patrick.net

Be careful what you wish for, we could get another cooky crook like Greenspan again.

Honestly, SIBA, I seriously doubt that whomever happens to be in charge of the Fed on any day cares one iota about what media commentators, worker peons or bloggers like us think about them. The only "respect" that seems to matter to elites like Greenspan & Bernanke is the respect of Wall Street and the banksters --and they get that in spades with every fresh new bailout plan, FF/discount rate-cut, or "liquidity injection".

The Fed will try to re-inflate the credit bubble and prop-up housing prices with ill advised policies that rewards bad decision making by lenders and borrowers alike. In "the end", their efforts will fail of course (as in Japan), but not before inflicting considerable damage on the rest of us blameless non-participants, and artificially extending the correction phase of the business cycle far beyond the time it would have taken on its own. And let's not forget that in the long run, we're all dead.

How far will "teaser freezers" and ZIRP-style policies drag out the correction? Who knows? It took 16 years in Japan (and still counting?), though luckily for us, their bubble was far larger. Anyone here care to wait an *additional* 5 years before you can buy a reasonably priced house? Too bad for you, you bankster freedom-hater, you.

I don't think he can be removed - per se.

Let's see, he is comes from the Board of Governenrs and

The Governors are appointed for 14 years, and the terms are staggered, with one expiring on January 31 of every even-numbered year. A Governor who has served a full 14-year term may not be reappointed, but someone who was appointed to complete an unexpired term may be reappointed to a full 14-year term. Once appointed, Governors cannot be removed from office for their policy views. The length of the terms and the staggered appointments process are intended to contribute to the insulation of the Board—and the Federal Reserve System—from day-to-day political pressures to which it might otherwise be subject.

As stipulated in the Banking Act of 1935, one of the seven Governors is appointed by the U.S. President to a four-year term as Chairman. This selection must be confirmed by the Senate. The Chairman serves as public spokesperson and representative for the Board, manager of the Board's staff, and Chairman at Board meetings. Ben S. Bernanke was sworn in on February 1, 2006, as Chairman and a member of the Board of Governors of the Federal Reserve System. He also chairs the Federal Open Market Committee, the System's principal monetary policymaking body.

So, I think Congress would have to rock the entire US Federal Reserve system to remove Bernanke by passing laws to rework its membership. Presumably the President would have to agree (he would not) to sign the changes into law, then the Supreme Court would have to agree it was constitional - and I think they would not less they lose their own 'freedom from politcal pressure' status.

Whomever thinks Bernanke is going anywhere is sadly mistaken. He gets his 4 years and I think he will use them. If he continues to devalue the US dollar I think we can bet he will only get 4 years.

Duke :

Thanks for the explanation. I did not know this.

I am still unsure how BB stands on the mess we have. He was handed this plate full of $hit by good 'ol AL and has no way out. I have an idea that BB knows the illness the US has is terminal and he is only trying to ease the pain before the inevitable happens. If we inflate the sins away, our foreign debtors may cut us off. The oil cartels may even refuse to accept dollars and instead demand Euros or Pounds. If we raise rates and try to squeeze the speculation out, we will suffer a period of deflation worst than the 1930s. There is no way out of this at all. Americans will have to accept a lower standard of living to work our way through this. On top of this oil will become more scarce as demand in China increases and supply declines.

It is not just the US economy that is screwed, the US government is bankrupt! We have made too many promises for too long and not paid for them. I get so anrgy when I see Bush celebrating the decrease in the budget deficit to only 5% of GDP. I want to scream WTF and ask how long can you keep living beyond your means at 5% per year! If I were president, I would immeadiatly decrease the size of the military 95%. I would gut all non essential programs to try and save the promises we made.

I think they are doing everything to prop up Equity markets. The only disappointment has been 1/4 point cut in discount rate. They are pumping liquidity in all directions. Eventually markets will like him, for now they are pi$$ed off that credit problems are not going away. You know when people are losing $$, they do like to blame it on some body!!

Forgot to mention "Bernanke PUT" is already floating around.

I am still unsure how BB stands on the mess we have. He was handed this plate full of $hit by good ‘ol AL and has no way out.

I do not blame BB for the current mess, however, anyone still operating under the illusion that BB is Paul Volcker should be aware this is not the case by now.

I have an idea that BB knows the illness the US has is terminal and he is only trying to ease the pain before the inevitable happens. If we inflate the sins away, our foreign debtors may cut us off. The oil cartels may even refuse to accept dollars and instead demand Euros or Pounds.... It is not just the US economy that is screwed, the US government is bankrupt!

Since Randy H is no longer with us, I'll have to repost this golden oldie of his:

"Hyper inflation is all but impossible in the US. I’ve covered this many times before. I think when most people say “hyper inflation” they mean “uncomfortably high inflation”, ala the 70s.

