There was a time not all that long ago if someone asked who was The Chair of The Federal Reserve more than likely you’d get a blank stare or, just a shrug. Today, not only can people (people is a relative term as in; people at least trying to pay attention) name the current Chair, they can also name more than two or three current members. e.g. Fisher, Bullard, Evans, and so on.
This change whether by design or, by happenstance is inconsequential. Either way, what it has done is changed the very fabric, as well as understanding, of how not only the economy is fostered in the U.S. But also – who controls it.
Long gone is the illusion of: an elected body by the citizenry. Today, it’s become demonstrably self-evident the economy is run by an elected body – by the elected. And the consequences of this change is only now beginning to openly reverberate both in amplitude and frequency with every passing day.
Currently as I type this former Fed. Chair Ben Bernanke has just wrapped up a week-long tour of financial media frenzy to promote his book, The Courage To Act: A memoir of a crisis and its aftermath (2015 W.W. Norton & Company). Personally I watched a few. Yet, I could only bear the burden so far. So inspired by the title I myself acted, with courage – and changed the channel.
Listening to the answers to many of the “soft ball” style questions was one thing. Listening to the near sycophantic, vapid, lack of understanding or depth concerning the economy and its relationship as expressed via the capital markets and more by the many that hold themselves out to be “experts?” I just couldn’t take it for more than a few minutes. It was painfully monotonous.
One point that Mr. Bernanke kept referring to, that for me, in many respects was the underlying issue that demonstrates exactly how far beyond the Fed’s mandate as well as its scope not only within the economy, but (and it’s a very big but) how this insertion has adulterated the capitalistic dynamic known as free markets (i.e., printed money via QE and its other programs as to bolster the financial markets) was this…
His assertion, as well as his stated defense for such policy actions was (I’m paraphrasing) “He was disappointed with the lack of policy responses from Washington which left the bulk of the heavy lifting solely on the shoulders of the Fed.”
Well Duh – imagine that. Washington shifting the burden (or setting up the ability to shift blame) to another body or person rather than take the lead themselves. Oh, say it isn’t so!
I mean truly – are you kidding me? What form of academic genius does it take to realize if the Fed. is willingly inserting itself into the economic structure along with remaining at the Zero bound and a willingness, as well as obligingly printing and injecting TRILLIONS of dollars for years into the very fabric of the financial markets propping them up. Washington doesn’t need (nor probably will) to do a single thing? Even if this “propping up” has more in common with a Potemkin Village analogy than any real example resembling a true recovery. Washington is going to say “Hey, stop propping things up making our lives easier. That’s our territory?” Please spare me.
Capital formation has now been replaced with nothing more than front-running schemes. And this has only been made possible not by the courage to act – but rather – the failure to act responsibly.
For years now it’s been clear to anyone who wasn’t some next in rotation “economics expert” in financial media that this juiced up HFT Frankenstein inspired monstrosity borne only to a punch-bowl made available, refilled, and spiked with the monetary equivalent of amphetamines and energy drinks would inevitably turn on its masters. Yet we’re told (now near daily) “They’ve got this!” Sure they do. All this coming from those that couldn’t even see (or anticipate) the obvious responses they would get from Washington.
Who needs a budget when the Fed. is printing and buying? Who needs to cut costs when the Fed. is (repeat former line here)? Who needs to worry about tax legislation when (again cut and paste last line here)? Who needs to argue if your spending too much on this program or that program if (you guessed, rinse repeat). And you could fill a book let alone an article with far too many more.
The issue I take with Mr. Bernanke’s stance is one I take with the whole Ivory Tower cabal. It would seem economics is a profession based solely on “The chicken or the egg” quandary. Everything first and foremost must be presented, formulated, and articulated through this prism. There’s never anything such as 1+1=2.
Here’s a clue to any and all within the Ivory Tower or Ivy League academia using 1+1=2 math.
When you replace the economic policy stewardship of the body politic with actions that can both mask the health of that economy, as well as benefit its donor class, while simultaneously allowing that body politic to defend and deflect criticism stating “It’s not us – it’s them!” Not only are you not going to get any help, you’re going to get something you thought was only meant to be voiced at the schleps, not the Ivory Ivy class.
