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Don't Be Stupid with the Economy
The US Senate's decision on approving Ben Bernanke for a second term as chair of the Federal Reserve Board is coming down to the wire and the Wall Street crew is once again pulling out all the stops. To get the 60 votes they need for Senate approval they are reaching into the treasure chest of tall tales they used to push through the troubled asset relief programme (Tarp). They are once again telling the American people that the world will end if we don't do exactly what they want.
The main story they are pushing is that if Bernanke is not approved then the markets will panic and send the economy tumbling. Both parts of this story deserve some serious scepticism. First, there undoubtedly will be some uncertainty in the financial markets if Bernanke is not reappointed. Markets like continuity. A new Fed chair means a break in continuity. Therefore, we can expect to see some decline in the stock market, probably about the same as we get when there is a worse-than-expected jobs report.
However, focusing on day-to-day movements in the stock market is no way to make economic policy. For practical purposes, the daily movements in the market have no impact on the economy. Furthermore, there is no way to move the economy away from its current Wall Street bubble-driven growth path to one built on a productive economy without at least some temporary decline in stock prices.
Such a decline is inevitable if for no other reason than the fact that Goldman Sachs, JP Morgan and the rest account for a substantial portion of the value of the stock market. If we can never do anything that even temporarily hurts stock prices then we can forget about reining in Wall Street.
Interestingly, the bond market, which is far more important for the economy than the stock market, has been rallying in recent days as Bernanke's nomination faces increasing difficulty. Bernanke's troubles may not be the case of this rally, but they have not prevented the 10-year Treasury rate from falling considerably.
It is also worth pointing out that one supposed source of bad news - a declining dollar - would actually benefit the economy. The country has a huge trade deficit because the dollar is over-valued. If the dollar were to decline as a result of Bernanke not being reappointed, it would give a boost to our exports and cause domestically manufactured products to displace imports.
Bernanke's troubles don't seem to be depressing the dollar at the moment, but if the Wall Street fear mongers and their allies push this line, we should realise that they are once again spouting nonsense. A lower-valued dollar is good news for the economy.
To briefly summarise the case against Bernanke, at the top of the list is the fact that his failures at the Fed (both as chairman since 2006 and as a governor since 2002) brought the economy to the brink of a second Great Depression (Bernanke's assessment, not mine). Anyone else who had failed so completely at their job would be fired in a minute.
Only in Washington and on Wall Street could such a disastrous record be rewarded with another term in office.
Second, the focus of his bailout was to return Wall Street to health while leaving the rest of the country reeling. Bernanke rightly tapped the Fed's virtually unlimited resources to keep the financial system from collapsing, but he gave money to the banks at below market interest rates with no strings whatsoever.
They were able to use this money to restore themselves to health, but were not required to do anything about compensation practices, risky trading, or helping homeowners facing foreclosure. Nor were their shareholders and bondholders required to incur any losses. In effect, Bernanke gave a huge gift from the taxpayers to the Wall Street boys who were responsible for the crisis in the first place.
Finally, to help get the Tarp passed back in October 2008, he told Congress that the commercial paper was shutting down, which meant that even healthy companies would not be able to borrow the money needed to meet their payroll and pay other bills. This would have quickly led to an economic collapse.
Bernanke did not tell Congress that he was planning to set up a special lending facility to directly buy commercial paper. He announced this facility the weekend after Congress approved Tarp. It is not the Fed chairman's job to lead Congress up the garden path. Nor is it his job to bail out Wall Street at the expense of the rest of the country. It is his job to prevent the growth of dangerous bubbles. That's three really big strikes.
Bernanke should be sent out to enjoy his Time "Person of the Year" status in retirement.
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16 Comments so far
Show AllHonestly, in a system that is totally corrupt, do you really believe it matters a hoot?
diversion, diversion, diversion
If Obama actually had an ounce of intention to really change ANYTHING, Bernanke would have been kicked out on January 31, 2009.
His zealous campaigning this week to retain Bernanke shows just how anxious Obama is to see Republicans control congress after the 2010 elections. Then he can blame the Republicans for ALL of his misdeeds.
Dean Baker is the Best for economic advice.
Our enemies enemies are our allies.
Flunk Bernanke
The game is rigged!
Wall Street is nothing more than a glorified 'Ponzi' scheme. Bernie Madoff admitted to and was jailed for his 'Ponzi' scheme. There have been other 'Ponzi' schemers prosecuted and jailed.
Why haven't the big shots who invented the 'fool's gold' investments gone to jail? Because they control the Fed and our government. That's why they don't want Bernanke to be replaced. They'll have to start all over making another 'zombie' to do their bidding.
There are two very separate economies. One economy is that with which ordinary citizens have to deal with. This one economy has been getting progressively more and more difficult for the past 30 - 40 years. It's on the skids now. The other economy is where the wealthy and Wall Streeters find themselves. It's basically a 'gated community'. Full use and benefits of the 'commons' and all the clout/influence/money to insure their position and prosperity.
When was the last time any politician spent even just one day in an ordinary household? Politicians are so totally disconnected from the reality of that economy. They don't care to connect to that reality. They have nothing to gain from it. Yes, for politicians it's all about the position and prosperity(the other economy) for themselves not the welfare of their supposed constituents.
