Bernanke reappointed
Posted on 29. Jan, 2010 by Geert in Actualiteit
So Ben Helicopter Bernanke has been reappointed. The Princeton professor won the vote by the smallest margin since Volcker, but that’s the only comparison we would like to make with the biggest central banker in history.
The balance sheet of the Fed has been ruined by Bernanke, but his own personal balance sheet reads as follows:
Assets Liabilities
——————————————————————————
Stabilised the crisis Did not prevent or anticipate the crisis
Bold (not only his hair) Intransparant
Academic Experimental
Continuity Too much Greenspan
We are not sure that Bernanke himself wanted to be reappointed.
The assessment of his mandate will be made in 5 to 10 years, and he will probably be put in the “Greenspan bubble period” category.
Frank
29. Jan, 2010
Uncle Ben stabilised what he himself created and did not see coming. He did do that with more debt while too much debt was the cause of the problem. Ben is part of the problem, not the solution. The only good thing about his reappointment is that he at least will be around when the debt bubble collapses and everyone realises that central bankers failed miserably at comprehending even the most simple concepts about debt.
Frank
29. Jan, 2010
On second thought, maybe they do comprehend and all of this mess is part of their game plan to create the asset sale of the century.
blue-coat
29. Jan, 2010
So Ben Helicopter Bernanke has been reappointed.
Merk ook op dat hij heraangesteld werd door de overheid, maar niet herverkozen door de burgers.
Dit wil dus zeggen dat geen enkele burger op geen enkele manier dan ook het beleid van Bernanke kan steunen of afstraffen.
Econoshock 7 zal zich de komende jaren meer en meer manifesteren.
Jan P
29. Jan, 2010
what the US did, was not go more into dept to save the banks; They just printed money.
The difference is that if they go into debt, it is by taking loans from foreign country’s like China. That was done historically e.g. to go to war. Not now to save banks.
To save the banks, money was printed without getting it by a loan.
By increasing the amount of money one would expect to have very high inflation, but even that will not happen now; The extra money didn’t go into the markets, it went into the better kapitalisation of the banks. Thus avoiding more liquidity in the real economy, and therefore avoiding the high inflation. If banks keep the higher kapitalisation, the money will never surface into the real economy either.
I think it was/is a good idea to deal that way with the current crisis, and it is partially thanks to Bernake.
If this theory is true, there is not even a real need for an exit strategy other than to rebuild trust in order to restore the economy. Without the the living on credit this time. And obviously with regulation of banks to avoid repetition of the problem.
I admit it is a non conformistisch theory, but I hope it’s thrue and I don’t see yet why it wouldn’t be.
It would mean we will be out of further problems if Obama succeeds in the reformation/regulations of the banks. I hope he does.
Bart
29. Jan, 2010
That’s some really strong cloud nr.9 stuff you’ve been using there Jan. Mind to share some?
Nick Doms
29. Jan, 2010
No surprise here independent of the margin 70:30.
Reason:
-You don’t change dogs in the middle of a race.
-You don’t have a spare dog to run anyway.
Big Ben will run until the finish line, hoping he will get the cookie, but that never happens in real races. The owner gets the trophy and the price. The dog gets groomed and fed.
Bart
29. Jan, 2010
Nice one Nick!
Gwyde
01. Feb, 2010
Assets: Bold he may very well be, but when referrring to his (lack of) hair, ‘bald’ is the word to use.
Het klinkt anders wel als een spitsvondig jeux de mots.
Theo
01. Feb, 2010
Fortune favours the bald!
Jan P
02. Feb, 2010
@Bart,
I agree: serious cloud nr 9, but have you also arguments why it’s wrong? I have been looking for arguments myself but can’t find any?!
E.g. Do you think we will get a high inflation now with the extra money injected?
Do you think there is extra need for stimulation plans other then because the trust was violated, with all consequences with that ( high unemplyement etc…), and the preveously ‘living on credit’?
I do understand the theory is odd, but I would like to get counter-arguments.
Thanks up front!
Bart
04. Feb, 2010
No, I do not expect high inflation right away, on the contrary (if you mean higher prices for everything) I’d be surprised if it showed up so soon. But the genie is out of the bottle so to speak. BB can by his “magical” instruments get the money back he said; I don’t doubt it, I don’t have to doubt it, it’s futile. The Fed paid $819 billion (that’s about the amount of cash-dollars in physical circulation) to banks for the securities (what’s in a name) by creating excess reserve balances. These excess reserve balances sound nice and safe but they amount to nothing else than cash. This specific “money” did not exist before, but in the meanwhile its the same as yours and mine (how it’s categorized is just semantics) and hasn’t been sitting idle in the favored banks hands. It’s (partially) in the open and is doing what rabbits do so well. (in the open doesn’t necessarily mean lend out, just some shuffling in the markets will do) Therefore it’s futile whether BB gets it back or not, it is multiplying already. In the longer run I therefore deem it very well possible we get high(er) inflation (definitely the fed’s desired outcome with all the debt) OR the Japan way if it doesn’t work out, but that would just trigger the rinse and repeat aka reprint modus. (what and when? I wish I knew)
As far as recovery goes, you can’t fully restore an economy that was built upon excess credit, is “saved” from crashing with more credit and money out of thin air and then expect it to get by without excess credit and with strict bank-regulation. Something’s gotta give… there’s no free lunch, nor free intensive care treatment. The trouble is here and all that has been bought is time. In this time much of the debt has been transferred to you and me (how? Sovereign debt is debt upon the people), give it more time and more of it will be passed upon us, print some more ex nihilo and even what you have is being taken from you. This goes slowly but exponentially. So no, it’s good neither for you nor me.
