Ben Bernanke has apparently added a little stand-up comedy to his bag of tricks. This past week, Chairman Bernanke indicated his belief that there are no “obvious” asset bubbles in our economy right now. To quote Bankruptcy Ben, "It's extraordinarily difficult to tell, but it's not obvious to me ... there are any large misalignments currently in the U.S. financial system."
What is he thinking? The stock market is currently a huge bubble. From October 2007 to March 2009, the Dow Jones Average fell by about 50 percent. This is indicative of the fact that the previous market highs were out of whack for market conditions and needed to come down to reality. That is how the free market works when it is given the opportunity. Since last March, in just nine months, the Dow has rebounded off its low by an astounding fifty-three percent! It’s a bubble being fueled by all the cheap dollars the Fed is injecting into the economy.
If you don’t believe me, Mary Miller, director of fixed income for the T. Rowe Price Group indicated at the company’s symposium in Baltimore on Thursday, "I'm familiar with one institution that just borrowed $400 million — because they could — and then called up and said, 'What should we do with it?” That is what a lot of banks are doing with our money that has been given to them — not lending it but speculating once again in another Fed induced bubble. It is outrageous.
What is even more outrageous is Bernanke saying essentially that the current stock market fueled by his printing press is not a bubble. The economy is still in the dumper — I won’t bore or depress you further with all the numbers, but the stock market continues to climb to exorbitant highs. Give me a break and come clean Mr. Chairman.
Bernanke is clearly being disingenuous because if he acknowledged the truth it would indict the system that he has made a very good living from. The Federal Open Market Committee must be agonizing over whether to leave interest rates at essentially zero and continue to perpetuate the stock market bubble or raise rates and watch that bubble burst. It is going to happen sooner or later — sooner would still be painful but less extreme. Bernanke may not know it but the no win quandary he faces explains to a degree the Austrian School of Economics’ Business Cycle Theory.
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Article comments
1 - Mark
pg 1 Austrian School of Economics’ Business Cycle Theory. link isn't working
2 - Sammy
Amen
The stock market has pretty much completely decoupled from the rest of the economy. Every green day is fueled by some new measure, or an overly optimistic projection given by some company with stakes in the game (which is usually revised down later). 100% smoke and or mirriors.
As far as the FEDs go its obvious they have no concern for the future of this country, or the dollar. They have to know what they are dong is just prepetuating. But they know as long as they can inflate a little to make the people think they are wealthy enough to go buy some crap, then they can leave the mess for someone else to clean up later.
3 - Ruvy
Bubble bubble, toil and trouble;
Bubble bubble, gold is double!
When are you guys going to figure out to forget the casino and invest your money in gold coins? Gold is the only thing that has gone up!
The stock market has decoupled from the economy, and so should you!
4 - Kenn Jacobine
Ruvy,
The problem is that the bankers will know to decouple from the market, but most working stiffs won't. The next collapse - IRAs, 401Ks will then happen. You would think, fool me once shame on you, fool me twice shame on me.
5 - Kenn Jacobine
Mark,
The link is: here.
[Please don't post raw URLs, guys. Comments Editor]
6 - roger nowosielski
Interesting article, Kenn, especially the analogy to vomiting when hit by a flu. Not that I agree with you on all points, but you do present a viable critique of the interventionist remedy to market's ups and downs. In short, you almost make me a believer.
There's still a problem, however, of how to spot the bubbles and artificial market gyrations before they occur and nip them in the bud. It's this, perhaps, which is the perennial weak/blind spot of the capitalist system: the apparent divorce between profit-making (read: pure profiteering) and what I'd regard socially-responsible productive activity.
For example, do we really need ten brands of toothpaste? It's this kind of waste of productive capacities, a misdirection indicative perhaps of lack of ingenuity, which gives capitalism a bad name and serves as an invitation to hucksters and self-serving financial speculators. If we could only strengthen the system's defenses against such abuses, we might be able minimize the frequency and the intensity of business cycles, but how . . .
Minimizing the hardships during such cycles - the unemployment problem - is another weak spot. Thus far, we haven't been able to do so effectively. And so, apart from the first-mentioned aspect, it is in this area, perhaps, that our failure has been most conspicuous. The up- and down-cycles could be tolerable if we could lick the unintended side effects.
7 - Kenn Jacobine
Roger,
The point was that capitalism doesn't cause the severe swings in the economy that we have experienced. The Federal Reserve and government intervention - welfare to corporations and individuals, public works programs, and other so called government stimulus plans cause the wild swings because the market is circumvented in decisions about the most effective and efficient use of scarce resources. Even when we had a Gold Standard and before the Fed. Washington favored banking by allowing it to have a monopoly on our money and by allowing them to practice fractional reserve banking. Banking interests have dominated the power in our government since Hamilton. Certainly because you are a liberal and I am a libertarian we can agree that it has been and is the financial power brokers that pay for successful campaigns and thus get their way in Washington much to the detriment to the working man.
You know every time I return to the U.S. (about once per year) I am amazed at how many new flavors of Coke there are. I don't know why we need them all either, but I guess there is a market for them or Coke wouldn't make them.
