Tomorrow, Federal Reserve Chairman Ben Bernanke will give an unprecedented press conference after the Federal Open Market Committee releases a statement from their April meeting. Whether Bernanke is trying this to increase transparency or reassure investors with his command of the issues or build public trust in the institution, or whether he’s just making a bad decision, this represents the never-before-seen opportunity for the media to actually question Bernanke about his views on the economy, monetary policy, inflation and jobs. This comes at a time when the Fed is failing to reach both inflation or employment targets for three years running, so Bernanke has a lot to answer for.
Andy Kroll and Nick Baumann have some ideas about what Bernanke should be asked, and I thought I’d comment as well.
Kroll and Baumann start, for example, by asking what more the Fed can do to put Americans back to work. Conservative economists have tried to claim that America is going through a period of structural unemployment, to absolve themselves of blame for their failed policymaking. The Fed has at least tried to remedy the scourge of unemployment through QEII, but so far it has failed to meet expectations according to many analysts. By setting a specific number for the purchase of Treasury bonds instead of setting a target long-term interest rate, the Fed cut its own policy off at the knees before it even got started.
They also pose such worthy questions as what Bernanke would do about fiscal policy (I actually think that should not be asked, as it is outside his mandate), whether he would consider a higher inflation target, why the Fed has resisted efforts at more transparency, what he thinks about the holdup of the appointment of Peter Diamond as a member of the Board of Governors, and whether the Fed is too close to Wall Street. But these dance around the real question that must be asked of the Fed. Bernie Sanders nails it today. It surrounds the extraordinary payouts to the nation’s largest banks during the financial crisis.
Here’s an excerpt from Sanders’ latest release:
A study requested by Sen. Bernie Sanders (I-Vt.) found numerous instances during the financial crisis of 2008 and 2009 when banks took near zero-interest funds from the Federal Reserve and then loaned money back to the federal government on sweetheart terms for the banks.
The banks pocketed interest on government securities that paid rates up to 12 times greater than the Fed’s rock bottom interest charges, according to a Congressional Research Service analysis conducted for Sanders.
“This report confirms that ultra-low interest loans provided by the Federal Reserve during the financial crisis turned out to be direct corporate welfare to big banks,” Sanders said. “Instead of using the Fed loans to reinvest in the economy, some of the largest financial institutions in this country appear to have lent this money back to the federal government at a higher rate of interest by purchasing U.S. government securities.”
Chairman Bernanke, in light of this report, do you consider it good policy for the US to hand over money to the nation’s largest banks directly through this kind of scheme? Would it make just as much sense, if you find it good for the economy, to make the same investment strategy available to small businesses, states or the US government itself to deal with their budget problems? After all, it would take a true idiot not to make fantastic amounts of money if they can borrow at zero and loan money back at high rates. Why should individuals be deprived of this money-conjuring strategy?
Furthermore, shouldn’t those profits, rather than boosting the balance sheets of the large banks, have been put back into the economy? Shouldn’t that have been a condition of the direct subsidy?
To add in another Sanders question, why did the Fed bail out the Arab Banking Corp, mostly owned by the Bank of Libya, as part of their emergency lending programs, to the tune of $26 billion in credit? Why aren’t they held to the same standard of sanctions as every other Libyan business? Why are they operating two bank branches in New York?
The real questions that need to be put to Bernanke concern what he did to nurse the banking sector back to health. The contrast with how the Fed allows the rest of the economy to flop around like a fish looking for water cannot be over-emphasized.




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And let’s not forget the ladies who
lunchcashed in on the bailout.Not to mention that any losses were socialized so even a true idiot could make money.
Bernanke is an unrepentant neolib monetarist, the worst combo of econ ideologies imaginable.
In his book of essays, there are NO refs to fiscal policy in the index.
And in a 300 page book, the index contains 3 page refs to Keynes.
Enough said.
How about all the unemployed folks get the ability to back up to the Fed Window and do what the banks/fake banks do?
I agree completely with your critique of the Fed’s relationship with the banks. I don’t understand the rationale of increasing the inflation target to reduce unemployment. I have yet to hear an explanation of how reducing the purchasing power of the dollar, as demonstrated by the current energy and food inflation, creates jobs. If anything, increasing inflation will increase unemployment as occurred, in particular, during the 1970′s.
That’s what I thought when I forced myself to start chap 2 today and it occurred to me to look in the index.
Here’s Bernake’s answer he’ll never say in public. Do u think I’m crazy and lose the opportunity to sit on endless Corp. boards till I die?
My first thought. Has this received any msm attention?