Hyper inflation has a specific definition which, among other things, means inflation of 1% per day, which is over an order of magnitude per year.

It has never occurred within a modern nation state that wields credible military power. Many examples of building-to-hyper inflation scenarios have been averted by this same mechanism, as in Russia in the 90s.

When presented with the option of (a) make crippling payments to foreign owners of debt at great and perilous cost to your own citizens, culture and system of government, or (b) default and tell everyone to deal with it; every single power with a credible military has chosen (b)."

HeliBen will probably *try* to inflate much of our debt (foreign, domestic, consumer & government) away, and he may even succeed at it to a large extent. We're already seeing the inevitable tightening of credit resulting from the bubble's pop; however, I seriously doubt our European or Asian creditors will completely refuse to accept dollars anytime soon. OPEC (esp. Iran) may rattle their sabers and talk tough about moving to a basket of currencies, but this is also unlikely to take place on any significant scale as long as American military bases exist in much of the Middle East (one of OBL's chief pet peeves, btw.).

He was handed this plate full of $hit by good ‘ol AL and has no way out.

I've always wondered about that - what inspired him to take the job given the fact that he -must've- known that all hell was about to break loose.

Unless he didn't. Then that would be pretty awful.

HARM,

Don't mince words, tell us how you REALLY feel! :)

I agree, couldn't care less about us un-washed masses but remember WS has bears too and many made huge bets int. rates would simply have to go up, right? Wrong. As I speak w/ other people in the industry I get the distinct impression neither camp is very pleased with him now. It's clear the office doesn't hold the prestige it once did and in ways it's as if he's already BEEN censured by the fact his only course of action is whatever allows us to "function" another day.

It's like when you've been cleaned-out in poker and say "Wanna go double or nothin'?" Well, we know you have nothing left to bet with!?

I agree with Neutron, BB may be a fall guy. Let him preside over the downward slide until we hit bottom, or are pretty sure we're there, then BB will fall ill a few days after someone jabs him accidentally with an umbrella .... the poisoned pellet will be found later and someone blamed......

And we'll get a bright shiny new Finance Minister or whatever the hell the post is called and they'll lead us on to the new golden age.

(The new golden age may have most us on collective farms or something.)

Americans just need to come to grasp that the fall of USD is inevitable, the best case is an orderly exit. It is not just Alan Greenspan or BB, it has been a long slippery slope since we came off the gold standard. Deficits, trade imbalances, hallowed-out manufacturing sectors, these are not just problems that just showed up on the door in the last decade. Ever since the emergence of the 4 little tigers, this has been the case.

I don't think hyperinflation is going to happen, but high inflation is the path of least resistance for all parties involved. I don't buy the scenario of deflation because the last deflation (1929) happened when we were still on the gold standard. What about Japan? Japan is unique because of two reasons:
1) Without the status of the world's reserve currency, Japanese government doesn't have the printing ability that we have, their major way of pumping money is through selling Yen treasuries - to their own citizens!
2) Portion of the money pumped into the system was "leaked" to Yen carry trades, so their reflationary policy cannot possibly be effective.

As the world's reserve currency, we can print as much as we want. Until we hit 1% interest rate, there won't be much of a USD carry trade opporunity with other major currencies. When Yen carry trade happened, the interest rate difference between USD and Yen is north of 5%! Also, our deficit is financed through sale of USD treasuries to foreigners, reducing USD circulation outside of the US but not within the US.

BB has held up quite well so far, the USD devaluation is still done in an orderly manner with occasional reversal like what we have now. This is all very healthy, and quite painless for most people involved in the unwinding of the financial mess.

It is not just Alan Greenspan or BB, it has been a long slippery slope since we came off the gold standard.

Ron Paul will save us all.

>> Ron Paul will save us all.

Yes, I am voting for this honest and wise main in 2008....

> Ron Paul will save us all.

If I could vote, that is what I would do too. I did donate yesterday for tea party 07, though. It felt good.

Ron Paul will just be another Hoover, but I don't think he has any chance of getting elected.

The biggest issue of this election is Medicare, not the Iraq War. Ron Paul is completely clueless on Medicare, quite an irony for an obgyn. Not that the other candidates have any great plans, but at least they have one. Ron Paul doesn't have a plan for Medicare, free market is not going to take care of this one.

I think Mitt Romney is a more practical and wise candidate.

Going back to the gold standard is also completely impractical (I hoard a substantial position of physical gold), fiat is here to stay.

Ron Paul represents some extreme kind of libertarian ideals that even a self-labeled conservative like myself cannot embrace.

Ron Paul is completely clueless on Medicare, quite an irony for an obgyn.