8 - Kenn Jacobine
Sorry Roger,
One more thing - you must admit that the trillions the Fed and Treasury have pumped into the economy has not helped unemployment. It is like with nature - the waves after an oil spill will cleanse the beach, but if you add more oil the mess is bigger and takes more time to clean.
9 - roger nowosielski
"but I guess there is a market for them or Coke wouldn't make them."
Perhaps. Or perhaps it's one way for Coke to entrench itself as "the industry leader."
So the point may well be that you can't expect the industrialist to subscribe to the policy of eliminating "social waste" when confronted with dumb consumerism and frivolous spending. Which is to say that educating the consumer may well be the first step, for only then it would lead to anything approximating socially beneficial productive activity in the business sector.
And I don't think that having such a goal in mind necessarily smacks of socialism.
10 - Kenn Jacobine
I agree. Who once said, a fool and his money are soon parted? Consumers do need educating, but they are not going to get it in the government run schools. People still buy cash-value life insurance for God's sake - that has got to be one of the dumbest things you can do with your money. Not that I am for it, but Washington will not regulate this scam like it regulates others because the insurance companies are in bed with the politicians. It just makes my blood boil.
11 - roger nowosielski
I thoroughly agree with your #8. In spite of the rabid defenders of the stimulus package by some on the left, my thinking is it has been of no effect. The staggering growth of the army of the unemployed is an argument one cannot ignore - however much it is the case that unemployment is a lagging indicator. I don't care what anyone says, this is no kind of recovery.
12 - roger nowosielski
An interesting quote, Kenn, from today's Washington Post op-ed:
Yet there is a lesson for the president in the rote quality of his Thanksgiving proclamation that is significant only because it reveals Obama's underlying problem: What the document lacked was any sense of fighting spirit, any larger purpose, any gauntlet thrown down before his foes.
Contrast it to a Thanksgiving message Franklin D. Roosevelt offered in 1934 that was unapologetic in declaring his political goals. "Our sense of social justice has deepened," Roosevelt insisted. "We have been given vision to make new provisions for human welfare and happiness, and in a spirit of mutual helpfulness we have cooperated to translate vision into reality. . . . We can truly say, 'What profiteth it a nation if it gain the whole world and lose its own soul.' "
A year later, Roosevelt was at it again. "We can be grateful," he wrote, "that selfish purpose of personal gain, at our neighbor's loss, less strongly asserts itself."
Roosevelt was no less pragmatic than Obama. He, too, was attacked demagogically as a "socialist," and was equally loathed by his adversaries.
Yet Roosevelt was a "happy warrior," a phrase he used about Al Smith that actually described FDR himself. He relished taking the fight to his enemies, once boasting: "I welcome their hatred."
Obama will have more to be grateful for next Thanksgiving if he accepts that his foes intend to fight him for the next three years. He needs to discover the joy that FDR took in fighting back, even in official documents that normally pass unnoticed. (End of quote)
Obama's Thankless Thanksgiving.
Apart now from what you or I may think of FDR's economic policies, there was at least an inspiring message - if only a call for a kind of national unity in the name of, shall we say, "the public good."
Now there is none.
13 - Kenn Jacobine
Unemployment continues to rise because our economy is based on debt and not savings, frugality, and hard work like in the old days. We apparently can produce what our country makes with a much smaller labor market and this is not a good sign for America. It is indicative of the fact that we have lost our industrial base because of the demands of unions, and government egulations. The former caused primarily by the debasing of our currency by the Federal Reserve - workers need higher wages to live. Of course, "mainstream economists" say higher prices are caused by rising wages. People do not ask for raises until they feel the pinch of higher prices. Higher prices are caused by the Fed's printing press.
14 - roger nowosielski
When I started working on Wall Street in the sixties, $100 a week was a decent salary for an entry-level position - equivalent to at least $300 nowadays.
"We apparently can produce what our country makes with a much smaller labor market and this is not a good sign for America."
I'm not certain I agree. It should be a sign of increased efficiency and technological advance - the former a mere consequence of the inevitability of the latter. The problem seems to be - we haven't expanded the technological sector fast enough so as to absorb all those who have been and are being displaced from manufacturing.
Thus, just as the transition from a preindustrial, cottage type of industry to a fully industrialized society was accompanied by a great deal of hardship, the present aches and pains are evidence of a similar systemic change - this time from an industrial to a technological mode.
15 - Kenn Jacobine
How do we train all those workers to convert to a technological economy - we are broke and continue to send hundreds of billions overseas to friends and foes alike?
16 - roger nowosielski
It may well be too late. The time was ripe when the going was good, but no one apparently had the foresight. We talked then, remember, of the benefits of "office automation," shorter work-week, and greater leisure time for most Americans. Pipe dreams they turned out to be.
So now, rather than being in the vanguard of spreading wealth and prosperity worldwide, we're quickly joining the ranks of the impoverished, "second-rate" nations and the process of globalization and general leveling is not only imminent but well nigh complete.
I still regard Robert Reich's The Work of Nations as prophetic, a blueprint for times to come.
17 - roger nowosielski
Where we're at: The Jobless Scary Movie.
18 - Monica
The rising unemployment rates just makes you wonder how the he is economy recovering!!