Reducing the value of the dollar, like Bernanke argues in his essay for going off the gold standard in the 1930s, is supposed to return the economy to growth sooner (cross country analysis). I suspect there is a third variable that B didn’t bother to look for as he’s such an extreme monetarist.
A more mainstream economist would argue that currency devaluation would spur exports and retard imports by making the former cheaper and the latter more expensive. However, I’ll point out that takes a year or longer, as first you must go thru the J-curve effect (ask if you want to know), and is incredibly low-bang-for-the-buck, so to speak.
But I do go on & it does no good in the current ideologically driven discussion, where evidence and reason are irrelevant.
Very little.
Is there a list of reporters who will be allowed to attend this extravaganza? What about guidelines (if any) for the scope (time, questions, etc)? I want to see some bad-ass questions asked, but I really don’t expect much. A few half-decent pitches, but mostly whiffle-ball stuff.
Very nicely stated…
The Finance sites all have articles where Bernanke has been practicing his talk, saying he has to tread softly and not spook investors or the market.
Dylan Ratigan has been tweeting all day on questions to ask him, but seriously he has it all planned and is just doing a photo-op.
OT:
Vermont Senate votes to approve single payer Health Program:
http://thinkprogress.org/2011/04/26/vermont-senate-single-payer/
I get what you mean but then we’re really fucked. Monetary policy is relatively helpless and fiscal policy is paralyzed by deficit hysteria and the need to cut spending NOW.
An analogy might be that our fucking building is on fire and we can’t ask the police to call the fire department because that’s outside their mandate. I would hope a cop would have the common sense to call the fire department — because he can’t do anything.
Similarly, I would hope that Ben might say, if you leave it up to the me (the Fed), it will take 5 years to return to the unemployment level before the TBTF banks destroyed the economy on my watch. So, by all means, forget the deficit in the short run and spend.
Even if he’s not asked, and even if it is outside his mandate, I think that’s his moral duty — given that he’s as responsible for the financial crash as anyone.
That’s the other thing that’s so interesting about the first essay in B’s book. He talks all about how the depression is all a monetary phenomenon, in the sense of a too-tight monetary policy, not responding soon enough to ease (and lagging in abandoning the gold standard). But never once does he point out that the stock market bubble that was very instrumental in causing the 1929 crash was also a function of monetary policy.
Sound familiar…
I understand the theory but that is all it is. The US has a primarily service based economy which produces relatively little of value for export, other than food (and weapons), and imports many necessities. American consumers are being hit with the costs without any offsetting gains. Further, with globalization, most new productive facilities created by US corporations are being established offshore. An example of this is GM, which is selling a huge number of vehicles in China. Unfortunately for American workers these vehicles are being produced almost exclusively in China. This is great for GM’s income statement but of no value to Americans in general.
P.S. No need to talk down to other posters. Just because you read something in a book does not mean it is true. As with all of the social sciences, economics has plenty of theories. Unlike the hard sciences none of them are proveable whether they be Keynesian or Friedmanite.
” Whether Bernanke is trying this to increase transparency or reassure investors with his command of the issues or build public trust in the institution,”
Erhmmmmm…when the jig is up the desperate will do almost anything to gain remorse.
So the dust has somewhat settled and what do we get? An opportunity to ask questions of one of the prime fuck-ups, brilliant. This should really be a turning point complete with the middle finger kiss-off. I hope this stooge, appointed by Obama with a second term, wears a clown suit as he answers questions and explains how easy it was to screw the stupid gullible masses. The Chinese should be laughing their heads off if it wasn’t for all the IOUs outstanding floating in cyberspace. As far as cash goes, Ben knows the Fed can’t print it fast enough. I hear they are gonna print a million dollar bill with Barry’s mug on it to save on paper and carrying charges.
http://blogs.forbes.com/erikkain/2011/04/26/vermont-moves-toward-single-payer-healthcare/
http://www.wptz.com/r/27317316/detail.html
An independent board that would set rates and health budgets for the state of Vermont. The plan would be called Green Mountain Care. The governor would not have to propose a way to pay for it until 2013. It would provide basic care with health ins co’s offering additional coverage.
It appears to be variations of “option 3″ single payer.
Huh?
So we keep repeating to ourselves, but our biggest export is entertainment , movies and TV, video games, & similar shit, worth a ton of money.
eCAHNomics above refers to devaluation of the dollar being a means to reduce the price/cost of exports, though it would take more than a year to realize ‘gains’. That’s if the exports are shmattas and Pullman Cars. Right now we are exporting a lot of software code, digital stuff galore, none of it in ‘physical’ form, constantly streaming in an ever-growing pipeline, all the startup cost were long ago paid for. The model has always been the telecoms, selling or leasing air for ungodly sums.
