Tuesday, July 28, 2009

On the (forgotten) autonomy of the Fed

Today, I see that Tom Petruno (LA Times) is reporting that just 30% of the respondents to a Gallup poll ranked the Federal Reserve Bank's performance as "good" or "excellent", which is below the IRS. Here is an excerpt from the article:
The Gallup Poll found that just 30% of respondents rated the Fed’s performance either "good" or "excellent." Thirty-five percent rated the central bank’s performance "only fair" and 22% gave the Fed a "poor" rating. (The rest, 13%, were honest enough to say they had no opinion.)

The eight other U.S. agencies tracked by the poll all received higher combined good/excellent ratings than the Fed. No. 1 on the list: the Centers for Disease Control and Prevention, which 61% of respondents said was doing a good or excellent job.

The Fed even was outranked by Homeland Security, which got a 46% good/excellent rating, and by the IRS, at 40%.
The problem is: that it is highly likely that survey respondents, i.e., the public, are misrepresenting the Treasury's actions for the Fed's actions (or vice versa). Tom Petruno indicates this in the article:
The Fed’s negative rating also may reflect that the Treasury wasn’t included in the Gallup Poll, which surveyed 1,018 adults July 10-12. People may have been grading the Fed as a proxy for the Treasury.
To be sure, the Fed is purchasing Treasury debt, but the Fed remains autonomous from Congress' ever-growing deficit. Fiscal policy versus monetary policy: even Market Watch got it wrong. Watch this video, where they attribute the stimulus bill and Congressional deficit to Helicopter Ben.



The video is funny, but completely off key. The Fed and the Treasury are separate entities: the Treasury's deficits are not equal to the Fed's excessive easing measures. One could argue that the Fed is paying for the government deficits (i.e., monetizing the debt), and it technically is since the Fed is targeting lower Treasury rates through its buyback program. However, that is just $300 billion of the Fed's $trillion in liquidity measures and asset purchase programs, all of which can be "taken back" (hence, the Fed's exit strategy). The Treasury must "take its measures back" too, but that requires paying down a deficit - completely different. The Fed is working on its own, and is not "in bed" with the Treasury.

In fact, the Fed must reiterate this over and over in order to maintain its credibility with financial markets. At least that is what Bernanke was trying to do last night in front of a group in Kansas City (see video below). I did notice, however, that speaking "layman" is not one of Bernanke's fortes.



The public's confusion as to what constitutes monetary and fiscal policy is not helped by these incomplete polls and videos (the Market Watch video).

Rebecca Wilder

9 comments:

  1. That should be the last townhall meeting for Ben. He looked guilty, reminded me of Nixon.

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  2. Bernanke is the best of the best. The trouble is that his critics no nothing about money and central banking.
    Make them take a test.

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  3. Bernanke is the best of the best.

    Ha, that's hilarious. Maybe he's the best stooge of the thieves on Wall St., but that's it. Who was supposedly superintending the banking system since early 2006? Bernanke. The debacle of last fall is entirely attributable to him, and he is either a criminal or an imbecile. The "meltdown" was entirely predictable, and was based on massive and systemic fraud, from the people who gave out loans to people who were manifestly incapable of paying them back, to the "securitizers" who packaged manifest crap into supposedly high-quality bonds, to the fraudulent use of credit default swaps to conceal the risk and increase leverage, to the credit agencies that manifestly failed to carry out their supposed function, to the supposed regulators who not only turned a blind eye to all of this but actually encouraged it, the chief of whom was Bernanke.

    To use the words "Bernanke" and "best" in the same sentence is outrageous.

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  4. As I said, you have to know something about money & central banking to make such an evaluation.

    You think the FED controls more than they are mandated. The FED's job is to control inflation, not stablize employment.

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  5. Unlike his predecessors, Bernanke is exceptionally gifted; he just matriculated at the wrong universities[1].

    As soon as Bernanke was appointed to the Chairman of the Federal Reserve, the rate-of-change in legal reserves[2], (the proxy for inflation), dropped for 29 consecutive months (out of a possible 39, or sufficient to wring inflation out of the economy).

    It’s only been in the last 10 successive months (since Aug 2008), that the FED’s “tight” monetary policy was finally reversed.

    That was his mandate.

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  6. "What is avoidable and ought to be avoided is the potential corruption of the independence of the chairman at the re-appointment stage. At that stage the leverage of withholding nomination for a further term or of denying confirmation can be used to influence the actions of the chairman seeking reappointment. A single, non-renewable term of, say, 7 or 8 years would be the simple solution to this problem."


    http://blogs.ft.com/maverecon/2009/07/should-fed-chairmen-go-around-kissing-babies/#more-4461

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  7. I've been keeping my distance of late, and still digesting some of Rebecca's more recent postings.

    On one hand, the comparison of Cdn v. US Velocity of (roughly comparable M categories) was laudable, but the stats are lagging/estimates, and not that revealing.

    That is a point of interpretation, not substance, and I find Rebecca's posts on the Fed's role as extremely important.

    As with Healthcare (something Rebecca subtly indicated with her "favorites of the day" a few days back, the US media is doing a criminal disservice in deluding Americans as to 'who does what'. It's bad enough that many Americans have no idea how the Electoral College works, let alone monetary/fiscal regulation.

    Flow writes:
    [The FED's job is to control inflation, not stablize employment.]

    WRONG! I was hoping an American would correct you, but in that absence, I feel compelled to doing so.

    The US is one of the few Western nations to not have the exclusive 'Inflation only' mnadates.

    I leave it at that for now...it is an extremely important subject, even as the Brits tear everything apart to see why the device is not working. Of course, they failed to inform themselves that the batteries are not included....

    Look people...if we're ever going to sort this mess out (and some nations have done regulation quite well, all things considered (I submit the models of Canada and Australia) then at least the basic understanding of how the models work is an absolute prerequisite.

    Bernanake is due some crticisum, we all are....but compared to the likes of many in the US Government?

    C'mon...the man's independence (albeit tenuous in some respects) is a breath of fresh air.

    If you follow the musings of Central Bank Governors in advanced nations at this juncture in time, you'll note quite a schism opening between governments and their Bank Governors.

    Retired Governors especially have been stating some pretty profound observations.

    They are certainly not touting 'government propaganda'. Ironically, the media is in its own convoluted way.

    Confusion in lieu of the Truth....

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  8. Bernanke has shown himself to be clueless about all things money and economics.

    Enjoy this video montage where Ben convicts himself by his own idiocy.

    http://www.youtube.com/watch?v=HQ79Pt2GNJo

    Also, the U.S. (government) works from the same so-called monetary policy today that it established in 1913 -- the Congressmen of the day along with then Pres. Wilson granted a charter monopoly for the manufacture and distribution of money (notes, coins) and credit to a private entity -- the Federal Reserve.

    Itself, the Federal Reserve (FR) does not have a "monetary policy". Instead, FR central bankers have a credit growth policy.

    The FR exists so its members can earn profits through renting cash.

    All acts FR undertaken by FR bankers happen with this purpose in mind.

    Only the thoroughly indoctrinated who lack understanding of the design of the FR hold and defend false beliefs contrary to this blinding truth.

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  9. The US Federal Reserve's mandate:
    [• Setting monetary policy to ensure a stable currency and economic growth.
    • Regulating US banking institutions
    • Maintaining the overall all stability of the US financial system
    • Providing financial services to the US government.]

    You'll note the "economic growth" in the first bullet sentence.

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