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Professor Bernanke, Again

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I think most of us would agree that people who have, say, little formal schooling but labor honestly and diligently to help feed, clothe, and educate their families are deserving of greater respect – and help, if necessary – than many people who are superficially more successful. They’re more fun to have a beer with, too. That’s all that I know about sociology.
– Ben Bernanke

President Obama has made it clear that next January, when his term is up, Chairman Bernanke is going to be replaced.  It’s not like the big guy is being fired, though.  “Ben Bernanke’s done an outstanding job,” Obama said in an interview with Charlie Rose.  “He’s already stayed a lot longer than he wanted or he was supposed to.”  What else would he want to do than to be arguably the most powerful man in the world?  Simple.  The title “Professor Bernanke” always suited him much better than “Chairman Bernanke”.

That’s just about the only thing that his admirers and critics can agree about him  – although the former might laugh it out while the latter would say it though clenched teeth.

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Perhaps, a Revolt?

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“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
– Henry Ford

In case you were wondering what the cost is of “Too Big to Fail” banks, the Federal Reserve has an answer – $440 million (about $4 for every household in the US).  If that seems low, well, it is.  It’s just what it costs to have “enhanced regulation” of those banks that have been declared “systemic” – legalese for protected by you and I.

Where did that number come from?  It comes at the end of a long, watered-down process that has finally defined just what it means to be one of the protected investment banks. It’s all the result of Dodd-Frank regulation that does more harm than good if this is all they can manage.  But perhaps we can make a bit more out of it …

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In Praise of Junk

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When is junk a good thing?  When you can’t afford a new car, a rusty old one might do just as well, at least for a little while (even if it is purple, like mine).  And if bond rates are so low that you might as well put your money in the mattress, you might also develop a taste for junk – junk bonds, that is, or more politely known as “high yield bonds”.  It’s been the latest trend in the bond market and, strangely, it might be proof that things are getting better.  It’s not the quality of the debt that really counts, it’s what they do with it.

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The Managed Depression – Update

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I recently wrote this piece for submission to a mainstream media outlet, but it was rejected.  I’d like to present it here.

Economic health, like personal health, starts with honesty.  When something is wrong a good diagnosis is the first step towards the proper cure and a strong recovery.  Our economy is been deep in what is commonly called a “Great Recession”. That strange term is a substitute for the dreaded word that most of us know is the true condition – a depression.

That “D-word” may be feared, but it should not be.  It simply points to different and more unusual treatment than we are used to.  History will eventually come to know our present economy as what I call a “Managed Depression” – unusual among similar stages in the business cycle in that this one has been carefully managed.

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QE3

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What’s a few more billion dollars a month in today’s money?  On Thursday, the Federal Reserve announced that they were going to purchase $40B more mortgage backed securities every month, a total of $85B, with money they more or less print themselves.  It’s the third round of Quantitative Easing, or QE3, but this time they left the dollar amount open ended.  We can guess that by the time they stop the total amount printed will be around $2T.  That’s more like the insane numbers we’ve gotten used to the last four years.

They are doing this because unemployment remains stubbornly high in a weak economy.  Why they picked mortgages and what affect it will really have is another long story, but the bottom line is that election year or not the Fed is on the case and doing whatever it can.  But is it too much?  And what comes after all this money is printed?  There are a lot of questions.  Let’s work our way through them.

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