Thursday, October 16, 2008

Cluless Bernanke Speaks

Fed Chairman Ben Bernanke spoke today before the Economic Club of New York and topped previous efforts at displaying the fact that he can often be clueless.

Bernanke said the Fed will consider discarding its long- standing aversion to interfering with asset-price bubbles and warned that the banking business may be concentrated in too few companies, according to Bloomberg.

Of course, as I have pointed out before:

Those who call for regulators to supervise the financial industry fail to get that government is spelled g-o-v-e-r-n-m-e-n-t, not g-o-d.

In 2004, New York Federal Reserve economists Jonathan McCarthy and Richard W. Peach wrote a paper Is There A Bubble in The Housing Market Now? Their answer was decidedly, "No".

I issued a reply to their paper:

...the record climb in housing prices is, indeed, a bubble... the Federal Reserve study fails to consider past declining interest rates as a cause of the bubble. The faulty conclusions reached by Federal Reserve economists Jonathan McCarthy and Richard W. Peach may make many potential new home buyers comfortable about a purchase, when, in fact, we are very near the top of a housing market that will experience substantial declines in prices...

Just how does Bernanke square this embarrassing performance with his call to have the Fed identify and somehow "intervene" when asset bubbles occur, when the evidence points to the fact that they completely misssed the housing bubble?

His contention that the banking industry is too concentrated flies completely in the face of what the Treasury is now doing to "battle" the financial crisis. The Treasury just gave $125 billion to the top nine banks in the country. If you are concerned about concentration, you don't give the top nine banks $125 billion,

Further, he continues to contend that he is adding liquidity to the financial system:

The Federal Reserve responded to these developments in two broad ways. First, following classic tenets of central banking, the Fed has provided large amounts of liquidity to the financial system to cushion the effects of tight conditions in short-term funding markets.

In fact, as I have pointed out here, here, here, here, here,here, here and here, money supply growth has been collapsing. Bernanke, for all practical purposes, has not been adding any liquidty to the system.

Does the Chairman have any clue as to what is going on around him?

No comments:

Post a Comment