Ben Bernanke's Trifecta of Errors - Dean Baker/HuffPo

[WillyT]

Ben Bernanke's Trifecta of Errors
Dean Baker
Co-Director of the Center for Economic and Policy Research
Posted: September 9, 2010 05:01 AM

<snip>

Many have noted the resemblance between the Federal Reserve Board and the Catholic Church. Both have long traditions of secret convocations: meetings of the Open Market Committee and the College of Cardinals. Both have a revered leader: the Chair of the Board of Governors and the Pope. And both have claims to infallibility.

OK, it is only the Pope who can explicitly claim infallibility. In the case of the Fed Chair, infallibility is bestowed by the business reporters and politicians who treat every word from the reigning Fed chair as a priceless pearl of wisdom.

This aura of infallibility is especially painful in the current economic situation when error seems to be the new religion of the Fed. Just to remind everyone -- since so much denial has dominated the debate -- the only reason that we are facing near double-digit unemployment and the worst economic calamity in 70 years is that the Fed was out to lunch in combating the housing bubble.

The Fed was apparently unable to recognize a massive and unexplained departure from a 100-year-long trend in the largest market in the world as a bubble. Even after they had just seen the stock bubble grow and implode they still could not conceive of a bubble in the housing market. Bernanke and other spokespeople for the Fed have also claimed that there was nothing that they could have done even if they did recognize the bubble.

Call this colossal error number one. This is drunkenly driving the school bus into the lane of oncoming traffic killing all aboard. In most lines of work, you would be fired immediately and barred from ever working again. For the Fed chairman this is just a bad break.

Having missed the largest financial bubble in the history of the world, Bernanke quickly moved to colossal error number two, failing to take adequate steps to counteract the downturn. While Bernanke deserves credit for being more aggressive than some of the quacks who would have just let the financial system melt down completely, his response to mass unemployment has been woefully inadequate.

The Fed should be targeting a higher rate of inflation in the 3-4 percent range. This would reduce real interest rates and debt burdens. What is the downside in this picture; inflation accelerates too much and hits 5-6 percent? How does that compare to years of excessive unemployment with millions of people unemployed or underemployed needlessly? No reasonable calculation of costs and risks would justify Bernanke's timidity in the current circumstances.

Bernanke's third colossal error is playing along with the deficit fervor being promoted by those seeking to gut Social Security, Medicare and other areas of social spending. The downturn has predictably led to an explosion of the deficit, as public spending had to fill the gap created by the collapse of private spending.

However there is no reason whatsoever why this deficit should place any burden on the long-term federal budget. A responsible Fed chairman would announce his intention to simply buy and hold the government debt used to finance the deficit. This would prevent the debt from placing any future burden on the public budget since the interest payments on the debt would go to the Fed. The Fed would in turn refund the interest to the Treasury each year, leaving no net interest burden on the government.

<snip>

More: http://www.huffingtonpost.com/dean-baker/ben-bernankes-trifecta-of_b_710158.html

:kick:

[indepat]

1. Not many survive after making three colossal errors

:shrug:

[truedelphi]

2. Actually I would have preferred that the Financial Insititutions that were facing ruin simply

Face that ruin.

Instead anywhere from nine to twelve trillion dollars has been offered the gullets of the gluttonous.

And like Grayson tried to find out, and instead saw total incompetence in the Oversight Process, no one knows exactly where that loot has gone. But it certainly did not create any jobs for the average worker.

The largest transfer of wealth in history. From Main Street to Wall Street, and the only reason they can claim that it is being paid back is because of tax loopholes that give the paybacks tax deduction status.

[WillyT]

4. You Might Be Interested In This:

Link: http://www.huffingtonpost.com/2010/09/09/sec-robert-rubin-chuck-pr_n_711070.html

:hi:

[truedelphi]

6. So tragic. And ya gotta end up believing that they are all

Laughing at us - Look at this section of the article:

Crittenden who left the company last year, agreed to pay $100,000 to settle

claims he didn’t disclose the risk after getting internal briefings. Tildesley agreed

to pay $80,000 to resolve claims that he had helped draft disclosures that misled

investors, the SEC said. They and the firm didn’t admit or deny wrongdoing in

their settlement agreements.

These criminals spend more than $ 80 K a year just on their designer silk hankies and the antique bureau where they keep them. Both of these men got millions in bonus money, maybe even tens 0of millions, and now they pay back $ 80 to 100 K?

Please someone just shoot me already!

[Demeter]

3. There Are More Than 3 Collossal Errors By Bernanke

and every day he continues in office adds at least one more error to the list.

[truedelphi]

7. + 1. n/t

[Skink]

5. So the fed could engineer a leveraged buyout of government debt.

interesting.

[truedelphi]

8. And the only one in the Mainstream Media commenting on that

Is Jon Stewart. At least, he is the only TV talking head I have heard discussing about how the government issued bonds are bought by the banks with the money Bernake essentially printed so that they could do the "buy ups."

The CIA take over of the media is one of the worst problems the average person faces in trying to get the government back. It may well be too late to get our government back - even if everyone waking up tomorrow decided to try.