The only solution is to privatize health care and have free market bring down the costs.

free market is not going to take care of this one.

If Free Market cannot solve a problem, only God can, through divine (not market) intervention.

Ron Paul represents some extreme kind of libertarian ideals that even a self-labeled conservative like myself cannot embrace.

Huh?

Americans just need to come to grasp that the fall of USD is inevitable, the best case is an orderly exit....I don’t think hyperinflation is going to happen, but high inflation is the path of least resistance for all parties involved.

100% agree. When consumer and government (not just federal, but also state + local) debt levels are at all-time highs relative to GDP, and future obligations are impossible to finance with future taxes (think Medicare & S.S. for retiring Boomers), all roads inevitably lead to inflation.

Of course, as others have pointed out before, when you have broad-based inflation of necessary consumable goods (oil, energy, food, machinery, durable goods, etc.) but no corresponding increase in wages, the consumer has even *less* money to spend on housing as a share of (rapidly diminishing in real terms) incomes --a type of stagflation. As a result, housing prices can deflate even in *nominal* terms, as the price of almost everything else goes up.

Just because Mr. Specuvestor "needs" $1.3 million for his moldy McCrapshack in Crappertino (hat tip @eburbed) does not mean the average Amerikan peon can devote 250% of his take-home pay to financing it. Even the various teaser-freezer proposals cannot change this situation --they can only delay the inevitable day of reckoning and drag the correction cycle into extra innings. Of course, for those of us who have already endured the RE bubble for years and want our affordable shelter-house *right now*, this is bad enough.

DinOR :

As I speak w/ other people in the industry I get the distinct impression neither camp is very pleased with him now.

That's my impression too from reading the media reports. Bulls or bears, no one is happy with him. That's understandable. If deflation needs to be avoided by injecting liquidity, then these quarter point cuts are not going to be helpful. And whether quarter point or a full point, USD will be in trouble and savers will be hurt.

Maybe he is trying that delicate balance. I am not so sure. No matter how much I hate Greenspan, he was quite good at manipulating the media. Fed chairman is not just an economic post, it has political influence as well. So Greenspan's media mastery fostered a belief in Fed that helped in maintaining stability. BB's lack of inspiring awe is not good for what he is trying to accomplish.

Ron Paul is a bit too laissez-faire/"hands off" extreme for me too (I believe some forms of consumer-friendly industry policing/regulation are necessary), but he is still better than almost everyone else out there. Naturally, he is consistently spun (or ignored) by the corporate-owned media as an "extreme"/racist nutcase, so "can't win". Must put all the money & weight behind pro-bankster/neoliberal globalists like Hillary & the Romneytron 6000.

@DinOR,

Yeah, I should try being straight-forward from now on. ;-)

I have noticed a trend of quoting chapter and verse from Randy H (especially now that he is not actively posting). Why don't we just get it over with and beatify the guy -- oh wait, he's not dead yet :-) Rather interesting as this quote from him has really stuck with me.
Money markets are considered cash for all practical purposes in our banking system. If they are allowed to even falter a tad all hell will break loose. Literally. It will be seen as The Great Depression. The Fed will shut down the banks, everything will stop, and they’ll reset the system. And…all cash will be honored even if it’s more than the FDIC limit; even if they have to print it up for you; even if they have to prohibit the sale or ownership of gold. Banking failure in the modern economy is not a tolerable option. It would derail society. They’ll just go start big wars first.

Given the recent closing of some "not-quite-a-money market funds", I've assumed we've entered the "defend the money market by any means necessary phase". The backdoor auction seems to be part of that plan. Also interesting to me is the banks "repatriating" their SIVs (did the Fed have an influence in this decision? Was the SuperSIV a smokescreen)? Initial bailout money for the banks looks to be from foreign dollar holders buying out our financial infrastructure. Don't think I ever read about that on any of the housing blogs a year ago (other than jokes about foreign interests becoming landlords through the MBSs). Other than some credit unions going into convertorship, we haven't seen many of the local "construction loans-r-us" banks fail. I think 2008, unfortunately, will be their year. The majors then buy them up with what? Foreign or Fed dollars?

OO,

Are you being serious re: RP & Romney?

Ron Paul is a bit too laissez-faire/”hands off” extreme for me too (I believe some forms of consumer-friendly industry policing/regulation are necessary), but he is still better than almost everyone else out there.

HARM, consumer-friendly industry policing/regulation usually implies corporate welfare.

How can RP be seen as "racist" ?

FYI (in case anyone was wondering when the 'real' bankster bailout proposal was coming):

Paulson Favors Fannie, Freddie Buying Jumbo Mortgages

Paulson said he agreed with Federal Reserve Chairman Ben S. Bernanke, who suggested to lawmakers that they consider allowing Fannie Mae and Freddie Mac into the jumbo mortgage market. ``I think Ben Bernanke and I are on the same page,'' Paulson said.

