Ruminations, March 3, 2013
Bernanke’s confession
***Last week, Federal Reserve Chairman Ben Bernanke appeared before the Senate Banking Committee and, in Fed-speak, admitted to the problems caused by the Federal Reserve.
Well, he didn’t admit to the problems directly but did in a circuitous manner befitting a member of the Federal Reserve. For example, Senator Bob Corker (R, TN) accused Bernanke of throwing savers and seniors "under the bus" by keeping interest rates lower than the market would normally set. Bernanke responded by changing the subject: he said that he was concerned about long-term unemployment that not only has an immediate impact on those unemployed but has a long term effect in that the longer one is out of work, the more out-of-date one’s skills become.
So let’s examine Bernanke’s answer. By not addressing Corker’s charge, Bernanke was effectively acknowledging it (adversely impacting savers and seniors) and doing so to better the economic climate for job growth. In essence, Bernanke is saying, in not so many words, that he is making a conscious choice to sacrifice savers and retirees in return for creating a robust job market. Fair enough. It’s a decision with which we can agree or disagree. Bernanke is placing a higher priority on job creation over retirees and savers.
Except – is the Fed really creating any jobs? People can accept sacrifice as long as it is sacrifice with a purpose. We can sacrifice a larger house in order to save for our children’s education. We can sacrifice expensive vacations in order to build a retirement nest egg. We can even sacrifice our lives to defend our country. Sacrifice with a purpose.
Maybe we are willing to sacrifice the Fed’s policies of artificially low interest rates, three trillion dollars in paper assets on the Fed’s balance sheet, creating economic bubbles in the stock and commodities markets, creating currency wars and creating such a precarious position with debt such that if interest rates ever spike, we will no longer be able to repay our debts. We can sacrifice all this in return for a healthy economy. But will the Fed’s policies lead to a healthy economy and more jobs? Considering that Bernanke has been setting fiscal policy throughout the economic downturn and the unemployment rate remains high, it appears that he has been a flop. (And Bernanke has admitted that the longer the Fed program continues, the less likely it is to result in more jobs.) Sacrifice for nothing?
But Bernanke believes (or says he believes) that the Fed’s policies will hasten economic recovery and when the economy does recover, then the Fed and the national government can rectify in short order all the market incursions that they have introduced over the previous six years; and all will be well.
On the other hand, maybe, in his heart of hearts, Bernanke doesn’t know what to do and believes that the worst thing he can do is show the world community that he is lost. A statement of honesty, in this case, could cause more harm than good; so it is better to keep on doing what he is doing and hope that it really works out -- eventually. The danger here is that the Fed, as they have at times in the past, is making things worse and each day the Fed fails to take corrective action makes the situation worse.
Nonetheless Bernanke has made a start at true contrition. He has admitted, albeit in a roundabout way, who the Fed is sacrificing and why. He is still, however, in denial over the currency wars that the Fed has provoked ("We're not engaged in a currency war").
If the first step in recovery is to admit a problem or mistake, Bernanke has taken a half step; yippee (lower case “y”).
A Lew-Lew of a Treasury Secretary
Last week, Jack Lew was confirmed as Treasury Secretary. He succeeds Timothy Geithner who had cheated on his income taxes and never had to pay a penalty – but that’s all history. Lew meets the qualifications, such as they are, but has some troubling history himself.
Senator Chuck Grassley (R, IA), in a speech on the senate floor during Lew’s confirmation vote, emphasized Lew’s connection with Cayman Island banks.
Now, the Cayman Islands is a good place to put money to avoid taxes. Remember, tax avoidance is not a crime; tax evasion is a crime. Tax avoidance is like claiming a personal exemption for yourself on your tax form; it’s legal and reduces your tax liability. Tax evasion is like claiming a tax deduction for your children’s summer camp as a day care expense; it is not legal and if you try to claim it, you have evaded a legal tax liability.
Getting back to Grassley’s argument, it is partisan and without foundation – but, at the same time, it is political payback. During the 2012 presidential campaign, the Democrats and Barack Obama decried the fact that Mitt Romney had millions invested through the Cayman Islands – which he did. There is nothing illegal about it. But now, Grassley makes the same charge about Jack Lew but Lew not only made investments for his own accounts through the Caymans, he made investments for his employers at the time -- Citibank and New York University. Again: nothing illegal going on here. But if avoiding taxes through the Caymans makes Romney somewhat nefarious, then it should make Lew somewhat nefarious, too.
But Grassley was just getting started. While Lew was Executive Vice President for Operations at New York University (NYU), he instituted a kickback program on student loans. Under his administration, NYU would steer students to Citibank for student loans and Citibank would kick back some of the earned interest to NYU – by no means insubstantial; during Lew’s five years, tuition went up by almost 40 percent. Again: nothing illegal going on here.
In 2006, Lew left NYU for Citibank and was paid severance by NYU – maybe he was really that bad. At Citibank, he became the chief operating officer of alternative investments and negotiated another severance bonus. This bonus became payable only when Lew left the bank for a "high level position with the United States government or regulatory body." It does look suspicious but again, nothing illegal going on here.
I guess Lew did not violate any laws but still – he doesn’t exactly inspire confidence, does he?
Are we becoming Russians?
Sometimes, a nation develops an attitude about things that helps explain how they function. During the Stalin regime, Russians often thought that the executions, incarcerations and general lack of rights were being carried out by Stalin’s underlings and Stalin himself had no knowledge of what was happening. “If only Stalin knew,” many lamented, he would take steps and set things right.
This was no new attitude that began under the communists. The same attitude was at times expressed about the czar. “If only the czar knew,” he would take steps and set things right.
Now, it seems, the same attitude is beginning to evince itself in the United States. Ron Fournier, covering purported slights of the Obama Administration to the press corps, writes for the Associate Press, “[t]his can't be what Obama wants. He must not know how thin-skinned and close-minded his staff can be to criticism.”
And Washington Post writer Bob Woodward, himself involved in a confrontation with the White House, said this in a CNN interview: “I think if Barack Obama knew that was part of the communication's strategy …" it wouldn’t have happened.
Oh sure, it’s only a couple of reporters -- but reporters from the Associated Press and The Washington Post. You have to admit that it is starting to sound like “If only Obama knew” he would take steps and set things right.
Maybe it’s nothing. Let’s hope.
Quote without comment
Dr. Benjamin Carson, Professor of Neurosurgery, Oncology, Plastic Surgery and Pediatrics at John Hopkins University, at the National Prayer Breakfast, February 7, 2013: “What do lawyers learn in law school? To win, by hook or by crook. You gotta win, so you got all these Democrat lawyers, and you got all these Republican lawyers and their sides want to win. We need to get rid of that. What we need to start thinking about is, how do we solve problems?”
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