Watching the Congressional hearings are often painful. These lawyers in Congress are simply not prepared to match someone of Ben Bernanke’s economic intellect. You can almost read his mind as he smirks through his beard at some of the questioning. With that said, I think there are some very serious questions that the citizens of this nation deserve answers to. The following is what I would ask if I were allowed to sit on the panel:
1) Dr. Bernanke, it is clear that your large scale asset purchases have resulted in substantial moves in many markets. You are often quick to note that equity prices have surged as a result of your LSAP. Can you please explain to the committee why you also ignore the continuing decline in home prices (the US consumers largest asset) while also claiming no involvement in the surge in commodity prices? There is a clear contradiction in this commentary which needs to be addressed.
2) Your commentary matters a great deal to market participants. As you know, you can move markets substantially. Therefore, it is possible that your commentary can create quite a bit of price instability and contribute meaningfully to market volatility. To what degree do you believe speculation has played a role in commodity prices? While I believe you are right to say that monetary policy and foreign exchange has not substantially contributed to turmoil abroad do you agree that there is a substantial speculative element involved in the recent surge in food prices that could be directly attributed to this belief that you are “printing money”, encouraging a “wealth effect” and sustaining asset prices that are “higher than they otherwise would be”?
3) Dr. Bernanke, it is clear that total loan growth has not expanded since the LSAP was initiated (see total loans at all commercial banks). It is also clear that credit conditions for homeowners and households have not been alleviated as mortgage rates and interest rates in general continue to rise. In fact, it was less expensive to obtain a mortgage before you initiated your purchase program. Since mortgage debt represents 75% of consumer debt it would make sense that you attempt to alleviate pressures on households. Why has this program failed to achieve this goal of helping households more broadly and reducing the strains in the housing market?
4) Dr. Bernanke, it is clear that the Fed’s policy tool kit works almost entirely through the banking system by encouraging the private sector to take on more debt. At a time when household debt to disposable income remains at 115% don’t you believe you are promoting further indebtedness at the household sector – the exact same thing that caused this crisis to begin with? If so, why should we expect such policy to result in anything other than a future debt crisis?
5) Dr. Bernanke, I think we can all agree that you have failed to control the long end of the yield curve via your LSAP. Had you targeted a specific rate as opposed to a size you might have had better control of the curve, correct? This is what you do with the short end of the curve and the Fed Funds Rate. If you had truly desired to control the long end of the curve wouldn’t this have been a superior approach? Instead, you have allowed the market to control long rates and it has exposed your total lack of control over the long end of the curve. Do you not see this as a fatal flaw in the LSAP since its inception?
6) Dr. Bernanke, as you likely know, a rise in equity prices represent a nominal increase in wealth. Do you believe it is wise to encourage speculation in equity prices when there is the potential that the fundamentals of the underlying assets might not be directly correlated to such price increases? If this is the case, then aren’t we merely creating an environment that is ripe for another equity bubble as investors purchase equities under what is now known as the “Bernanke Put”. Don’t you think this is putting the cart before the horse – that is, fundamentals should drive equity prices as opposed to hopeful and speculative purchases based on false promises directly promoted by the Central Bank?
7) Can you please comment on this development known as the “Bernanke Put”? Is this a positive development for the United States economy? The “Greenspan Put” is often seen as a significant contributing factor to the turmoil of the last 20 years. Do you agree that your resurrection of this “put” is a negative development?
8) Can you please comment on the ever increasing financialization of the United States? We have become, in many ways, slaves to the too big to fail (now too BIGGER to fail thanks to your actions during the crisis) banks and their needs. Your institution is clearly centered around maintaining a healthy banking system. Tim Geithner recently commented that we need to be at the forefront of what is a growing global financialization. Do you agree with his commentary? Are you at all concerned by the increasing dependence that our economy has on the banking system?
9) Thank you for your attempts to stabilize the US economy during these trying times. I worry at times that we might be asking too much of the Central Bank. You have a dual mandate of price stability and full employment. It is clear from recent economic performance that you have failed to meaningfully contribute to the targeted goal of full employment. It is my contention that Fed policy is a particularly blunt instrument at the zero bound so it is not surprising that these policies have failed to make a substantive difference with regards to employment. Do you believe this committee asks too much of the Central Bank? In other words, do you believe you are ill-equipped to deal with such a broad mandate?
10) Have we done enough to help Main Street during this crisis? Your policies have been particularly focused on the banking system. I think we can all agree that you have succeeded to a large degree. Wall Street bonuses are at record highs and the banks are raking in record profits again. Main Street, however, remains mired in a recession. Do you agree that you misdiagnosed this household crisis as a banking crisis and that we might be in a better position today if the US government had been more focused on helping Main Street and less focused on bailing out Wall Street?