Obama recently met with Jobs of Apple and the Facebook guy, a photo op imprimatur.
The guy at the party whispers into Benjamin Braddock’s ear “not plastics”
These threads are vertical, from the top down. One can only talk up to posters.
The only reason I ref a book is to provide context. Particularly inneresing in the case of Bernanke, bc no one else I know has read his book and revealed where he’s coming from.
Wondering why mjocaj should respond to analysis of B as condescension.
Ran my regression analysis more than a decade ago. At first guess, takes a like about of time for “services” to respond to currency changes as mfg, but wtf do I know.
Thanks David, all very good questions.
To me, it’s always seemed that Bernanke’s only true focus is the banks. Given that the banks are an ongoing problem, Bernanke is part of that ongoing problem.
Would you say that digital content (in its many iterations and incarnations) will function market-wise the same as the services and mfg sectors?
Wow– the representative of the shareholders of private monopoly money changing (hat tip Ellen Brown) will give a press conference? Zounds! What will the talking bears say?
20 Questions For the Bernank (Apr. 26, 2011)
I don’t know.
The context of this discussion (lest we lose track) is WTF good will currency devaluation do for U.S. economy.
1. Makes life more expensive for U.S. consumers, 70%+ of U.S. economy.
2. Any “benefit” to U.S. foreign trade sector is expensive and long in showing up.
My prior empirical work, where mfg was much more important than today, when services exports dominate and mfg imports dominate, is useful but marginal, even if you “assume” that service or mfg exports/imports respond to price changes like I measured more than a decade ago.
Re the upcoming unprecedented press conference:
“They lie, and then they re-lie.
They are nothing if not re-lie-able.”
Gore Vidal from “Lincoln”
It’s easy now for Dems to ask questions & make noise, now that they’re the minority in the House. More important is what they did & didn’t do when they were in the majority. Hate to say it but Bernie Sanders was disgraceful from 2006-2008 when we really needed hum.
They’ll cut back on cable if they get the whole package, they’ll reduce their calling plan if they can.
Sales tax revenues will increase in ‘amount’, easing pressure on local, regional, and state expenditures for wages (if frozen) and other fixed costs that don’t increase like other things. Isn’t that helpful?
haha…
I say the debt ceiling vote should not be clean. All TBTF (that double as Federal Reserve Primary Dealers) should be LAST on the list of payments.
TBTF have taken advantage of America for far too much and for far too long. There should be payback, including punitive damages… though, in fairness, the problem is really more about Washington enabling TBTF… rather than TBTF being greedy and abusive.
I hope the press conference is fruitful. I remember the fall of 2008 when virtually no reporters (Mark Pittman was an exception) had any clue about what was happening. As a result, no one could ask any questions. Benny loved it because he knew he would never have anyone ask him real questions.
and all the while, BB pretended as though he cared about transparency and accountability.
If you dig real deep in march job numbers, you will see over half were service level jobs. I call them and the ones at Mickey-D’s and Wally’s World dead-end Jobs. The reason they are dead end jobs, because you can not raise a family or buy a house with those wages. The Clown Posse in the white and The Beltway Idiots already thinks this is a good thing. He is doing the same song and dance his partner in crime, The Three-Toe Sloth(Timothy Franz Geithner ) did a couple months ago. He may give you the impression that he a thinker. He should have had this Q and A in February along with Punxsutawney Phil.
It’s also a totally predictable opportunity for Bernanke to totally evade providing any real answers (assuming the media is even capable of asking incisive questions).
Nothing interesting will come of this. That’s my prediction.
Worse than that currency devaluation will have no useful affect on exports when the nations we import so much from have their currencies pegged to ours.
Sorry, infrequent poster these days.
One issue I haven’t seen addressed here that seems to get some attention on ‘investment’ sites is the role of US dollar carry trade in all this.
The argument goes something like this:
If your typical TBTF bank with FED window access can borrow at zero interest and then has the ability to turn around and buy, for example, Australian bonds at ~4.5% interest, and do it with typical 50x or 100x leverage, why wouldn’t they do this rather than put the money in a dollar-based asset? It’s extra attractive when the TBTF can redeem the bonds for devalued US dollars down the road.
This is the dynamic that kept the Japanese economy in a zombie state for a decade or more. There’s absolutely nothing preventing the US economy from being used in the same way.
The additional lovely part is that all reserve banks seem to be actively promoting the carry trade dynamic. Witness the coordinated interventions following Fukushima. Another example of heads, we win, tails, we win…
So, how is devaluing the dollar good for the US economy again???