Thursday, March 19, 2009

Questions for Chairman Bernanke

It's all over the news and the blogs today. From the New York Times, we have this:
The Federal Reserve’s decision to fire up the printing presses to the tune of $1 trillion continued to wash over world financial markets on Thursday, pushing the price of government bonds higher and dragging down the value of the dollar.
Actually, it's more like 1.2 trillion.

This is Yves Smith's version, entitled, appropriately enough, On the Fed's 'Shock and Awe', from the blog Naked Capitalism:
When some deemed the Fed's move today to expand its balance sheet by as much as a trillion dollars plus as "shock and awe", I recalled that when that term was first used, at the beginning of the US invasion of Iraq. The notion was a display of superior force would lead to quick capitulation.

We know how well that theory worked. And I suspect the unintended Iraq-Fed analogy is apt.

Let me focus on the Treasury part of the equation, but with a recap first. The Fed announced today that it would buy up to $750 billion in Agency MBS this year (in addition to an earlier commitment of $500 billion) and up its purchases of Agency bonds from $100 billion to as much as $200 billion. It also said it would purchase up to $300 billion of longer dated Treasuries over the next six months.
Hardly any of the professional economists seem very happy about this. But I'm not an economist, only a bewildered -- and bemused -- poet. So I have some very simple and unsophisticated questions for our respected Federal Reserve Chairman:

1. Since it is possible for the United States to settle $1.2 trillion worth of debt by "printing money," then why is it that the US government still feels the need to tax its citizens? Why can't all the monies needed by our government simply be printed?

2. Why can't a single -payer, government funded, health care system be implemented in the US on the basis of "printed" money? Why hasn't this already been done, since the lack of a viable health care system in the US has for years been regarded as an emergency. Isn't the physical and mental health of our citizens at least as important as the financial health of the banks?

3. How is such a policy different from a Ponzi scheme of the sort perpetrated by Bernie Madoff? Don't all such schemes involve adding ever greater sums to the pool, either by sucking in new investors or borrowing money, rather than actually investing money in some productive enterprise?

4. Finally, what, exactly, is your intention? Last fall we were told there was a one-time emergency, that billions needed to be pumped into the financial system immediately to stave off a complete collapse of that system. We were also told that once the system was stabilized we could then work on developing more carefully thought through programs to repair it, so we would never have this problem again. Are we still living in the same, original state of emergency? Is the current "shock and awe" an extension of what was done last fall? And if so, how will we know when the ongoing emergency is over, so we can finally begin to plan rationally again? And if not, then what exactly is the logic behind the new plan, how is it going to repair our economy and ensure that it remains stable in future years and for future generations?

7 comments:

  1. Initially, three quick comments.

    ONE

    I am the person who earlier posted a POP QUIZ for you. As I am not sure you have the time or whatever to check back on prior blog entries of yours and replies/comments, I am placing my words here, for the convenience of us both. I just wanted to say that I really enjoyed your responses to my questions, and I thank you very much for them. I particularly liked your last reply to my final pop quiz question.

    TWO

    Your site is very interesting, well done and at times, enlightening and I have bookmarked it to check in with your thoughts as I am able. Keep up the good work.

    THREE

    While I agree with most of what you have posted, I think in general your thoughts and views reside in a basically idealist reality or wished for such, and I would suggest you ground your thoughts and suggestions more in that which is actually possible current days and time.

    Now for the DOCG POP QUIZ #2:

    If you please to answer, I would be grateful and interested.

    1) Are you a real doctor like a medical one or an academic one? If the former, what would be your advice for one who suffers from extreme agoraphobia in general?

    2) What do you mean when you describe your occupation as "poet" or "composer" etc.? Do you actually receive funds for such or do you depend on something else for your continued living expenses? If so, what would that be, if you don't mind me asking and if it's too personal you need not reply.

    3) I voted for Obama, my first presidential vote or vote of any kind in 20 years after having become totally cynical with the whole voting process until 2008. but I did so with no real illusions as to what he was promising or what he could deliver. After about 2 months in office, he has exceeded all of my realistic expectations and does so daily, although this may be because we had a monkey in office for eight long painful years. While I too would like to see many of the changes and directions you would, I feel almost any criticism from the left or right or middle is ridiculous at this time and so I ask if in afterthought, do you think you had and still have unrealistic expectations of this man? Given that he inherited one big mess and can only accomplish what is realistic within the written in stone "system?"

    4) Related to question 3, do you ever take into account the republicans and right wing slimedogs' continuing nonsensical daily attacks against him as being some sort of wild-eyed socialist or communist as PROOF (as I do) that he is GENERALLY on the correct path given the limitations of his office and powers?

