Is Ben Bernanke out?

[DA60]

Without a doubt Obama will appoint a spend-o-holic.

Agreed...that's Yellen.

 

[washunut]

Of course he is out. He was a "financial wartime chairman". He is probably over worked and considerably underpaid.

That is why I think he will taper by September, he does not want to leave that task to the incoming chairman. However, if it is Yellen, I would expect the Fed to change course by mid 2014 and increase purchases if the economy is not growing by 2.5%.

 

[Kushinator]

That is why I think he will taper by September, he does not want to leave that task to the incoming chairman.

I still believe the motivation to taper is data dependent. If by chance we see consecutive monthly job growth greater than 300k by September, tapering is inevitable. Otherwise, i expect the 6.5%-7% target to be upheld.

However, if it is Yellen, I would expect the Fed to change course by mid 2014 and increase purchases if the economy is not growing by 2.5%.

Again, it is all dependent upon data. Economic growth necessary to achieve the target unemployment rate will surely have a positive impact on current budgetary shortfalls, i.e. the supply of treasury issuance will fall considerably. My expectation is that Yellen could promote purchasing programs exclusively for private debt IFF inflation is sub 1.5%.

 

[washunut]

I still believe the motivation to taper is data dependent. If by chance we see consecutive monthly job growth greater than 300k by September, tapering is inevitable. Otherwise, i expect the 6.5%-7% target to be upheld.



Again, it is all dependent upon data. Economic growth necessary to achieve the target unemployment rate will surely have a positive impact on current budgetary shortfalls, i.e. the supply of treasury issuance will fall considerably. My expectation is that Yellen could promote purchasing programs exclusively for private debt IFF inflation is sub 1.5%.

If either of us could guess whether or not he will taper in September we would be wasting our time on the computer we would be in the Hamptons (if you are there this weekend let me know and I will listen a lot closer).

I think that Bernanke may feel that this latest round of QE has not had a materially beneficial impact to the economy and may be concerned about bubbles certain asset classes if this continues too much longer. That is just my guess. Perhaps as a lame duck he has less power over the FOMC and the doves are less worried about bubbles.

My personal view is that Bernanke has made many very hard decisions during his chairmanship. While it did not agree with the moves after QE1 I do think he did what he thought was best and was not partisan.

 

[DA60]

There's a lot of criticism of Fed Chairman Ben Bernanke in this thread. While many probably have disagreements on one policy choice or another, the reality is that the Fed Chairman steered the Fed through an extremely hazardous time. His leadership helped assure that a raging financial crisis did not trigger a collapse of the nation's banking system, plunging the country into a Great Depression-type scenario, coupled with towering employment and crippling debt deflation.

In a recent speech before the National Association for Business Economics Conference, Dallas Federal Reserve President and CEO Richard Fisher, one of the Fed's leading inflation hawks, told his audience:

The current chairman, Ben Bernanke, took the wheel at the Fed just as we sailed into a tempest that nearly capsized our economy. He and his able crew kept the ship of the economy from floundering and navigated it past the rocks of depression and deflation. The Bernanke-led FOMC steered clear of the shoals of economic collapse by jury-rigging the vessel of monetary policy in an unconventional and unprecedented manner. Now the ship of the Fed is in more benign waters and is sailing forward. The question before us is this: Are we moving forward at sufficient speed to allow the Fed to reset our rigging and our sails, eventually going back to a more conventional configuration?

In short, even as a measure of concern about QE3 is warranted--namely, that QE3 has distorted asset prices in the real and financial sectors--the full picture of the Fed Chairman's tenure argues that he handled some enormous problems very capably. With a less effective Fed Chairman, the nation might well still be picking up the pieces of a collapsed financial system and rather than discussion about the unemployment's rate remaining well above 7 %, one might be talking about a 15% unemployment rate accompanied by still falling prices.

Or maybe the economy would have long recovered by now and the unemployment rate would be around 5% or less...plus, the Fed's balance sheet (which I think is going to be a HECK of a lot harder to unwind then many economists seem to think) would be a ton smaller.

Of course a Fed Prez is going to back Bernanke - his neck is on the line as well, he's been at the Fed since '05.


This now old fallback of 'if we had not have done it, things would be much worse' is utter nonsense as it is TOTALLY unprovable.

What we can prove is America is much farther in debt then a few years ago, unemployment is still stuck well over 7% and only the rich have so far benefited from QE's to any substantial amount.

