Skip to main content

Dear Mr. Bernanke:


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.

Comments

Post a Comment

Popular posts from this blog

The Reasons We Think America is On the Wrong Course

I was listening to the Michael Medved show yesterday. He does a nice job at talk radio. But he was worked up because the CBS News Poll showed that 72% of Americans surveyed think the U.S. is on the wrong track. (When I went to CBS' site, it looks to me like the number is 69%, but that's an insignicant difference). Medved's view is that income for the poorest citizens are rising (recent government data), unemployment is low, stock market is high, no cold war, so why so pessimistic? Here are my answers: Several of our young men and women are being killed every day in a war that we are getting sick of. The deficit is some unimaginable, staggering number that my generation is imposing on my children. Social Security is bankrupt and both Congress and the Administration (both previous and current, and both Republican and Democratic) are unwilling to face the issue. There are virulent infectious agents in hospitals that are resistent to essentially all antibiotics, and the drug co...
2 comments
Read more

Stimulus Plan

Mr. President: The House stimulus bill is awful. Dangerous. Counter-productive. It has a very high probability of making things worse!. Your man Rahm Emanuel is supposed to be a tough guy: turn him loose on the House Dems - they are selling you down the river. Some simple tests: the spending will improve long-term productivity; the spending will reduce our dependence on foreign oil, and the spending will happen fast; very, very fast. There may need to be some legislation to enable spending without years of environmental review. For example, spending on wind farms would improve long-run productivity and reduce dependence on foreign oil. But let's say the wind farm is a couple of miles offshore. You can't have environmental groups stopping the development to see if some fish will be harmed. This spending has to happen now. And, no tax cuts with the possible exception of AMT. People aren't going to spend any tax savings; they are going to pay their credit card bills or r...
10 comments
Read more

Romney/Thompson dream ticket?

The role of Fred Thompson in yesterday's SC primary is as murky as his next step. Did he divide the religious vote and thereby hand Huckabee a loss? Or would those votes, had he not been there, have gone elsewhere? My instinct is that more of those votes would have gone to Romney or McCain than to Huckabee. Fred comes across to me as the thinking person's conservative: thoughtful on positions, a sense of history, a Federalist, serious about the war on terror and prepared to take the long view on it. His addresses have content, not sound bites - which may, unfortunately, be a drawback in 2008. Mitt is quickly seizing the stage as the most knowledgeable in the field on economics, growth and job creation. With a war still consuming dozens of billions, it isn't clear that the race will be won on voters' views of candidates job creation prowess. However, he gives off as much energy as Fred seems to absorb - Mitt's electron shell could power Fred. So, Mitt may be drawi...
5 comments
Read more