    5) According to my observations and analysis, it seems as if the daily and weekly DOW and market numbers rise according to what is BAD for the common worker, and fall according to what is GOOD for corporate Amerikkka. Is this your impression as well?

    6) I have been very impressed with Obama's seeming reaching out (as best he can given the sorry state of the sensationalist, corporate, overly-critical mainstream media) to the PEOPLE (i.e., with his speech to Congress, town-hall gatherings, Jay Leno appearance and pre-empting AMERICAN IDOL!!!), attempting it would seem to by-pass the bubble worlds of both D.C. and the media, to get his message across in a kind of retro-campaign style. What say you?

    7) Here and now, only two months after his inaugaration (sp?), I have been most impressed with his a) taking responsibility aka "the buck stops here," with HIM and b) stressing the importance of tackling many different issues/concerns like health care, "green" attempts at overhauling our current and future "energy" needs and sources, rebuilding of our general infrastructures, etc. AT THE SAME TIME. I think he boiled this down to walking and chewing gum at the same time or such. Given his limitations again, how can you or anyone at such an early time in such a worldwide crisis, justify virtually ANY criticisms, at this time?

    8) Do you find, as I do, this recent "selected outrage" at AIG bonus-checks paid to a few corporate microbes among the bigger scheme of things (comparently and monetarily-wise as well considering the millions versus billions in created bail-out funds), much ado about nothing? I mean, haven't we really been living in the "let them eat cake," trickle-down crumbs from the super-rich to the super-poor attitude economic system which started with Reagan and continued by Clinton and two Bushies before the era of "yes we can?" What, exactly is the origin of this sudden "populist" outrage with the state of haves/have-nots besides purely political/ideological posturing, and do you feel, as I do, this is all just a big distraction, and rather meaningless topical political/media drivel?

    9) What are your general or specific if you care to type away views on the "war on terror" and the "war on drugs?"

    10) If you could pose a series of questions directly to Obama (and have you tried writing directly to the white house?), what would they be?

    BONUS ESSAY QUESTION

    11) Related to number #10, if you have the time and willingness to do so, could you post an "open letter" blog entry/post to the President, and if so, give us a rough draft if you please.

    Thanks for any responses, and again, keep up the good work.

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  2. Thanks, Anonymous, for your kind words, and your continuing interest in what I have to say. I don't see myself as an idealist. And I don't normally pay all that much attention to what those with a typically idealized socialist position have to say. They seem to have a fixed set of issues on which they have predictable opinions, most of which I've heard before a thousand times.

    What most interests me now is the potential for the current crisis to develop in a manner that would have seemed totally idealistic or Utopian only a year or so ago, but which now seems almost inevitable. For example, it would have taken a major revolution, along the lines of the Russian Revolution, to wrest all that wealth from all those oligarchs, but now, as it turns out, they have succeeded in wresting it from themselves. Conservatives are already whining about "nationalization" and "socialism," but they ain't seen nothing yet, because no matter what the world's leaders do it looks to me (and the majority of economists as well) as though the financial system will totally collapse. And if that happens there will be no other recourse than the sort of managed economy usually associated with socialism. And to the extent that such a system has the potential to be a kind of Utopia, then in that sense I could be called an idealist, because yes, I do enjoy contemplating such a possibility. Of course, the devil is in the details, so a lot can go wrong along the way, but I prefer to think optimistically. And I love the idea that the most "idealistic" solution might also turn out to be the most practical one as well.

    You ask a lot of questions, but they're meaningful so I'll try to answer as many as I can:
    1. No I am not a medical doctor. I have a Ph. D. in music. As for advice on agoraphobia I'd like to offer some, nevertheless, because in a way what I've been writing about on this blog is closely related to agoraphobia. Agoraphobia is one manifestation of the "gateless gate" I've discussed in some earlier posts, which perhaps you've read. E.g.: http://amoleintheground.blogspot.com/2009/02/gate.html. If you suffer from this malady, then you are already much farther along in understanding the mysterious operations of the gateless gate than most, and you should see this insight as an advantage.

    The characters in Bunuel's "Exterminating Angel" also suffer from agoraphobia. But as I see it the whole world is now suffering from something very similar, which prevents them from thinking "out of the box" and overcoming their unfounded fears (of things like socialism, for example). To find a cure for agoraphobia you need to learn how to pass through the gateless gate, and there is nothing in the practical world or the world of ordinary logic that's going to help you. You also need to realize that such a gate exists for all of us, not just you. Everyone suffers from the same malady, only it takes different forms in each case.

    2. I consider myself both a poet and composer, but no, I don't make my living through either profession. I am self-supporting, yes, but I'd prefer not to say anything more about the details of how I make my living, since it's a lot more fun to keep people guessing.

