Dear Mr. Bernanke:
I hate to be critical of Fed policy. Really.
Because the fiscal policies of
both the current and prior administrations, and eleven consecutive years of
totally feckless behavior by Congress, has done more than tie one hand behind
the Fed’s back; it’s tied both hands, shackled a leg and blindfolded it.
But the time has come for the Fed to face its egregiously
destructive policies and change them.
Deflation was a threat.
In some ways it still is. Housing
went from a bubble to decline to free fall.
Millions of jobs have been lost, fueling deflation. Your response was to attempt to create
inflation and thereby resurrect housing.
Reasonable theory. The supply
chain for housing is gigantic; if it were to be restored millions of jobs would
return: not just sheetrock hangers, cabinet installers, plumbing contractors,
roofers, electricians, tile layers, carpet layers, carpenters, HVAC installers,
landscapers and window installers, but also factory workers in plants that make
insulation, wiring, tile, carpet, faucets, sinks, tubs, showers, sheet rock,
hardwood flooring, furnaces, roofing shingles, plywood, PVC pipe, fuse panels,
windows, air conditioners, water heaters, brick, studs, nails, cooktops and
refrigerators.
Unfortunately, it hasn’t worked and still isn’t
working. Gold has soared, silver has
soared, all kinds of commodities have soared, but house prices are flattening
at the bottom in some towns, still falling in others. And anyone attempting to live on their
savings, or save for a down payment on one of those foreclosed houses, has been
brutally punished as the interest rates on anything close to a safe investment
plummet to zero. Please pay close attention to that comment: it is harder to
save for a down payment when savers get no interest income.
If interest rates had been allowed to rise 23-36 months ago,
all of the holders of interest-bearing investments would be far wealthier, and
the economy would be enjoying the benefits of the wealth effect, pumping
billions into consumer spending and investment, powering the economy forward,
instead of the listless recovery we are experiencing.
This is also a brutal attack on the elderly. Note that yesterday (June 18) the Department
of Census released the latest Net Worth and Asset Ownership tables, containing
a trove of data. http://www.census.gov/newsroom/releases/archives/income_wealth/cb12-108.html
What group has the highest percentage of ownership of CD’s? Those over 75. What group has the second? Ages from 70-74. The Fed isn’t just punishing savers and investors
in favor of borrowers, it is punishing the elderly. The press release notes that older households
(households over 65) also suffered the greatest loss in net worth in the period
from 2005 through 2010: almost $26,000, or 13.2%. And that excludes the likely decline in their
home value. We can assume that loss did
not occur in savings bonds (which this group also holds) or CD’s. It was their riskier investments. The Fed remedy for the economy? Push savers and investors into riskier
assets. Bill Gross of PIMCO has
correctly labeled this financial repression.
I feel like a character in Charles Dickens’ Oliver Twist: Come on Mr. Bernanke, let us have a little
more interest.
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