 

[donsutherland1]

Or maybe the economy would have long recovered by now and the unemployment rate would be around 5% or less...plus, the Fed's balance sheet (which I think is going to be a HECK of a lot harder to unwind then many economists seem to think) would be a ton smaller.

Of course a Fed Prez is going to back Bernanke - his neck is on the line as well, he's been at the Fed since '05.


This now old fallback of 'if we had not have done it, things would be much worse' is utter nonsense as it is TOTALLY unprovable.

What we can prove is America is much farther in debt then a few years ago, unemployment is still stuck well over 7% and only the rich have so far benefited from QE's to any substantial amount.

The problem is that the critics of the Fed's extraordinary measures and those of TARP offered no alternative approaches. Hence, one cannot reasonably speculate on a different outcome. Criticism and opposition, alone, are not policy solutions. Yet, that's what opponents of these programs offered as their alternative.

 

[washunut]

The problem is that the critics of the Fed's extraordinary measures and those of TARP offered no alternative approaches. Hence, one cannot reasonably speculate on a different outcome. Criticism and opposition, alone, are not policy solutions. Yet, that's what opponents of these programs offered as their alternative.

OK here is a try. I fully supported TARP and QE1. Less so for QE2 and not at all for QE3. In the first round, Bernanke in my view avoided an economic contraction that most folks have no idea how bad it would have been. Try companies that take on short term debt to make payroll, which are viable companies with long term assets, not being able to pay payroll or buy inventory. Not talking banks now, but the rest of the country. As banks had to shrink their balance sheets they had to call in loans and cancel letters of credit.

Round 2, not nearly the same proportion of risk, but allowed folks to refinance homes cheaply, banks to get their balance sheets fixed and individuals and corporations to refinance into lower debt. Less helpful than round one but still helpful in my view.

Round three. Helped at the margins allowing more to refinance, but with greater cost as now half of purchases are no longer treasuries but longer maturity, riskier mortgages. Materially less help to individuals as many who were allowed to had already financed. Also because of the duration of the the easing, the markets in bonds ( a market much larger than stocks) may be a in a bubble phase, which could cause a lot of pain to the retired and pensions funds that are already struggling. Not sure Ben felt he had a choice with the Government not putting in place policies which will help the economy long term (both sides to blame). That being said I think Ben realizes two things. First this can't go on forever, and two the impacts both positive and negative are pretty much a wash at this point.

An interesting example. Apple when raising their dividend and buying back shares opted to borrow money at very low rates. The folks who bought those securities only a couple of months ago are under water.

Overall I call Bernanke a hero. He did fantastic work in 2008-2009, which in my view was the key person who saved the economy. I would add Paulson to the list. He is unpopular because of Goldman connections and being part of the Bush administration. Whoever without his urging of TARP would have never passed and the economy would have been destroyed in my view.

 

[DA60]

The problem is that the critics of the Fed's extraordinary measures and those of TARP offered no alternative approaches. Hence, one cannot reasonably speculate on a different outcome. Criticism and opposition, alone, are not policy solutions. Yet, that's what opponents of these programs offered as their alternative.

Mant people offered solutions...though many different solutions.

However Austrian Schoolers like Ron Paul, Peter Schiff, Marc Faber, Jim Rogers AND many others like me (I wm not an Austrian Schooler - per se) and probably several on here basically all said the same thing (with minor variations)...

...LET THE ECONOMY FIX ITSELF.

Balance the budget, lower taxes (for all taxpayers), simplify business taxes/regulations to encourage business growth, report the CPI accurately (not artificially low as now), do not artificially lower interest rates, do not assist people with their mortgages/loans and NO Operation Twist/QE's.

The above was more or less done during the 1920/21 Depression, and it ended in 3 1/2 years.

The Keynesian-style intervention of today (to a different extent) was tried after the 1929 crash and that Depression/relative economic stagnation lasted for 10+ years.

And today?

All this massive spending and government intervention and the rich are much richer, the middle class and the poor are no better off.

If you are going to err on a policy...why not err on the one that leaves the country without gigantic deficits/debt?


And America has averaged a recession/depression roughly every 6 years of her existence and got through ALL of them - almost all of which with virtually no major government assistance/market manipulation.

There is your proven track record.

Why change it?

Because the governments of the west/Japan saw an easy way to appease people and get more votes/power...spend, spend, spend.

Sure, it results in economic stagnation and sends the national debt through the roof (see Japan)...but the Keynesians/ignorant masses like it.

 

[imagep]

exponentially increasing the scope of the Patriot Act.

I thought that I saw G Bush own up to starting the internet spying.