When did any politician say "my pay will be that of the ordinary working class citizen"? When did any politician offer to give up their health insurance and other benefits to align themselves and show solidarity with ordinary working class citizens? None of them are about to give up anything they have acquired. When was the last time a politician had a self-determined term limit and then retired to do volunteer(no pay) work to help constituents? When was the last time a politician left government and didn't return as a corporate lobbyist, or write a book, or become a paid expert/talking head?
They are stupid. They're stupid with our economy but certainly not with their's.
Who are the possible replacements for Bernanke and what are their qualifications? Have any of them worked for Golden Sachs or any of the other Big Banks? Have they worked for lobbying firms representing the Big Banks? Would a new Fed Chairman be just another flunky coming through the revolving door? Maybe we should ask a few questions.
Volcker is one name I have heard bandied about...
Joseph Stiglitz and Simon Johnson. Simon Johnson was Chief Economist for the IMF but he has been promoting breaking up the banks since the beginning.
I was watching MSNBC this afternoon.
Former CNBC cheerleader Ron Insana went off on a hysterical rant against Bernie Sanders shouting that he knows absolutely nothing about the economy. He was almost foaming at the mouth.
Insana was defending Bernanke's reappointment as if his next meal depended on it.
Mr. Baker, you're funny when you pretend that the lying, greedy 'elite' Bankster who might replace that lying, greedy 'elite' Bernanke wouldn't be a carbon f**king copy.
What, the Fed's gonna appoint Nader or Paul or some shit? Come on, man - we know the drill pretty well at this point.
Different Bankster, same day...
The President appoints the Chairman of the Fed.
Obama doesn't really want to govern as much as preside. He thinks he was elected to be a Superior court judge. We need to STOP electing lawyers, especially Ivy league lawyers.
true
only in america could the king bee of all drones get the nobel peace prize and the designer of a collapsed ponzi scheme become time magazine's person of the year.
Cicero: "Freedom is participation in power."
A greater percentage of Americans own stock now than ever before and many of them minus their dividends would more or less gradually slip from the middle-class into the lower-class. Many of these people are elderly. They are living within an illusory secondary market bubble inflated by ongoing banking speculation that uses TARP funds to gamble on the market--including big bank roulette in the still un-regulated derivatives black market. That black market is estimated to be a more than $600 Trillion dollar abyss. A black market that colossal replete with all sorts of secret side bets would naturally attract drug cartels, illegal weapons traders, offshored income from mercenary firms, and all sorts of other sordid "investor classes" like horse flies to Hellman's mayonnaise just for all the ill gotten gains they can laundry through it, let alone the allure of the Big Casino. UBS was just the tiniest tip of one little iceberg compared to Ice Planet Derivatives, and who is serving 40 months for that one? The whistleblower, that's who. "Contemplate that on the tree of woe," as the man said to Conan the Barbarian.
The Fed, Republicans and DLC Democrats have put U.S. tax-payers and foreign lenders DIRECTLY on the hook for the next bubble implosion. They've basically dispensed with the phony "derivatives insurer" AIG (which now has zero credibility) and just exactly how the un-investigated, un-prosecuted credit ratings agencies are rating any of this Transylvanian tranya is the biggest smoke & mirrors show going. The Fed is far-flung through the looking glass now--somewhere out in the vast reaches of Saticon space on the Jupiter 2 helping Dr. Zachary Smith with his Dentu-creme--and no robot to warn Will Robinson. Even if too many U.S. tax-payers are too stupid to be leery of this gigantic shark hook, our foreign lenders are not.
Current legislation being circulated in Congress as part of "banking reform" would make handouts to the big banks (in order to keep inflating the new speculatory market bubble) an open-ended affair more or less on demand from the banks and their cronies in the Fed, Congress and White House. In the shell game that is now our economy it is hard to know how much of this gambling money is being borrowed, plus interest, from foreign lenders or if they are backing only the loathsome spotty bulk of the Pentagon's obscene and insane budget requests.
And Otoken wants a 3 year freeze on discretionary domestic spending, Medicare and Social Security excluded (until enough of the Greatest Generation dies out and they can start to dismantle those programs once and for all). I wonder if he's taken a look at how many of the unemployed will pile on to the number of "long-term unemployed" around July of this year and every month thereafter for the foreseeable future.
State operating budgets are already hitting the fan. A $350 Billion dollar nationwide shortfall in State budgets is predicted next year. That means massive government worker layoffs--including teachers, senior and mental health care workers. Recently States were back for a second time to ask the federal government for more money to pay out unemployment benefits. What happens when they cut what soon may be tens of millions of the long-term unemployed loose to build tent cities? What happens if they are fiscally compelled to wind down their multiple oil/terror/pipeline wars and all those troops and mercenaries come home to find themselves unemployed?
The GOP, DLC and corporate media will bend over backwards to delay the inevitable pulling of the wool from middle-class stock bubble market investors' eyes until the absolute last instant: When the shock and awe of the velocity of their downward mobility suddenly makes week-to-week survival for them so difficult they won't have time or money to participate in any coherent political backlash. Then the oligarchy of the plutocrats will have its giant banana "republic." The professional classes will be the remnant of the old middle-class and their job will be increasingly to serve the exclusive interests of the upper-class. The print press (the source of most original reporting in this country) and investigative journalism will be on oxygen. The only people who might still change the end game for the better are true progressives and to do that we must unite, motivate ourselves, educate others and RESIST.
"In the shell game that is our economy..." The truth that no one wants to deal with.