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I posted the same question in the politics and other controversies forum but that forum is kinda like a pack of rabid wolves and hyperactive, ritalin-addicted political junkies.
Also post why or why not you think he should be reappointed. I vote yes, he should. Like him or hate him, blame him for the crisis or not, you have to admit that he single-handedly saved the economy by opening up credit markets when there were none, loaning money where it was needed (with a healthy rate of return, I might add).
It seems people are too quick the praise him like he fixed everything when the economy is still on life support and who knows what still may happen. I voted no, he needs to go.
Insanity: doing the same thing over and over again and expecting different results.
I expect most people don't know that getting rid of Bernanke and appointing someone else won't really change things.
All the things that these bloggers raise have good points - and I am one of the people who think that the Fed has to go eventually - but here's what I think:
1) We're in a deep hole and if we changed economic policy to go back on a gold (or other tangible asset) standard, then the aftershocks would totally kill us and all our holders of our debt will simply sell them off and demand remitment.
2) The article in your post is flat wrong. The Fed's policy of constricting credit and basically telling people to save more (there was an actual press conference back during the Great Depression where the Fed Chairman said it was good to save) caused a death spiral that took over a decade to recover from. Bernanke did the opposite and only history will tell whether he was right or just as wrong.
3) The assertion that we are in a depression now is laughable. We are sick, no doubt. 10% national unemployment, 30% underemployment. But do we have 1/3 UNEMPLOYMENT? No. Will it get that bad? Not a chance. Why? Credit lending facilities are being kept open, by the Fed!
Is this sustainable? No. But was it the right way to go? Sure.
4) Too big to fail is a problem and Bernanke says so in an interview with TIME.
Look, Bernanke comes from a poor town. He grew up with idiots and racists, yet he taught himself calculus and followed the advice of others and made a name for himself.
He basically said that too big to fail is a problem, but since we have that, would you let the elephant fall on the blades of grass? The fact is, nearly every major bank in the world was (is) insolvent. Letting them fail would have had catastrophic results. We'd probably have a Great Depression 2.0 right now.
5) The stupid senators who oversee his job and appoint him don't have so much as a class of economics under their belt.
6) If not Ben, who? If you pose a revolutionary who will change our policy baseline, see point 1.
It seems people are too quick the praise him like he fixed everything when the economy is still on life support and who knows what still may happen. I voted no, he needs to go.
I agree. How do you know he didn't cause bigger problems over the last year or so. People prasied Greenspan and now look at him as the guy who helped create the whole bubble.
I also agree with the other poster you said it really doesn't matter because they will appoint someone else who will do the same. Just more reason Congress needs to pass HR bill 1207 and audit the Federal Reserve.
I expect most people don't know that getting rid of Bernanke and appointing someone else won't really change things. ...
I do agree with you that changing out Bernanke for another finance bubble head won't change anything because the existing system is too entrenched that it can't be removed without causing major pain and disruption. Not one politician is willing to take the responsibility for it. So what will happen is that your other point, it's not sustainable, means that it will self correct by uncontrollable and unpredictable means. There are two choices with an unsustainable system you either 1. dismantle it on your own terms or 2. it crashes. It's clear we are going with the crash approach.
The abolishment of the federal reserve is irrelevant in terms of a gold standard because the US Treasury already has the right via the 16th amendment to issue fiat currency. In fact they did so until 1971 when they stopped circulating US Bank Notes. These notes are still valid, but if they turn up in a bank, they simply send them to the Treasury to be destroyed. (you really ought to keep them for the numismatic value). The reason the Federal Reserve is there however is that it gives the government one thing that it can't constitutionally do for itself, borrow money. Without the FR, the US Government would have to immediately resort to direct taxation of all funding and this is why you won't see it abolished. The gold arguments are nothing more than disingenuous distractions from this fact.