On stimulus plans… the bridges over troubled waters… Stimulus plans must be taken with great care, not just waving with millions when a factory is going to close, that’s stupid. It’s just a redistribution of wealth. Everyone has to pay for the few that (can) jump or are placed on the stimulus bandwagon. You can stimulate your whole society to nirvana but then everyone will have paid for it in full, all wealth equally distributed, the cozy warmth death of economy and initiative. Communism 2.0.
Your view on BB’s experiment may work out, but at a hidden and very sneaky unfair cost for many/most people (eroding savings, the fruit of real hard work) and beneficial for the few. Therefore I don’t share your optimism, even and especially if the boom gets restored, it would be even worse. If BB’s idea of money for nothing was so good, then why can’t we print €’s for every family with kids living or arriving here in misery? Why can’t we print Greece out of trouble? Why can’t we print Haiti quakeproof? But we can for the banks without backlash? come on…
Jan P
04. Feb, 2010
@Bart,
I think it is the statement in the last paragraph that it shows you don’t fully understand the theory;
Obviously if you print more money and let it flow into the markets you will always have higher inflation. I agree it is only a redistribution of wealth (people with savings loose, end people with depth gain).
The thing here is that the money does NOT go into the markets.
I’ll try to explain by example:
If a bank used to have a capital of 100, and it could multiply it by a figure of say 100 to lent money into the markets, the markets would have the ‘liquidity’ of 10.000.
If now (post crisis) the government prints an extra 100, and gives it to the bank, the bank now has a capital of 200.
At the same time, the multiplication is downsized to say 50 (because the banks wants to maintain higher capitalization or is obliged to do so), this is the result:
50×200= still 10.000 liquidity in the market! It is like communicating vessels this time!
In this example the result of ‘money free floating in the market’ is still the same. And thus the inflation will not go up.
And there is also not really an need for an exit strategy.
I agree it won’t work for Greece, or to help Haiti. Simply because then it would become extra ‘liquid’ in the real economy, and would therefore give inflation
It wouldn’t work for banks without inflation either, if the capitalization of the bank wouldn’t change at the same time as well. That’s essential.
On paper the shareholders of the bank would become richer with this new kapital, in practice not really because the profitability of the capital goes equally down,
I do completely share your view on stimuli plans; I also very much like the name you gave it; communism 2.0
Obviously I also respect your cynical view on the theory, again I admit it is a very odd one.
The purpose of this blog I think is to look from different angles,
We will only be able to tell in a decade or so I suppose…
Bart
04. Feb, 2010
Sorry for being cynical, it’s nothing personal or negative, it’s my lack of style and there’s no incentive to work on it (thus far)
I’ll try to get back later, lack of time…
Jan P
05. Feb, 2010
@Bart,
Don’t appologize!, I think the discussion is going really constructieve! I didn’t mean it in a negative way either!
It is just that I find this ‘idea/theory’ mentioned too interesting to not give it any serious thought.
The theory also gives a prediction on inflation on the short term (or why there won’t be any inflation). Since I have savings in the bank, it is even of some importance for me personally.
Maybe the question can be split in two items:
Is there a difference in what the US did now (just virtually print money and give to the banks) and what was done in the past (lent money from foreign states or people (by means of obligations)?
If that difference is there:
Will the higher kapitalisation of bank now prevent higher volumes of money in the real economy, thus preventing high inflation?
Bart
08. Feb, 2010
@Jan,
Sorry late, laptop screen kaput.
I did understand the theory, it’s just with all the debt, if you want to reduce factor 100 to 50 to stay with your example, what is really needed (so to speak) is 400 – 50 – 20000 or 800 – 50 – 40000 or … How else do you get rid of the debt? Besides, what’s the rate of inflation the fed would like to see? I think I remember reading here it was around 5% (??) In my view the debt is already an impossible obstacle, time can be bought, but that means even more debt… and balancing debt for society with vapor money as “capital” reserve is going to hit a wall sooner or later. And before we forget: what has the fed taken on its books in exchange? And how is that going to be valued, if and when? And is everyone just going to keep accepting this? So I do think there will be a backlash down the road.
To try to answer your questions, just my answers, not “the truth”; I do hope there’s a difference between lending and just printing. And for less money circulating… I think the root cause is rather the fact that the economy was in an unsustainable bubble before that makes for less volumes in circulation / velocity now; inflation followed by deflation. Bubble, bust. And the root cause for the bubble was… AG, BB and government regulation. Governments need more money in the economy and want to chain the banks, now that’s an exercise… I’ll leave it at this; sure we’ll meet again