I came across this commentary from Fareed Zakaria on CNN yesterday. It is titled “Bonus For Bernanke?” :
http://www.cnn.com/video/#/video/us/2010/01/31/gps.bernanke.bonus.cnn?iref=allsearch
I mildly or strongly disagree with most of the assertions made by Fareed Zakaria in this piece. The reason that I post it is that it contains a very good, concise representation of ideas from supporters of Ben Bernanke’s performance.
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SPX at 1073.87 as this post is written
I would like to make a couple of comments regarding the speech Ben Bernanke gave on January 3. It was titled “Monetary Policy and The Housing Bubble,” and the pdf link can be found here:
http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.pdf
I could make a significant amount of comments regarding this speech, as I partly or fully disagree with many of the points presented.
I will, however, briefly comment on a couple aspects of the speech. First, from page 21:
“Although the house price bubble appears obvious in retrospect–all bubbles appear obvious in retrospect–in its earlier stages, economists differed considerably about whether the increase in house prices was sustainable; or, if it was a bubble, whether the bubble was national or confined to a few local markets.”
I agree with the general premise that bubbles aren’t always obvious. As I said in my December 2 post, “Some bubbles are harder to spot than others.” As far as the housing bubble was concerned, in my opinion it was a relatively easy bubble to identify as it occurred, based upon a variety of characteristics.
Second, from page 22:
“That said, having experienced the damage that asset price bubbles can cause, we must be especially vigilant in ensuring that the recent experiences are not repeated. All efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs.”
I think it can be strongly inferred from this excerpt, as well as other statements that he has recently made, that he doesn’t believe there are asset bubbles currently in existence. My analysis indicates otherwise, as I discussed in my December 2 & December 16 posts.
SPX at 1136.43 as this post is written
Here are two articles on Ben Bernanke that I found interesting. There is much I could comment upon in each. I disagree or otherwise have differing opinions on various statements in these articles; however, I do feel the stories are valuable as they present an in-depth look at Ben Bernanke from a historical and philosophical perspective.
The first is the Time Magazine “Person of the Year” story of December 16:
http://www.time.com/time/specials/packages/article/0,28804,1946375_1947251_1947520-3,00.html
The second is titled “Bernanke’s Philospher” and is found in the December 2009 Reason.com:
http://reason.com/archives/2009/11/17/bernankes-philosopher
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SPX at 1102.47 as this post is written
In his December 7 speech, Ben Bernanke made the following comments with regard to the role of The Federal Reserve. For now, I will post an excerpt I found notable, and may comment upon it at a later date:
“In all of these efforts, our objective has not been to support specific financial institutions or markets for their own sake. Rather, recognizing that a healthy economy requires well-functioning financial markets, we have moved always with the single aim of promoting economic recovery and economic opportunity. In that respect, our means and goals have been fully consistent with the traditional functions of a central bank and with the mandate given to the Federal Reserve by the Congress to promote price stability and maximum employment.”
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SPX at 1113.69 as this post is written
I would like to briefly comment on Ben Bernanke’s December 7 speech, that can be found at this link:
http://www.federalreserve.gov/newsevents/speech/bernanke20091207a.htm
Here is one excerpt that I found notable:
“Economic forecasts are subject to great uncertainty, but my best guess at this point is that we will continue to see modest economic growth next year–sufficient to bring down the unemployment rate, but at a pace slower than we would like.”
I found this notable as he is reiterating his opinion that economic forecasting is inherently uncertain. In his May 22 speech, which I commented upon in a June 17 post, he had spoken at length on this issue.
I think that this inherent uncertainty in economic forecasting is a very important point. I have written about the topic, and have extensively detailed how accurate economic forecasting, especially since 2007 has proven incredibly difficult. This issue doesn’t seem to gather much attention. However, among other issues, it seems as if it should call into question the potential accuracy of current economic forecasts.
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SPX at 1112.25 as this post is written
from the November 3 FOMC Minutes:
“Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations. While members currently saw the likelihood of such effects as relatively low, they would remain alert to these risks.”
from the book Meltdown, p8, by Thomas E. Woods, Jr.:
“The Fed’s policy of intervening in the economy to push interest rates lower than the market would have set them was the single greatest contributor to the crisis that continues to unfold before us. Making cheap credit available for the asking does encourage excessive leverage, speculation, and indebtedness.”
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As one can see from the above two quotes, there is a considerable difference in philosophies regarding the probability of prolonged low interest rates in creating asset bubbles. The top quote is from the November 3 Federal Open Market Committee Minutes, while the quote below it from Tom Woods Jr. and seems to offer a concise view of the Austrian philosophy on the low interest rate matter.