It should be noted the last door of the FR monopoly was closed as late as 1980 when at that time banks were leaving the Federal Reserve system and 1000s more were going to follow, when congress passed a law to prevent it. Well... they didn't prevent it as they can't do that constitutionally, but they added a tax that made it impossible to do. One thing they could do to help mitigate the failure that is coming is to allow lawful money to circulate again. This won't happen because it imposes constitutional restrictions on taxation.
The point of all of this is we are going to keep the current system until it fails, and that failure is coming whether we like it or not. Everything you describe is true but what you have missed is that it is only possible because the $ is unique in the world due to it's reserve currency status. If more dollars are printed then the rest of the world has to increase their holdings of dollars. In essence, we can export our recessions and depressions to others. This fact isn't missed by those in control also. The rest of the world is at their tolerance level however and it's going to be interesting to see how this turns out in the long run.
Anyone looking at any chart of public debt, raw, judged against gdp, etc. should be frightened.
a great article, well worth reading in its entirety!
a small part:
As soon as you start refinancing to avoid paying off debt, or writing loans that are not contemplated as amortizing, you have entered The Ponzi Zone.
Identifying these sorts of financing is trivial. Among them:
Balloon, "Option ARM" and other exotic, non-amortizing mortgages.
Commercial Real Estate and other forms of corporate loans that are "interest only" and have to be rolled at maturity.
Debt issues that include "PIK" sorts of features (so-called "Toggle" bonds, etc.)
Credit card "rollover" offers that provide a zero-interest period with no balance transfer cost, effectively permitting the "parking" of debt at a zero rate (for a period of time.)
All of these features tell you that the economic cycle has entered a "Ponzi" phase that will soon inevitably result in a bust.
But when one looks to the "why" rather than the "what" the cause is clear: Negative real interest rates - that is, rates anywhere on the curve that are below the rate of actual price inflation, inevitably lead to excessive speculative borrowing and asset bubbles.
It is here that Bernanke and his predecessor have completely and utterly blown it, and they appear to either not realize it or are desperately hoping they can keep you from figuring it out.
Great post. I find it laughable that people think there would be some radical change if Bernanke is replaced. I mean the guy spent his career studying the great depression. I am not sure his ideas are completely correct but I think we're way better off with him than someone from the private sector.
It's not good enough to punt Bernanke; you have to replace him with someone. Same issue with the USD really.
i find it more laughable that people think that the status quo is better than any change!
look at what is going on with housing right now:
What has happened over the past two years is that the Federal Reserve has purchased about $1.25 trillion dollars in mortgage-backed securities issued by Fannie Mae and Freddie Mac ñ securities that the Treasury has now made an unlegislated (or at minimum, unintentionally legislated), bureaucratic decision to fully back. Now, as the underlying mortgages fail to produce adequate cash flows, but Fannie Mae and Freddie Mac are called on to pay them off anyway, the Treasury has committed to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth.
In a sharp break from the past, the issuance of these Treasury securities will not be accompanied by any revenue to the government for Congressionally approved programs. The Treasuries will be issued, the money will be handed over the Fannie Mae and Freddie Mac, and those funds will go largely to the Federal Reserve and other holders of existing mortgage debt simply to replace the bad, but bailed-out agency securities with cash as they mature. The public gets nothing for something - the issuance of the Treasuries is in itself their expenditure.
None of this changes if the Fed is somehow successful in unwinding its $1.25 trillion in agency holdings by selling them out to the public and re-absorbing the similar amount of monetary base that now sits largely in the form of bank reserves. Such a transaction does nothing to change the overall quantity of government backed liabilities that must be held by the public in some form. Unwinding the Fed's position simply means that the global economy will be forced to absorb not only the mortgage securities themselves, but also the newly issued Treasuries that will be required to make those mortgage securities whole.
Every dollar of bad mortgage debt that should have been written off is now enshrined as two dollars of government-backed debt. One dollar as the original debt, which will now be made whole, and one dollar of new Treasury securities, which must be issued to make that original debt whole. Accordingly, the holders of both securities will have claims against our national assets and future wealth. A similar two-for-one obligation holds true for bailed-out bank losses. (hussman funds)
so you tell me what was "fixed".
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