Remember the old saying "If you can keep your head while all those around you have lost theirs - then you probably have misinterpreted the situation?" Well thats how I feel about this administration and its actions. The president as a candidate constantly berated the Bush administration for running up record deficits of $400 billion. Bush was irresponsible so said candidate Obama by increasing federal spending while cutting taxes. Never mind that tax receipts increased - it was just because that spending increased by more. So instead of getting fiscal responsibility, we are getting just the opposite - fiscal irresponsibility. The budget deficit is projected to increase by a factor of four to $2 trillion. The administration is saying that they had to do this because they didn't realize the depth of the mess that Bush had gotten us into. Only an Obama loyalist would believe such nonsense. The surge of spending on bailouts, on TARP II, on "stimulus" packages, on cars-for -clunkers, on the takeover of banks, the domestic automobile industry,of Fannie Mae and Freddie Mac, the obscenity of AIG and on you-name -it had less to do with Bush than to do with an attempt to increase the federal government's reach in the economy. This reach is going to manifest itself in a projected budget deficit of $10 trillion over the next ten years. Yet this projection from CBO is a rosy scenario. It assumes dramatic increases in tax revenues that could only occur if all the Bush tax cuts lapse, if the dreaded alternative minimum tax is kept and if taxes are raised across the board. If these all do not occur then the deficit will be $2 billion more. Lest we have short memories, the electorate voted out the first President Bush for violating the "read my lips, no new taxes" pledge. The current president has also made a pledge of not raising the taxes in any form for those making $250,000 or less. He cannot possibly keep that promise. If he violates it, he will be shown the door. The only alternative is to see huge tax increases during a second Obama term - if he somehow gets re-elected. However, keep in mind. If he is re-elected and pushes through these tax increases, then all those out side of "safe" districts will be defeated. You would think that these vulnerable politicians in swing districts would know this and vote against "change".
Ben Bernanke has been nominated by the President for a second term as Fed chairman. Congratulations Ben! You earned it having provided the most accommodating monetary policy for the administration since oh Alan Greenspan. Since you were a governor at Greenspan's Fed, your reward from the Bush administration was being given the chairmanship. So accommodating is nothing new for you. Some have written that Larry Summers was a candidate for the job but the president did not want to give the impression of appointing a lap dog that would compromise the Fed's independence. As if the Fed's independence can be compromised more! However, I understand that the Fed can be intoxicating and that the chairmanship can be downright addictive. Reserach shows that the Fed is usually most accommodating when a chairman seeks to be reappointed by a new president. However, thereafter the Fed regains its stones. Anyway, if Larry Summers had been appointed, the president is smart enough to know that the Fed chairman has only one vote on the Open Market Committee. An appointment of an outsider would cause friction enough. An appointment of an obvious flunky might cause an outright rebellion. One thing to note is that some talking heads are contending that the policies of this president are intended to destroy the country. I for one find this hard to believe because it would lead to the defeat at the polls of his supporters in congress - and nothing is more important to our elected officials in Washington than re-election. Indeed, if the president wanted to wound the country, he would have not re-appointed Bernanke. That would have lead to a sharp decline in the stock market. The market would realize that all bets were off. The Fed would be in crisis. There would be never ending relenting monetary ease, higher rates of inflation and more monetarization of the national debt. So the president had his chance to spur a severe economic downturn and spurned it. So congratulations Ben. You sucked up to the president and got renominated. Hopefully after your confirmation by the Senate, you will regain your integrity and assert Fed independence. I can only hope.
Remember when people wonder why hurricanes were only named after women? Obviously, if they were named after men they would have to be called himacanes. Well the esteemed congresswoman Sheila Jackson Lee now famous for chatting on her cell phone during a recent town hall also is notable for two other things. First she asked if the Mars probe could take a picture where Neil Armstrong landed and second she wondered why the National Hurricane Center didn't have black names for hurricanes. Now before you laugh look at the following names for future hurricanes. For the complete list go to http://www.nhc.noaa.gov/aboutnames.shtml.
2009 2010 2011 Ana Alex Arlene Bill Bonnie Bret Claudette Colin Cindy Danny Danielle Don Erika Earl Emily Fred Fiona Franklin Grace Gaston Gert Henri Hermine Harvey Ida Igor Irene Joaguin Julia Jose Kate Karl Katia Larry Lisa Lee Mindy Matthew Maria Nicholas Nicole Nate Odette Otto Ophelia Peter Paula Philippe Rose Richard Rina Sam Shary Sean Teresa Tomas Tammy Victor Virginie Vince Wanda Walter Whitney
I have made little secret the fact that I do not care for the Bernanke Fed. Although it appears that Bernanke is campaigning for re-appointment, his actions are consistent with those his predecessor used while President Bush was in office. Recall that government spending exploded under George Bush. Even though tax revenues increased federal expenditures increased by even more causing an increase in the deficit. The Fed accommodated by purchasing the Treasury bills used to finance the deficit resulting in driving down interest rates and keeping them down. The result was the boom in the mortgage market and the eventual bursting of the bubble. Then came the ill-fated stimulus programs under Bush and the TARP fiasco. Ignoring history which shows that stimulus programs always fail because consumers and businesses seek to pay down debt during recessions rather than increase spending, both Bush and Obama felt the political need to endorse such a program. There is little evidence that Obama’s stimulus has stimulated the economy. Rather it was used to bail out state governments.
In the meanwhile the Fed has continued to provide accommodative monetary policy. Now the Congress led by Ron Paul is seeking an audit of the Fed. They want to know who the Fed is lending to and how much. The Fed argues that such an audit would have an adverse impact on the borrowers as their clients and the market would react negatively to the information. Some back Paul’s bill because they are Fed conspiracy theorists and believe that the Fed is just helping to enrich a precious few. Others back Paul because they want more openness in government. So who is right – the Fed or Ron Paul?
Both. Revelation of the lending information will have an adverse market effect. However, that effect will be short-lived. Second, the congress should know what the Fed is doing. My proposal is for an annual audit to be conducted of the Fed and the information be given to the House and Senate banking committees in a closed door session. Much like the CIA reveals its operations to congress behind closed doors, so should the Fed.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com