Memo to Obama: fire Bernanke
‘In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.’
The paragraph above is pleasing to me in one tiny, egoistic sense…it is exactly what I predicted Fed Chairman Ben Bernanke would say at Jackson Hole: nothing. The bloke took the above long and rambling yes-and-no-with-reservations paragraph to do it, but in the end what we were left with was a vacuous summary of what we knew already. It was tame, lame, and more of the same.
Looking back at the text, there is the overwhelming sense of reading something by a system-obsessed academic with little or no connection to the real world or the human species – in short, an economist. And yet when it came to that system overall, Bernanke had nothing to offer in the way of useful analysis as to how it might be changed – or morphed into something better. Everything, it seemed, was just fine with the car, but we needed more work on why the wheels kept coming lose.
Every glimmer of hope was presented as sunlight drifting gently across the uplands of Sugar Candy Mountain. Ludicrously, the Fed Chairman said the US trade deficit had narrowed markedly. Well, if nobody’s buying imported goods on Main Street Ben, that’s gonna happen. Commodity prices were falling, and so this would reduce pressure on the price of importing stuff. Bollocks: the value of the Dollar is decreasing far more rapidly. While the recovery was ‘less robust than we had expected’, the ‘traditional forces’ would soon get to work building on that recovery. Without $2.8 trillion thrown at the economy, there would’ve been a slump: where have these traditional forces been over the last three years?
Next came a moment of pure Peter Mandelson: ‘let’s not talk the US down’. It still had, Ben mused, ‘the biggest and most diverse economy in the world’. Er…and the biggest debt, the dumbest politicians, the greediest banks, and the most overpriced stock market. From Mandelson, he switched to pure Brown, looking to put the blame elsewhere: after all, Europe was in the doo-doo, and if the backwash of contagion from there got into this thriving, diverse economy well – it could ruin all the Fed Chief’s carefully laid plans. Oh…and another thing: those pesky guys in Washington arguing uphill and down dale about a $13trillion deficit. They might screw things up too. Boy, did they need to get their act together.
But it was one short vapour trail halfway through the address that caused the hairs on the back of my head to prickle menacingly. This was the point at which Ben Bernanke briefly went into Christine Lagarde mode, asserting that
‘…acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives…’
It was almost word for word the same primary school ‘Janet & John Play House’ that Lagarde had served up in the Financial Terms eleven days ago. The very same ‘If Dad gets a better job and we buy from Aldi not Waitrose, we can save the house’. Once those traditional forces get to work cutting prices and finding Dad a job, of course.
The bottom line (in dayglo red) was that the Fed Chairman had supreme confidence in a system that had blown away trillions in tax dollars, brought the global banking system to the verge of collapse, done nothing to address the real problems, resulted in a 30% cut in living standards for most Americans over 12 years, increased the gap between rich and poor, and produced an outcome whose baseline for success was the lunatic idea that if we all just keep on spending and getting deeper into debt, there’ll be nothing to worry about – the system will self-correct and off we’ll go again.
Which always leaves me with the same question: if the system solves itself anyway Ben, why do we need people like you?
The People don’t need the Ben Bernankes of this world – the folks with the benign smile and the carefully eccentric beard. It’s the political set, multinational business, and the banking spivs who need people like Ben: people too wrapped up in their charts, models and projections to ever become a nuisance. People to give the whole khazi a look of respectability. Those former Goldman Sachs people who thrust Bernanke at a grateful Bush as the best guy to make madness look like a science – they need him. The same crooks who told Obama to keep him on, with which the President complied because he had come to Washington in order to make change we can believe in.
In a pre-Election year, there is no way a limp wrist like Barack Obama is going to fire the helmsman. So our situation remains the same: we have a profound problem, and no radical creativity to hand. Oh dear. (Or words to that effect)