workers, and so on. We are seeing it right now – with the threat of higher taxes looming. Furthermore, inflation may happen anyway – it may have to happen. And inflation itself is just another tax - instead of taking citizens’ money away to pay the government’s debt, it makes citizens’ money worth less to shrink the value of the government’s debt - and it can discourage productive activity just as much as other taxes can. Why double down?

Economic growth can help mitigate the effects of inflation, right? Notably, the Fed has not appeared to be concerned with inflation over the past six months – which is also where I think Bernanke has some serious blinders on. Growth = jobs/economic stability = stronger dollar.

Government spending and tinkering around the edges with temporary tax credits have, predictably, not worked. Why not cut taxes and spending? Of course, the latter will impose direct costs on the primary beneficiaries of government transfers and other public programs, which is politically unpopular. Why not go for lower tax rates across-the-board on individuals, businesses, and investors? Why not go for permanent tax cuts that will create new growth incentives? If it pays more, after tax, to work, produce, and invest, folks will work, produce, and invest more. It’s worked in the past.

[DUShock]

I’m crunched for time and hope to respond at length later, possibly this weekend. I apologize for this brief and incomplete response. I do love the dialogue and discussion! We certainly are “Thinkers, Doers, Movers, and Shockers!”

One more item:


Strong Dollar = Strong America

Just so. :good: The dollar’s demise is a sign of global declinism for America. This could be the worst part of the whole story. When the U.S. leads, the world prospers. When the U.S. declines, as in the 1970s, the world falls apart.

With regard to your prior post - the deficit has become a huge problem but you think a "targeted" tax increase would help solve the problem (I didn’t read the links you posted, yet)? Targeted at who or what? I’m fine with postponing new spending programs, or cut existing expenditures - most likely both at once. But a tax increase?

Yes, a combination of cuts and targeted increases. I’d love to see a flat tax enacted but admit to having zero data on hand for this matter. What would you cut to make up the 2008 deficit of $455 billion or the $1.4 trillion in 2009?

Fed aside for a second, we need to get the economic engine moving again. Higher taxes will not promote economic growth – it will, in fact, retard growth. Higher taxes would significantly erode individuals’ incentives to work and save, start and expand businesses, hire workers, and so on. We are seeing it right now – with the threat of higher taxes looming. Furthermore, inflation may happen anyway – it may have to happen. And inflation itself is just another tax - instead of taking citizens’ money away to pay the government’s debt, it makes citizens’ money worth less to shrink the value of the government’s debt - and it can discourage productive activity just as much as other taxes can. Why double down?

Economic growth can help mitigate the effects of inflation, right? Notably, the Fed has not appeared to be concerned with inflation over the past six months – which is also where I think Bernanke has some serious blinders on. Growth = jobs/economic stability = stronger dollar.

Government spending and tinkering around the edges with temporary tax credits have, predictably, not worked. Why not cut taxes and spending? Of course, the latter will impose direct costs on the primary beneficiaries of government transfers and other public programs, which is politically unpopular. Why not go for lower tax rates across-the-board on individuals, businesses, and investors? Why not go for permanent tax cuts that will create new growth incentives? If it pays more, after tax, to work, produce, and invest, folks will work, produce, and invest more. It’s worked in the past.

The relationship between the growth rate of debt and the economy’s growth rate is the most important factor to financial stability. The current debt to GDP ratio is dangerously unstable and most experts agree that given the current trend the national debt will be as large as the entire US economy by 2019. I think we both agree the current trend line stymies growth and in fact lowers the standard of living for all Americans (rich, poor, & in between).
Debt to GDP depends upon 3 primary factors: 1) the amount of budget deficit, 2) current interest rates, and 3) the growth rate of the GDP.
It’s the classic schoolhouse illustration where we assume a balanced budget except for interest payments on debt. Essentially the interest payment is the national debt and the budget deficit is the interest payment. So if the interest rate paid on debt is less than the growth of the economy (GDP) the debt to GDP ratio is falling. This is good!
Of course if interest rates are higher than the economy’s growth, this is bad. When the Fed can no longer cut interest rates to marginalize the difference between the lower GDP & the higher interest rate the economy is underwater. Maggie’s contention is that tax cuts create growth in GDP (trickle down economics ala President Reagan or voodoo economics ala President George H.W. Bush #41) and that inflationary pressure will equate to a de facto interest rate rise as a soda pop that cost $1 at the Chuck now costs $1.05. Maggie and I are closer together than one might think and we’re arguing semantics.

A fun little game for arm chair & practicing economists:

http://www.federalbudgetchallenge.org/

A real time debt clock: Debt Clock: http://zfacts.com/p/461.html

[DUShock]

A New York Times Op-Ed on B-man:

http://www.nytimes.com/2010/01/28/opinion/28blinder.html?adxnnl=1&ref=opinion&adxnnlx=1264690957-T3x9mh8fRY9T6hQ9ma/ZIA

(Maggie, I updated the link.)

[Maggie]

A New York Times Op-Ed on B-man:
http://mobile.nytimes.com/article?a=...ub=Contributor

Can't read the article for some reason (probably a work thing) - do you have a direct link?