The issue of whether the ultra-low interest rate environment that has been put in place has fomented asset bubbles is a critical one. For background on this matter, the November 30 BusinessWeek had a story titled “Is the Fed Creating New Bubbles?” and can be found at this link:
http://www.businessweek.com/magazine/content/09_48/b4157022781639.htm
My opinion on the matter is that there are currently multiple bubbles that have formed across various asset classes. They are of various sizes and “vintages.” Asset bubbles that burst can of course cause tremendous economic damage. Perhaps the best example of this is “bursting” of the housing bubble.
Some bubbles are harder to spot than others. Bubbles, almost by definition, include irrational behavior, and therefore can be hard to predict both in their formation as well as their ultimate size. There are many factors that can come into play in order to cause bubbles.
I have addressed my thoughts as to whether Gold is in a bubble in a November 20 post. Another question, that is critical to both investors and the economy, is whether U.S. Treasury securities, especially the 10 Year, is in a bubble. I believe the answer to this is “yes.” The reasoning for my opinion is rather lengthy and complex; however, the previous post (from November 30) represents some of my thought on the issue.
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SPX at 1112.28 as this post is written
Ben Bernanke gave a speech on Monday at the Economic Club of New York. Here is the link:
http://www.federalreserve.gov/newsevents/speech/bernanke20091116a.htm
I found his comments on unemployment to be noteworthy:
Here are some excerpts:
“In addition to constrained bank lending, a second area of great concern is the job market. Since December 2007, the U.S. economy has lost, on net, about 8 million private-sector jobs, and the unemployment rate has risen from less than 5 percent to more than 10 percent.6 Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II.7
Besides cutting jobs, many employers have reduced hours for the workers they have retained. For example, the number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions. In addition, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period. These data suggest that the excess supply of labor is even greater than indicated by the unemployment rate alone.”
also:
“The best thing we can say about the labor market right now is that it may be getting worse more slowly.”
also:
“As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.”
SPX at 1110.32 as this post is written
On Tuesday President Obama made remarks upon nominating Ben Bernanke for a second term as Fed Chairman. The remarks can be found here:
I would like to comment on some of the phrases President Obama used in these remarks.
President Obama says, “The man next to me, Ben Bernanke, has led the Fed through one of the worst financial crises that this nation and the world has ever faced.”
and later:
“Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and out-of-the-box thinking that has helped put the brakes on our economic freefall.”
and later:
“But taken together, this “bold, persistent experimentation” has brought our economy back from the brink.”
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In the second phrase, I found the use of the word “approached” to be odd.
However, the greater significance in the above phrases is the reference to ”bold action and out-of-the-box thinking” and “‘bold, persistent experimentation.’” I was surprised to see the word “experimentation” mentioned; one would usually not think of an economy being “experimented” upon. However, the description is probably accurate given what has transpired. Perhaps the bigger question is whether the “experiment” has ended? Has it been a success?
With regard to this “out-of-the-box thinking” and “‘bold, persistent experimentation’” I would like to refer to a speech Janet Yellin (President and CEO, Federal Reserve Bank of San Francisco) gave on January 4, 2009. In it she said that with regard to the Federal Reserve actions: ““Furthermore, many of the interventions are novel, so no straightforward methods are available to quantify their effectiveness. There are also no clear guidelines for the Fed to gauge the appropriate size of its interventions and few precedents for the Fed to use in communicating its policy stance to the public beyond announcing new programs and describing their terms in detail.”
SPX at 1030.98 as this post is written
With the announcement that Ben Bernanke will be nominated for a second term as Federal Reserve Chairman, I would like to make a few comments.
First, a brief review of some of the comments others have made with regard to Ben Bernanke’s tenure. Here is a quote from Paul Krugman, as seen in the following August 10 Bloomberg story:
“I think Bernanke has done a really good job,” Krugman said. “He failed to see this coming and he was behind the curve in early phases. But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis.”
Krugman’s opinion seems to be largely in line with sentiments recently voiced by many other economists.
As well, other popular thoughts on Bernanke seem to be summarized well in this article:
http://online.wsj.com/article/SB125120274221856591.html
My thoughts on Bernanke haven’t changed. I have periodically remarked on him; those remarks can be found in the “Ben Bernanke” category listed along the right side of the page. Perhaps my June 10 post is the best summary of my thoughts:
http://www.economicgreenfield.com/2009/06/10/in-ben-we-trust/
As well, I will say that I feel that there have been many significant aspects of Ben Bernanke’s actions that have gone unnoticed, and/or have not been commented upon by anyone.
I will continue to comment on Ben Bernanke on an intermittent basis.
SPX at 1027.76 as this post is written
On July 26th Ben Bernanke said, “”I was not going to be the Federal Reserve chairman who presided over the second Great Depression.” The quote and associated details can be found here:
I found the quote interesting primarily as it once again underscores the popularity (or should I say fixation) that many people, including prominent economists, have in comparing (and associating the characteristics of) our current period of economic weakness with that of The Great Depression. As I wrote in my July 13th post, I think that viewing the two periods similarly is not only incorrect but perilous.
SPX at 987.48 as this post is written