11) Isn’t it true chairman Bernanke, that all of your policies have been aimed at saving the banks, and in fact have absolutely nothing to do with the welfare of the American people?
This desperately needs to show up on the desks of everyone in the House Financial Services committee before tomorrow’s hearing!
Well, if you do get to sit on the panel, let us know. I’d pay $10 to watch!
I’d pay more than $10 to see Cullen go 1v1 with the Bernank.
Let’s be honest – he’d probably crush me. I just submitted the comments to the House Fin Committee….doubt it will matter.
He’s no doubt more politically savvy than you are, years of practice (and surviving) will get you that.
Prag Cap readers, do yourself a favor, and contact your reps, and send them this. Somebody might read it!
Here’s a link to who is on the committee:
http://financialservices.house.gov/singlepages.aspx?NewsID=397
No reps from my state of WA.
Yes, Bernanke is massively smart.
Good questions. Switching gears slightly, would it be too much to ask of you to do a deep dive piece into Japan’s fiscal situation? Though I have the educational tools at my disposal to do this on my own and not be intellectually lazy, I’d be interested to see what type of conclusions you come up wiht. I’m particularly interested in you grafting your “monopoly suppliers of their own currency” can’t default thesis on top of the Kyle Bass et. al. arguments that Japan is now at a tipping point in that the savings rate is starting to decline and there is nobody to fund their deficit spending anymore. Would also be interested in your thoughts on why a country that printed ad infinitum to the sky over 20 years has had a currency that has risen incessantly vs. the dollar debasement argument in the US from such printing. I feel like your readership would eat it up also…just a friendly suggestion.
I’ll look into it – I have to admit though – I am not an expert on the inner workings of their monetary operations and specific functioning of the BOJ and MOF….
No worries if you’re not interested – I am curious though to know if the Kyle Bass arguments ultimately have some merit or not…
I’ll definitely put in on the to do list. Thanks Ferro.
I too would appreciate a discussion regarding Japan’s fiscal and monetary policies.
Japan’s relatively low unemployment and high capacity utilization over the years would appear to be limiting (inflationary/devaluation) factors on their constant deficit spending, but of course that opposite has transpired. Japan appears to be the land of 0 consequences.
Bass’ arguements on Japan would be completely wrong under the MMT framework. I’d be interesting to hear Cullen’s take.
His arguements on Greece and Ireland are dead on. There is simply no way these countries can get back on track and their finances will only get worse as they roll their current debt at much higher rates.
See Eamon Fingleton in The Atlantic Monthly. He lists Japanese ever-rising export value, still rising standard of living, and more valuable yen against the dollar. The Japanese Government GDP numbers are a fuzzy false number to alleviate foreign pressure to limit their exports, like cars to the US, remember?
12) Can you verify that you do understand MMT, and would it be possible for you to give us a brief description of how it works, and how it affects the deficit?
brilliant simply brilliant cullen. his answer to all the above questions would be. “we would be worse off had we not implemented the program”
Too true TPC, too true. It really showed when these morons were “grilling” the GS guys.
So I see muhammed el ahole of PIMPCO is now starting to talk about the Fed’s actions being somewhat harmful.
WARNING SIGN****************
Watch for these signals, when these aholes start talking about the need to raise rates, watch out….. They will make a fortune on the interest spread amid the need for “austerity” and deficit reduction.
First they clamor for the government tit, then they demand austerity. They kill the spread. You and I pay.
There will be no justice until PIMPCO is declared bk as it should have been years ago, imho!!
For me, this was so on target, I immediately sent a link to my Congressman. If you don’t typically write, and are interested in doing so, all you need to know is your city, state, and zip, and click on: https://writerep.house.gov/writerep/welcome.shtml
Very good questions. BB will have a nervous breakdown. He will need a stimulus.
Unfortunately in order to make good investments we need to figure out what will happen more than what should happen.
It’s interesting to see how in recent years the FED is being questioned as opposed to almost 90 years of acting like the unquestionable temple of money.
On the other side of the coin?-hyperbole
Sen Corker asked about the similarity of the Depression and the Current Crisis
Banzai–The Depression was caused by a lack of liquidity which caused Deflation for several yrs on the order of 10% per year–
Clearly–under this FRB leadership that we not be the case.
Banzai–The Depression was also caused by a large number of “Bank” failures both here in the US and abroad–
Clearly–under this FRB leadership we have done more than thought possible to save the “Banks” giving You and Ma and Pa “financial security”.
Today we had “Fear” Banzai Ben fears the “Debt to GDP ratio” Banzai Ben fears “Spike in Interest Rates” Banzai Ben fears “Inflation”
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