Archive for the ‘Bernanke’ Category

Fed Chairman Bernanke Clowns Around, Exceeds Stock Market Expectations

Sunday, November 2nd, 2008

Anyone who’s watched the business channels for more than an hour or two will have been well indoctrinated in the magic thinking that is the Federal Reserve mandate.

The Fed plays “an expectations game”.  In order to maximize the impact of their manipulation, the Fed will try to “surprise” the markets, because if the markets “expect” an action, they may not react.  Often it’s market analysts explaining what the Fed could do that might or might not meet market expectations, or surprise them.  We also hear members and spokespersons for the Fed adapt this habit of speaking.  You’d think they were generals in war, analyzing enemy preparations.

But if surprises work so well in that piece of the economy, why not try them everywhere?

UPS could surprise its customers by sometimes delivering next day, sometimes putting your package in storage for six months, or perhaps even delivering something when you’ve asked for a pickup.

Burger King could sell its customers dollar burgers on Wednesday, thirty-five dollar porterhouse steaks on Thursday, and plumbing supplies on Friday.

If other economic sectors would follow suit (suits being available at garden supply stores… or are they? Maybe your expectations are being managed again… ?), then you can start to see that soon we’d have an unprecedented economic boom, since according to Fed lore, no one knowing what’s going on is a sure path to success (as long as it’s not so sure that we can’t still be surprised).

Has the Fed itself fully explored all the possibilities for surprise?

Maybe Chairman Bernanke could show up at press conferences in drag or funny costumes:

“Chairman Bernanke surprised the financial press today when he attended a briefing wearing an old raincoat and a Harpo Marx wig.  Attendees were further taken aback when the Chairman answered all questions by honking a clown horn.  Reporters quickly adapted, requesting that Bernanke answer questions with one honk for yes, and two honks for no.  All market participants were adjusting to the new conditions, but then Chairman Bernanke yanked away the coat and wig to reveal a Spiderman costume, stunning markets and precipitating an enormous rally…”

While Treasury Secretary Henry Paulson may or may not be glad to see us, but always carries a bazooka, for the Fed, the talk is of how many bullets they may have left, and how they can maximize their potential for impact on the markets.

And why use bullets on the market?  Why surprise them (us) at all? This talk is of a clear effort to take a group of actors who believe one thing, and get them to believe another.  It’s the not very disguised language (in fact pretty much says what it is) of confirmed serial bubble makers.

Yet when the bubbles inevitably occur, then the folks with the self-proclaimed power over expectations, with the bazookas and bullets, have an epiphany– it’s the market’s fault.  “Sure, we had all the advantages, privileges, power and information, but we couldn’t have foreseen that if we threw money at people, they might try to grab it.  We need more bullets to get the benighted, frightened public to trust (and borrow) again so we can re ignite the markets that we perpetually mistake for the economy.”

It should be pretty clear who provides and produces, and who makes noise and pretends.  Unsurprisingly (the actual word that the economy as a whole prefers), the people who produce goods and services are the people who produce goods and services.  It isn’t Wall Street or the banks, and it certainly isn’t the Fed or the government.

Creation of money and credit doesn’t, in the long run, produce anything except a boon for the creators and early spenders, and confusion and malinvestment for the rest of us.  Attempted management of the perceptions of the beneficiaries and victims of fiat money and credit creation may sometimes keep the game cycling a little longer— but more time spent obliviously making poor investments is a worse outcome, not a better one.

Banks and government don’t grow or manage the economy; they don’t run it, expand it, or stabilize it. What banks and government do to the economy is rape it.

And what would any rapist do to try and dodge consequences from his crime?  Blame the victim, of course.

By Les Lafave

Abolish The Federal Reserve –

Bernanke Can’t Do It Alone

Tuesday, July 15th, 2008

Ben Bernanke will testify for Congress this week, and they’ll ask him tough questions.

Bernanke isn’t my vote as witness most likely to turn into Al Pacino and start screaming, but it sure would be nice if that, or some other trigger could make us step back and look at the economy from scratch. Congress in particular could use a long look in the mirror. (Presumably an undertaking that would not end in a mass puke, unless it’s somewhere provided in rules and precedents.)

The free market (the concept, not the CEO’s) should get a pass, for a simple reason– there isn’t one. I’m not sure how many Volkswagen Beetles it would take to hold in printed form all the federal and state laws, regulations, interpretations and rulings that the financial industry is constructed from (along with government debt), but I’d bet it’s more than one. It’s a free market only when compared to Lenin’s tomb.

The Federal Reserve and Chairman Bernanke in contrast, deserve the grilling Bernanke will get– but are they the most deserving?

There’s a fuzzy, wish fulfillment theory that the federal deficit doesn’t matter– or at least doesn’t make the top five– a rare but unfortunate instance of functioning nonpartisan agreement.

A deficit with a constant rate of growth somewhere near the growth rate of the economy may or may not matter, but a deficit with an accelerating rate of growth in a shrinking economy in a country that doesn’t care is likely to matter a lot. As in any overly creative household that starts with wealthy foundations, it could take some time for the mattering to become a matter of clear unrestrainable fact.

Although to me Federal Reserve mandates don’t make sense, in postulating for the moment that the mandates are meetable, I’d suggest the Fed can no longer fulfill them anyway in the face of our quietly obscene fiscal laxity. The Fed can’t realistically be independent of size and demand at Treasury auctions for long (like decades, for example).

If Ben Bernanke decides it’s best to minimize his support for the Treasury, the potential scope of his “independence” is already determined– relating to what’s already on the fiscal plate– perhaps not exactly like a child who defies a parental directive to clean his plate by leaving one spoonful of peas disguised in dispersion, but not exactly unlike it either. The Fed can monetize, it can let interest rates soar, or in the end maybe both. That’s not exactly superhero omnipotence.

Laurence Gonzales in his book Deep Survival, titles a chapter on being lost “Bending The Map”. When we’re lost, our identity itself instinctively comes into question, making us prone to panics of emotive self-delusion, with a bias for quickly moving forward and thoughtless repetition, not for backtracking or stopping to think. The bending the map metaphor for human reaction to being lost is also a good metaphor for our mental map of the Fed.

The Federal Reserve is both blamed for the current economy, and widely expected to be the instrument of a rapid and happy emergence into the sunlit clearing. That the Federal Reserve is a small, secretive planning committee that’s thought of as consistent with “free markets”, while the committee’s deliberate creation of fluctuations and unpredictability are parsed and rationalized as clever policy, is the ultimate, deluded, century long “map bend”.

The scary part of the bending the map metaphor is what it implies for the future. It should be clear that we’re thrashing around in the forest, thoughtlessly repeating mistakes– looking for the Federal Reserve to solve problems that it’s far more likely to cause. But in translating the lost person bias to a lost society bias, it implies that to question central banking as a foundation of the economy (and so in a sense, human life itself), will be like questioning our future existence– and not with a cheery camaraderie while sitting by the campfire with a cooler of beer, but while lost and weakened and under stress.

By Les Lafave

Abolish The Federal Reserve –