16 Questions For Bernanke's Press Conference

Aleph Blog April 22, 2011

Mmmm… I live near DC, but what does it take to get an invite to the Fed’s press conference? One e-mail, four phone calls, four messages… and not even the courtesy of a reply? What, does the Fed think they run this place?! (Uh, maybe.)

I mean, it would be reasonable to receive a response that says, “Sorry, bloggers are NOT a part of the press, no matter how much reach you have. We only deal with REP-utable media. You are not an impartial reporter of information.” But being ignored is just tacky.

I’m assuming that I will have no access to the press conference. So, I’m writing out a list of questions that those in the press can use if they like. Some questions are normal ones, some less so. To those that follow me that may have contact with those who are invited to the press briefing, I ask that you pass the questions along to them. Thanks.

1) Why has the NY Fed’s open market’s desk been buying predominantly intermediate nominal Treasuries, but with TIPS, predominantly the long end? Is the Fed trying to purchase a long-dated inflation hedge?

2) Growth in developing world means more competition for food and energy supplies, and other commodities, which are forcing prices up in those areas. Why does the Fed focus on so-called “core” measures of inflation, when food and energy prices (though volatile), always seem to go up more than the “core?”

3) If you are trying to smooth out fluctuations in inflation, wouldn’t it be better to use the median or a trimmed mean, rather than ignore data, particularly data that minimizes the effect of inflation for households for which food and energy are a large portion of their budgets?

4) In 1992-1993, the Fed held the Fed Funds rate down at levels that produced a very steep Treasury yield curve. When the Fed began tightening policy, in 1994 the bond market had annus horribilis, with a self-reinforcing sell-off in the Residential Mortgage-Backed Securities market. As you begin removing policy accommodation, what assurances can you give that we won’t have a similar selloff?

5) How are you regulating banks differently now than you were in 2005?

6) Why did the Fed resist legitimate FOIA requests so vehemently? In the insurance industry, every asset is public. Why did the Fed and the banks resist disclosure of items that should have been regarded as trivial?

7) Why did state-regulated insurers come through the crisis better than federally-regulated depositary institutions?

Why does the Fed employ so many Ph.D. Economists when the economics profession proved incapable of forecasting the recent crisis, when all anyone had to do was look at overall debt levels relative to GDP to see that we had surpassed the levels of the Great Depression? Why employ so many from a failed area, when it would be better to hire History Ph. Ds. who might note the problem?

9) Why is the Fed so big in terms of employment, when all you do is set monetary policy, and pretend to regulate financials? Why can’t the Fed be slimmed down to provide a greater payback to the US Treasury?

10) Are you concerned that the Fed’s balance sheet is a record 16-17% of US GDP? If you begin to shrink your balance sheet, what will the effect be on the banks, lending and the general economy?

11) Some suggest that the removal of liquidity will prove difficult. So far the Fed has minimized price inflation, but how will you manage the removal of accomodation from QE2, particularly if inflation begins to accelerate?

12) If you find the US in stagflation one year from now, how will your policy be different from that of the Fed in the late ’70s?

13) What evidence is there that quantitative easing works? Japan is still a basket case, and they have done it the most. Ignore theory, and give concrete examples.

14) Quantitative easing has forced investors to take more risk, particularly retirees who need income. Is it fair to engage in an economic policy that is unfair to investors and seniors? Why harm savers who deserve a good return on their savings?

15) Don’t you think that holding interest rates so low just builds another bubble? Low interest rates relative to growth in GDP often fosters speculation that blows up once the economy overheats and the Fed adjusts policy. Why engage in such policy? Why not aim for something more sustainable, a la Knut Wicksell?

16) Why is the Fed sucking down 50% of the US Government’s issuance of debt?

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Okay, so I am biased and not politically realistic. Yet I am trying to be real with the economy as it is, and the distortions that the Fed has created through their horrendously loose monetary policy. I firmly believe that the history books will condemn Greenspan, and to a slightly lesser extent Bernanke, for their mishandling of monetary policy and supervision of financial companies.

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[...] – Sixteen questions for Ben Bernanke. [...]

Would the following question be appropriate? Chairman Bernanke, how important is it that the Amercan people have faith in the Federal Reserve? If there came a point in time where the majority of Americans thought you were untrustworthy and incompetent, would you consider resigning?

Andrew, I think that’s fair. That can be question 17. Here’s 18. Chairman Bernanke, there’s a disconnect between the general public and the Fed. People do not think in terms of what is better for them, but in terms of what is fair. “Why does he get that and I don’t?” would be a common lens to view matters through. To that end, all the bailouts that the Fed did struck the American public as manifestly unfair. Why did you bail out financial institutions rather than letting them fail, and only protect depositors? Why did you bail out financial institutions rather than create mutual banks so that average businesses and consumers who wanted credit could get it? As it was, banks merely sat on the liquidity that you provided, and did little for the good of average Americans. That’s why the average person views the actions of the Fed as unfair.

Ok. In the hope that an intrepid reporter is reading this blog, I have another question I would like asked:

In your confirmation hearing, you assured the Senate that you would not monetize the debt, yet 6 months later, in the words of your fellow governor Thomas Hoenig, commenced “monetizing the debt:”. Given that you broke your promise, why should anyone believe any trust anything you say?

I just realized that the really good questions have already been asked:

http://www.youtube.com/watch?v=PTUY16CkS-k

Sorry for venting on your blog. I hope I haven’t been inappropriate.

[...] Sixteen questions for Ben Bernanke. (Aleph Blog) [...]

Why no invite? Remember the famous words of congress – “money talks”. While it may not work with Ben, donate sufficient $ to a congressman and I am sure you can find one who would ask the questions the next time Ben is up on the hill.

Good point. I don’t think I have given money to a PAC in decades. Lack of faith in the political process, I guess…

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blog advertising is good for you Disclaimer David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures. Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. 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I don’t think I have given money to a PAC in decades. Lack of faith in the political... cold.as.ice: Why no invite? Remember the famous words of congress – “money talks”. While it may not... andrew 123: I just realized that the really good questions have already been asked: http://www.youtube.com/watc... andrew 123: Ok. In the hope that an intrepid reporter is reading this blog, I have another question I would like... David Merkel: Andrew, I think that’s fair. That can be question 17. Here’s 18. Chairman Bernanke,... Recent Trackbacks Thursday links: absent investors Abnormal Returns: Sixteen questions for Ben Bernanke. (Aleph Blog) FT Alphaville: Further reading Tuesday links: practical knowledge Abnormal Returns: David Merkel, “It takes a while to develop the practical... Sunday links: zombie banks Abnormal Returns: Another positive review for James Valentine’s Best Practices for... Tuesday links: outrageous predictions Abnormal Returns: Vote your proxies! (Aleph Blog)

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16 Questions For Bernanke's Press Conference

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