Tuesday, May 19, 2009

Inside An Insider Briefing

Fred Bergsten, Director of the Peterson Institute for International Economics, provided a breakfast briefing on the economy, this morning. The Peterson Institute is, of course, funded by Pete Peterson. Peterson is founder of the Blackstone Group and was instrumental when current Treasury Secretary Timothy Geithner was named president of the New York Fed.

Bergsten, prior to joining the Institute, held a long list of other insider positions.

He was assistant secretary for international affairs of the US Treasury during 1977–81. He also functioned as undersecretary for monetary affairs during 1980–81, representing the United States on the G-5 Deputies and in preparing G-7 summits. During 1969–71, Bergsten coordinated US foreign economic policy in the White House as assistant for international economic affairs to Henry Kissinger at the National Security Council. He has been a senior fellow at the Brookings Institution, Carnegie Endowment for International Peace, and the Council on Foreign Relations.

Bergsten was a member of the two leading commissions on reform of the international monetary system: the Independent Task Force on The Future International Financial Architecture, sponsored by the Council on Foreign Relations , and the International Financial Institutions Advisory Commission created by Congress.

He was ranked 37 in the top 50 "Who Really Moves the Markets?" ( Worth Magazine) and as "one of the ten people who can change your life"(USA Today).

At this morning's briefing, he provided a bleak picture of the economic situation. He warned that overtime the debt held by foreigners would have to somehow climb from $5 trillion to $50 trillion. A possibility he classified as unlikely to take place.

He said a serious discussion of a change in the dollar as the international reserve currency was coming. And, he said that the IMF must become more effective (the new insider mantra). He also indicated that the World Trade Organization will have to play an important role next to the IMF.

He specifically warned that much higher interest rates, higher inflation and a crashing dollar were likely if the deficits weren't reduced. He didn't seem to hold up much hope that they would be reduced.

When I asked him if those inside government, and I specifically named Larry Summers, Timothy Geithner and Ben Bernanke, held his dire views, he told me that they did, but that their horizons were much more short-term.

He said it is the nature of politicians and government officials to deal only with problems right in front of him. They all think the other crises will happen, but not until after they are gone. He said it was to a degree denial.

He also blamed most of the current crisis on the Chinese willingness to absorb huge amounts of debt. While I see the Chinese playing a role, I do not see it as the main role, which must be assigned to the Fed.

I asked him, if he thought there was something unique about this business cycle that is different from other business cycles and if there were any factors that are common to all business cycles. He did say this cycle was different, which, I guess he would have to do, given his putting the blame for the crisis on the Chinese accumulation of debt. He did not mention the Bernanke slowdown in money printing during the summer of 2008 at all.

He then added that there were factors that were common to all business cycles, but he failed to name any.

In short, Bergsten clearly sees the dangers ahead, clearly doesn't follow money supply growth very closely and doesn't appear to have much of a business cycle theory.

And if his view of the thinking by Summers, Geithner and Bernanke is accurate, Summers, Geithner and Bernanke are not preparing in any way for the severe crises ahead.


  1. This is up your alley:

    U.S. Needs More Inflation to Speed Recovery, Say Mankiw, Rogoff


  2. Wenzel,

    I am curious what your impressions are of these insiders from your meetings/briefings/luncheons with them. What is their mindset, what motivates them to do what they do? I don't mean to create a false dichotomy here, just suggesting some possible alternatives: are they just pragmatically trying to extend the status quo for as long as they can because they see it benefits them, or are they more nefarious, with ideas of how to change society to some ideal condition they've dreamed up?

    It sounds like there is a difference in mindset even between insiders who are consultative like Bergsten, vs. insiders who are actually in power, like Geithner, Bernanke, Obama, etc. Is there any commonality between their goals? Who is influencing and "controlling" who? Sometimes we're told that Geithner, Obama, Bernanke and the like are puppets, other times they seem to be acting "originally," what is your impression?

    Do you believe in evil or (again, not to set up a false dichotomy) do you believe every man's actions are rationalized as "utility-maximizing" from his point of view? In other words, what we might see as evil, stupid and nefarious, is just them trying to do their very best given the circumstances they find themselves in?

    Hearkening back to a comment I just made on another of your posts, I think another question I have that I am curious for your impressions on is... how do these people come to these arrangements, in their own minds? Is it something other people condition them for and convince them of, are they self-convinced of their own grace, are they just following their own interests and we're interpreting it... we hear a lot from different media sources and popular books about govt and Wall Street players that a lot of these people are informed, by the previous generation inducting them, that they're special, bright, talented, etc. and that there is a bit of hubris involved. But maybe they bring that to the table themselves and seek out the kind of elitism they believe they're fit for?

    Definitely would appreciate any kind of long, wandering thoughts you have on this topic, Robert, you seem to be a bit of an outsider-on-the-inside yourself so I would assume you've got stronger impressions of all of this from where you sit than I do.

    And I guess a final, concluding question I have is... whatever way you respond to the above, do you think there is a way to convince these people of a different or better way than the way they do things? Or will it take the complete collapse of their system and their vision to awaken them, or at least prevent them from having the option to continue?

    Can we get through to these people? Do we have any hope of showing them the errors, of getting them to understand economics and all the harm they do to others in the name of doing the opposite?

    Can criminals be saved from themselves? Can anyone?

  3. @ Taylor

    Very good questions. I have thought about them myself.

    There are differences among the insiders. I know enough of them to say some are ruthless and do whatever serves their purposes, others are more sincere, but when push comes to shove you can be sure sincere insiders will side with whatever the top players want.

    I see Henry Paulson as part of the ruthless group. He knows exactly what he is doing and it is usually ends up benefiting Henry Paulson.

    The Paul Volcker's and Colin Powell's of the world are much more sincere, but when push comes to shove the insider's can count on them.

    There are very few people that insiders can talk freely about their true intentions. They talk a lot in code, even among themselves.

    I would think Geithner, Summers and Rahn Emanuel talk freely among themselves, Bernanke is probably only in the deep loop 80% of the time.

    Someone like Bergsten is in an outside ring of the insiders. He's a good soldier and knows what is to be expected, but is too honest of a guy to think out the dirty deeds that Geithenr, Summers and Emanuel do.

    Are Geithner, Summers and Emanuel tools of other, deeper insiders? Probably, in the sense that there are some major players who have major influence and Geithner, Summers and Emanuel take their calls. But those guys stay away from the bright lights and you would only know them if you were deep inside a circle yourself. But those guys are very powerful. They can get dead bodies moved, homicide investigations killed and legislation changed.

    They do their work for only the very wealthy [The ultimate power elite], but can deliver pretty much anything. They are always working the angles for leverage and have their claws into a lot of people.

  4. Wenzel,

    I really appreciate your thoughts and comments and would love to continue this discussion with you if possible. This topic is something I've considered a lot lately and I just am not close enough to it all to really feel like I can make much headway on it by myself.