 

[imagep]

I don't think I blamed Bush for anything. He was in office when the music stopped and the bubble burst. Was just saying that Bernanke did what he thought had to be done regardless of who is in power.

I do not necessarily agree with rounds 2 and 3 of QE. That being said it has done more to stabilize the economy than anything any of the politicians have done.

AIG is a lot more than a company that wrote a ton of derivatives that they could not back up when the bubble burst. It is also the largest insurer in the world. If they let them fail Lehman would have looked like a minor event.

The Fed I really think wants to be non-partisan. Not every decision they make is going to be perfect. People will look back in twenty years and I think will look favorably on the extraordinary actions the Fed took. Without their actions I believe we would have had a real depression.

Perhaps you think that saving the Obama administration from reigning over a depression is OK as it would make him look bad. But you have to think about what that would have meant to the country, with countless millions of Americans in worse shape than they are now in.

As much as I like to disagree with you, I always respect that you are not a political hack, like most of the posters on this site. You always seem to have a very objective viewpoint, and see thing clearly where others are in the fog of partisanship.

It's kind of ironic that you had me on your ignore list for a while.

 

[washunut]

As much as I like to disagree with you, I always respect that you are not a political hack, like most of the posters on this site. You always seem to have a very objective viewpoint, and see thing clearly where others are in the fog of partisanship.

It's kind of ironic that you had me on your ignore list for a while.

I've plenty of mistakes, that was one of them.

 

[DA60]

OK here is a try. I fully supported TARP and QE1. Less so for QE2 and not at all for QE3. In the first round, Bernanke in my view avoided an economic contraction that most folks have no idea how bad it would have been. Try companies that take on short term debt to make payroll, which are viable companies with long term assets, not being able to pay payroll or buy inventory. Not talking banks now, but the rest of the country. As banks had to shrink their balance sheets they had to call in loans and cancel letters of credit.

Round 2, not nearly the same proportion of risk, but allowed folks to refinance homes cheaply, banks to get their balance sheets fixed and individuals and corporations to refinance into lower debt. Less helpful than round one but still helpful in my view.

Round three. Helped at the margins allowing more to refinance, but with greater cost as now half of purchases are no longer treasuries but longer maturity, riskier mortgages. Materially less help to individuals as many who were allowed to had already financed. Also because of the duration of the the easing, the markets in bonds ( a market much larger than stocks) may be a in a bubble phase, which could cause a lot of pain to the retired and pensions funds that are already struggling. Not sure Ben felt he had a choice with the Government not putting in place policies which will help the economy long term (both sides to blame). That being said I think Ben realizes two things. First this can't go on forever, and two the impacts both positive and negative are pretty much a wash at this point.

An interesting example. Apple when raising their dividend and buying back shares opted to borrow money at very low rates. The folks who bought those securities only a couple of months ago are under water.

Overall I call Bernanke a hero. He did fantastic work in 2008-2009, which in my view was the key person who saved the economy. I would add Paulson to the list. He is unpopular because of Goldman connections and being part of the Bush administration. Whoever without his urging of TARP would have never passed and the economy would have been destroyed in my view.

A hero?

Where is your unbiased proof that things are better now for his actions?

Of course, there is none.

And without proof that he made things better then they would have been otherwise, then there is no way that you can know that his actions were positive.

You can believe, of course...but you CANNOT know.


And TARP saved the U.S. economy?

How could that be when Paulson had to force the banks to take TARP funds?

Uncovered TARP Docs Reveal How Paulson Forced Bankers To Take Cash - Business Insider

If the banks needed the TARP money SO badly - no way Paulson would have had to threaten them.


Plus (another opinion from 2011):

TARP After Three Years: It Made Things Worse, Not Better - Forbes

 

[washunut]

A hero?

Where is your unbiased proof that things are better now for his actions?

Of course, there is none.

And without proof that he made things better then they would have been otherwise, then there is no way that you can know that his actions were positive.

You can believe, of course...but you CANNOT know.


And TARP saved the U.S. economy?

How could that be when Paulson had to force the banks to take TARP funds?

Uncovered TARP Docs Reveal How Paulson Forced Bankers To Take Cash - Business Insider

If the banks needed the TARP money SO badly - no way Paulson would have had to threaten them.


Plus (another opinion from 2011):

TARP After Three Years: It Made Things Worse, Not Better - Forbes

I think if you look at what you highlighted the statement used "in MY VIEW was the key person". We don't get to replay history and see what MIGHT have happened, second guessing is just that guessing. We do what did and did not happen.