For proof as well as leaving no room for doubt what Mr. Bernanke was allowing the Fed. to morph into. It was here during the following exchange where “courage” turned into something else in my opinion. For it was stated both clearly, publicly, and forcefully in 2012 exactly what was being expected (as well as insinuated to be continued) from Washington. And it seems today Mr. Bernanke is a little mystified, befuddled or, possibly upset with Washington’s lack of response? Please, it couldn’t have been stated any clearer. They demanded – you acted. Period end of story. No several hundred paged book to explain. No chicken or egg quandary. No Einstein inspired formulations with Rube Goldberg styled flow chart needed to explain. It was all done in elementary fashion: They dictated, The Fed. acquiesced, the results are self-evident: A mess. Again, period. End of story.
As I’ve stated far too many times to count, it’s a purely legitimate argument on both sides with completely reasonable assertions on whether or not the Fed. should have intervened in the ways that it did during the original financial panic and crisis of 2008. Again, there are justifiable reasoning’s on both sides that will (as well as should) be debated for years to come. However, it’s what was allowed as well as fostered and promoted after the original crisis that is not only controversial, but rather – a catastrophe of monetary policy.
When I think of the courage to act when it comes to monetary policy my mind seems to hearken back to times in history when former Chair holders such as Paul Volker raised interest rates in the face of staggering opposition from Washington. He stayed his course and brought inflation back under control. I also think of William Martin Jr. who like very few others understood the hardest job of the Fed. was to not only remind Wall Street, but to articulate those necessities that a responsible Fed’s primary function also included (I’m paraphrasing) “to take away the punch-bowl just as the party gets going” Again, all to Washington’s chagrin. This is not what we have today.
All I’ll use as an example to illustrate how the Fed. has captured itself with a seemingly never-ending resolution more in concert with “The Sorcerer’s Apprentice” (Fantasia/Disney) rather than the “Wizard of Oz” (L. Frank Baum/Geo-M.Hill Co.) is the following:
When the “Great financial crisis” hit the S&P 500™ was bouncing within the 1500 range. After the now referred to “generational low” during the crisis of 666-ish one could as I’ve iterated earlier argue both for, as well as against, the Fed’s insertion with its transfiguration of monetary policy to stabilize the then fragile markets. Again, this debate will go on for decades.
However; exactly what “courage” took place after that? In other words: once the markets regained within 100 odd points of its previous all time highs. What enabled or emboldened the decision to not only leave the “punch-bowl” out, but rather – to continually refill it to surpass those previous highs just shy of an additional 1000 points?! (i.e., 1400’s in April 2012 to 2100’s Nov. 2014) Let it not be lost this happened in 2012 at precisely the same time period of Mr. Bernanke’s appearance before Congress mentioned above.
Today this “failure to act responsibly” has led us to witnessing a failed communication strategy initiated by the then former Chair. An economy that is faltering at every level of unadulterated measurement. A political class that is still enabled as well as emboldened to deflect and deter any criticism, as well as responsibility for their own inaction. An ever-growing Emerging Market crisis fostered by years of ZIRP policy, combined with credit markets, as well as money markets beginning to not only show stress, but beginning to buckle with withdrawal symptoms from the “free money” equivalent only to those experienced by a junkie going cold turkey and a whole lot more.
You can also add to this in the wake of Mr. Bernanke’s exit we now have a Fed. so confused, scared, or reluctant to make the slightest of monetary changes; considerations of international developments, as well as Wall Street unease must now openly be stated. Along with an open admission for the first time in Fed. history (via their Dot Plot) negative interest rates are on the table of discussion. It’s an absolute mess pure and simple. And it’s going to get a whole lot worse – not better in the coming future.
All one needs for proof between “courage” and “failure” is to look back just a mere 30-ish days ago when it appeared as if the markets were once again going to free-fall if the Fed. dared try to move toward the slightest adjustment in relation to normalizing monetary policy. Once again the markets did a spin-on-a-dime and reversed rallying back towards all time highs not on “economic stability” but rather the realization that the Fed. was not only painted into a corner by its own hands, but also boxed, locked, and handcuffed. The continuation of “free money” as well as the resurgence of QE are once again back on the agenda. You just can’t make this stuff up. It’s maddening.
The only brilliant move that appears as more of an act of self-preservation as opposed to anything resembling courage or monetary policy was his decision to get the heck out of Dodge and leave the oncoming disaster to anyone foolish enough to accept it.
After all – you can’t rewrite history as well as reform one’s image if you’re the one that has to clean up the resulting mess in one’s wake. It seems to be working for his own predecessor, he was smart to follow. The one’s who may not be so lucky is not only the current Chair, but rather – all of us.
© 2015 Mark St.Cyr