Bernanke indicated in a Nov. 8 hearing that he favored letting Fannie Mae and Freddie Mac buy mortgages of up to $1 million. He noted that it was up to Congress to determine the amount.

StuckinBA,

I agree. We have all been around (or been handed) some real messy turn-overs. If ever there was a guy w/ a legit claim he'd been handed a lit stick of dynamite, it's Ben. The sheer scale of this thing has GOT to keep him up most every night! (I've only recently been able to "let go" and have the chips fall where they may)

It's not reasonable for us expect J6P and Mr. Howmuchamonth to appreciate just what a mess they WERE creating but it's imperative they have their nose rubbed in it this and each day forth.

EBGuy :

The Fed has allowed some banks to fail. Netbank failed and was not 'completely" rescued. Accounts below 100K were protected to their full amount. IIRC, accounts over 100K received only 50 cents to the dollar.

The discount window, accepting any collateral, TAF etc are attempts to save money market funds, IMHO. If a true MM fund broke the buck it will be a big event. I think we may see it soon. I have moved all my money to Treasury MM fund and CA Muni MM fund. I have no idea what type of CP any MM fund invests in, and I don't want to know.

@Peter P,

I don't like things like taxpayer-guaranteed jumbo option-ARMs, preferential tax treatment for RE speculation, or oil/gas/sugar/corn subsisidies, but I sure do like having food and toys tested for lead & other toxins. I would also prefer not to have my local water table and the air I must breathe contaminated with chemicals, pollutants and other too-expensive-to-fix "externalities". I would also prefer not to have to compete with the *entire* Third World for jobs and my overall standard of living, but that's just me goin' off my meds (again).

but I sure do like having food and toys tested for lead & other toxins

Not that they are doing that well now... Besides, consumer advocacy groups can do similar things at fraction of the cost.

I would also prefer not to have my local water table and the air I must breathe contaminated with chemicals, pollutants and other too-expensive-to-fix “externalities”.

I agree. But that should be handled at the state/local level. What is the point of having a federal environmental agency?

compete with the *entire* Third World for jobs

How can the government stop that? With lower tax rates, America will be more competitive and jobs will stay here.

With any luck, God willing, Ron Paul will be elected, and perhaps we won't have to worry about the Fed any more :-)

With any luck, God willing, Ron Paul will be elected

Even if God is willing, we would still need a WHOLE LOT of luck for that to happen...

I think universal peace is more likely.

@Peter P,

How can RP be seen as “racist” ?

This is how: http://www.latestpolitics.com/blog/2007/05/ron-pauls.html

Anything to discredit an anti-war, anti-globalist, I suppose.

Well, apparently referring to crime statistics make one a racist, yet believing in "global warming" statistics makes one a good guy.

The fact that neo-cons and the extreme left are both maligning Ron Paul, is proof enough that they are scared of the ideas he represents.

And that is good enough for me.

proof enough that they are scared of the ideas he represents

Humankind cannot bear very much reality.
--T. S. Eliot

One factor in BB's decision making is secondary gain, meaning, what does BB get out of all this. Assuming he's no altruistic Ghandi, which I think is a fair assumption, his decisions are powered by (a) a need to leave a positive legacy in the history books as Fed chair, and (b) the need to a job at the least, and lots of cash more likely after he's done at the Fed. This means either private sector consulting, or going back to academia. Given history, he's likely to go into consulting, meaning that he needs to keep the wheels greased on Wall Street for his post-Fed career.

Legacy-wise, that may be one reason he has not completely capitulated to WS and slashed and burned rates. Those guys clearly knew about the lousy CPI data before their rate decision vote. They couldn't risk slashing 50bp or more in light of bad inflation data. in that sense, it would make no sense for him to want to tank the US economy. He's really hosed, with no good options.

Not that they are doing that well now… Besides, consumer advocacy groups can do similar things at fraction of the cost.

I am a pragmatist at heart. If private companies can do it better/cheaper, let them do it. If the government can do it better/cheaper, let the government do it. However, there are some 'good' things private companies will do *only* if it's mandated by government, mainly because it's expensive and no company wants to 'go first' and be at a competitive disadvantage to other companies (e.g., pollution controls, product safety testing, etc.). And there are some 'bad' things they will do if it's not explicitly outlawed (e.g., using slave/child/illegal labor, >forcing 40-hour work weeks, unsafe working conditions, etc.).

And there are some ‘bad’ things they will do if it’s not explicitly outlawed (e.g., using slave/child/illegal labor...

If it is not outlawed then no one can hire illegal labor. ;)

I see what you are saying.