 

[donsutherland1]

OK here is a try. I fully supported TARP and QE1. Less so for QE2 and not at all for QE3. In the first round, Bernanke in my view avoided an economic contraction that most folks have no idea how bad it would have been. Try companies that take on short term debt to make payroll, which are viable companies with long term assets, not being able to pay payroll or buy inventory. Not talking banks now, but the rest of the country. As banks had to shrink their balance sheets they had to call in loans and cancel letters of credit.

Round 2, not nearly the same proportion of risk, but allowed folks to refinance homes cheaply, banks to get their balance sheets fixed and individuals and corporations to refinance into lower debt. Less helpful than round one but still helpful in my view.

Round three. Helped at the margins allowing more to refinance, but with greater cost as now half of purchases are no longer treasuries but longer maturity, riskier mortgages. Materially less help to individuals as many who were allowed to had already financed. Also because of the duration of the the easing, the markets in bonds ( a market much larger than stocks) may be a in a bubble phase, which could cause a lot of pain to the retired and pensions funds that are already struggling. Not sure Ben felt he had a choice with the Government not putting in place policies which will help the economy long term (both sides to blame). That being said I think Ben realizes two things. First this can't go on forever, and two the impacts both positive and negative are pretty much a wash at this point.

An interesting example. Apple when raising their dividend and buying back shares opted to borrow money at very low rates. The folks who bought those securities only a couple of months ago are under water.

Overall I call Bernanke a hero. He did fantastic work in 2008-2009, which in my view was the key person who saved the economy. I would add Paulson to the list. He is unpopular because of Goldman connections and being part of the Bush administration. Whoever without his urging of TARP would have never passed and the economy would have been destroyed in my view.

I agree with respect to Secretary Paulson. I believe he really rose to the occasion during the financial crisis and deserves considerable credit for helping avert a potentially disastrous outcome.

 

[donsutherland1]

Mant people offered solutions...though many different solutions.

However Austrian Schoolers like Ron Paul, Peter Schiff, Marc Faber, Jim Rogers AND many others like me (I wm not an Austrian Schooler - per se) and probably several on here basically all said the same thing (with minor variations)...

...LET THE ECONOMY FIX ITSELF.

Balance the budget, lower taxes (for all taxpayers), simplify business taxes/regulations to encourage business growth, report the CPI accurately (not artificially low as now), do not artificially lower interest rates, do not assist people with their mortgages/loans and NO Operation Twist/QE's.

The above was more or less done during the 1920/21 Depression, and it ended in 3 1/2 years.

The 1920-21 contraction was essentially a response to the post-war economic adjustment. Essentially one was dealing with a large-scale inventory pile-up, not dissimilar to cyclical recessions, but larger in scale. Once output became aligned with reduced post-war demand, things improved. In contrast, both the Great Depression and 2007-09 recession were the result of substantial asset bubbles having burst, leaving in their wake enormous debt. In the former case, destructive debt deflation took hold, intensifying and prolonging the economic slump. In the latter, extraordinary efforts averted such an outcome.

The Keynesian-style intervention of today (to a different extent) was tried after the 1929 crash and that Depression/relative economic stagnation lasted for 10+ years.

And today?

There was much more involved in the Great Depression to explain the relapse that took place in the latter portion of the 1930s. The fiscal stimulus this time around was designed for political, as well as economic considerations. More "bang for the buck" could have been achieved through a different mix (far fewer tax provisions in exchange for higher-multiplier direct spending). The former were embraced to try to make the package more politically-appealing in order to secure passage. The problem with a demand shock is that a portion of tax relief is pocketed by fearful recipients. In contrast, all of the direct spending by the federal government is injected into the economy. Not surprisingly, empirical data confirms a higher multiplier for the latter.

All this massive spending and government intervention and the rich are much richer, the middle class and the poor are no better off.

If you are going to err on a policy...why not err on the one that leaves the country without gigantic deficits/debt?

When the economy is on a sustained growth path, fiscal consolidation can be pursued. That the government has had a bias for accommodation e.g., almost all of the temporary 2001 and 2003 tax relief has now been made permanent is just an example. The same holds true for spending. Keynesians see counter-cyclical fiscal policy: increase fiscal deficits during downturns and reduce fiscal deficits during upturns (meaning eliminating the temporary spending hikes and reversing the temporary tax cuts put in place during downturns).

And America has averaged a recession/depression roughly every 6 years of her existence and got through ALL of them - almost all of which with virtually no major government assistance/market manipulation.

The kind of recession the U.S. witnessed is atypical. Almost all are of the much milder variant than asset bust-driven recessions. Those circumstances need to be considered when designing policy. Appropriate policy also differs between recessions triggered by supply shocks and those driven by demand shocks.

 

[DA60]

The 1920-21 contraction was essentially a response to the post-war economic adjustment. Essentially one was dealing with a large-scale inventory pile-up, not dissimilar to cyclical recessions, but larger in scale. Once output became aligned with reduced post-war demand, things improved. In contrast, both the Great Depression and 2007-09 recession were the result of substantial asset bubbles having burst, leaving in their wake enormous debt. In the former case, destructive debt deflation took hold, intensifying and prolonging the economic slump. In the latter, extraordinary efforts averted such an outcome.



There was much more involved in the Great Depression to explain the relapse that took place in the latter portion of the 1930s. The fiscal stimulus this time around was designed for political, as well as economic considerations. More "bang for the buck" could have been achieved through a different mix (far fewer tax provisions in exchange for higher-multiplier direct spending). The former were embraced to try to make the package more politically-appealing in order to secure passage. The problem with a demand shock is that a portion of tax relief is pocketed by fearful recipients. In contrast, all of the direct spending by the federal government is injected into the economy. Not surprisingly, empirical data confirms a higher multiplier for the latter.



When the economy is on a sustained growth path, fiscal consolidation can be pursued. That the government has had a bias for accommodation e.g., almost all of the temporary 2001 and 2003 tax relief has now been made permanent is just an example. The same holds true for spending. Keynesians see counter-cyclical fiscal policy: increase fiscal deficits during downturns and reduce fiscal deficits during upturns (meaning eliminating the temporary spending hikes and reversing the temporary tax cuts put in place during downturns).



The kind of recession the U.S. witnessed is atypical. Almost all are of the much milder variant than asset bust-driven recessions. Those circumstances need to be considered when designing policy. Appropriate policy also differs between recessions triggered by supply shocks and those driven by demand shocks.

In short - Hoover/FDR handling of Great Depression roughly ten years after the crash...national debt triples, DOW barely reaches 1/2 of it's pre-crash level and unemployment is 5 times worse (in 1939) then it's pre-crash level.

Wilson/Harding handling of 1920/21 Depression...national debt is cut by roughly 20%, the unemployment rate is back to near pre-crash levels in 3 1/2 years and the DOW surpasses it's pre-crash level within 5 years.

More details here:

http://www.debatepolitics.com/gover...it-642-billion-w-383-a-43.html#post1061953947


You are using terms like 'extraordinary efforts averted such an outcome'.

You have absolutely no way of proving that, so making that statement in a matter-of-fact way means - no offense - nothing.

You also have no way of proving that what was done during the 30's did not prolong the 'bad times'.


The fact is that two depressions - both with huge deflation - were handled in two totally different manners.

And the results speak for themselves.

 

[donsutherland1]

You are using terms like 'extraordinary efforts averted such an outcome'.

You have absolutely no way of proving that, so making that statement in a matter-of-fact way means - no offense - nothing.

My statement is consistent with mainstream economic consensus. For example, from a Bank of Canada Working Paper:

Third, conditional on Gagnon et al.' s (2011) estimates of the impact of the Federal Reserve's bond purchases on the 10-year government bond yield spread, our counterfactual simulations indicate that U.S. unconventional monetary policy actions have averted significant risks both of deflation and of severe output collapses comparable to those that took place during the Great Depression.

http://www.bankofcanada.ca/wp-content/uploads/2012/07/wp2012-21.pdf

 

[DA60]

My statement is consistent with mainstream economic consensus. For example, from a Bank of Canada Working Paper:

Third, conditional on Gagnon et al.' s (2011) estimates of the impact of the Federal Reserve's bond purchases on the 10-year government bond yield spread, our counterfactual simulations indicate that U.S. unconventional monetary policy actions have averted significant risks both of deflation and of severe output collapses comparable to those that took place during the Great Depression.

http://www.bankofcanada.ca/wp-content/uploads/2012/07/wp2012-21.pdf

It still means nothing - it's just guesstimating (and the Bank of Canada is hardly unbiased as they are pursuing very similar paths as the Fed is - minus direct QE. They have a vested interest in backing up Keynesian-style actions).

It is impossible to know how an occurred event would have unfolded under different circumstances...flat out impossible.

So it cannot be accurately stated as a fact or in a matter-of-fact manner.

You can do a million simulations and you still can never know...you can only believe.