    3. I voted for Obama and still have high hopes for him. And you're right, it's unfair to be too critical of him personally, since he is trying the best he can to clean up someone else's mess. I prefer to direct my jibes for the most part at Geithner and Bernanke, since they clearly represent the old way of thinking. In my view there is no one now in public life in the USA capable of dealing with the problem. I disagree with Obama's economic policies, most of them, but other policies aimed at fixing things and restoring the status quo are also bound to either fail or re-institute a patently unworkable and unfair system. The only viable policy as I see it is the one policy no one in American public life now dares to contemplate -- for fear of passing through that gateless gate you know so well. So I can't really blame Obama, he's no worse than any of the others. As a victim of agoraphobia you have the advantage of understanding the sort of difficulty to which I refer.

    4. The republicans amuse me because they are SO not with it. Their attacks on Obama's "socialism" are not only unfair, but absurd. But imo it would be better if they were accurate, because I see no other option for us than socialism. If anyone has a better idea I haven't heard it. This is not because I'm an idealist but because I'm a pragmatist.

    5. I have the same impression, yes. The market is clearly being manipulated. The clearest example is when the Fed used to lower interest rates when the market was down, and sure enough it would zoom back up again. By lowering interest rates the Fed helped the speculators and provided the banks with cheap money from the savings of people like you and me. So no one saw the point in saving their money anymore. Everyone invested it in the market and now the market has tanked and their money has gone. But NOT the money of the bankers who are being bailed out. Quite a scam, no? Now the market is again being manipulated by the Fed by printing money, since they can't lower interest rates below 0. What a joke!

    6. Obama is a great campaigner, but he can't campaign his way out of this mess. He remains super-popular and for good reasons because he's a very intelligent, capable, well meaning and charming guy. But he can't pass through the gateless gate anymore than you can get through your kitchen door, and for very similar reasons. No American politician can do that -- yet. People are going to continue to lose faith in him because his policies are going to fail. Very sad, but also true. He's the idealist, not me, by the way.

    All for now. I'll try to continue with #7 etc. when I get some more time.

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  3. And when you do speak to Mr Bernanke will you please suggest my plan for the banking industry?
    Only a few months ago it seemed to me a simplistic, even silly idea, but as plan after plan, among the propeller heads, fails to pan out I become increasing convinced of its viability.
    What would folks do if all the banks were just allowed to fail? As Alan Watts would say “it doesn’t matter”. For instance, homeowners would still have to sell houses. I wouldn’t take long for people to figure out that they could get the down payment themselves and hold a mortgage for the buyer at the 6-8% rate banks charge. Of course then they would have to find a home where the seller would do the same. It would not be quite as neat and tidy as a bank. But, by the same token, it would not take long for a few of these folks to get enough money together to start a “bank”. Same goes for folks with enough cash laying around in the stock market and CDs, who could now start lending to start up companies and manufacturing plants. Why should the bankers be the ones making the enormous profits on the lending of money and now even greater profits from this seemingly bottomless pit of bailout money. Here we watch our stock portfolios dwindling while we could have been lending and borrowing among ourselves and reaping the huge profits the banks have without involving hedge funds, derivatives, and slick and tricky loans to unqualified buyers and insurance (“place your bets” gambles on all of the above. Did not our financial system start, in the first place, with wealthier (but lazier) folk’s with lots of money lending to poorer folk’s with lots of energy and a good idea?
    Nature abhors a vacuum and the money needing to go somewhere, would quite naturally fill in the void left by the, now nonexistent, banks. These new lenders could call themselves for instance “bankers” and while the system would be somewhat primitive at first I’m sure there could be a website quickly created to simplify online borrowing and lending on a large scale. I’m not economist, but I know that Americans are creative—as in creative financing.
    I know it sounds simplistic but just another vantage point from which to view this economic crisis. Let’s get back to basics, cut out the middle man, treat the banks like any other failing company and save trillions in the process. To do anything less is hypocritical if the free market economists feel that the competitive “only the strong survive” economy is the most advantageous.
    However, whether we truly want or need a cut throat corpatalist society is another question, which DocG has already thoroughly and thoughtfully covered.
    The propeller heads keep pouring money into the banks hoping the banks will turn it loose so people can hold on to their homes and small businesses. This is starting to feel more and more like a drug deal between the “usual suspects”, gone awry.

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  4. I hear you, ashevillecat, and I'm glad to see that you do in fact have some interesting alternatives to offer. What you are proposing as far as I can tell is a kind of "primitive capitalism," taking us back, I suppose, to the earliest period in its development. This approach looks to me not all that different from "primitive communism," where all the members of a band or tribe would work together for their mutual benefit. If one family didn't have the ability to erect a dwelling for itself, the others would pitch in. While money wouldn't have been involved the basic principles of credit would still apply. In other words, I and my family will "lend" you a hand and we will expect that at some future point you will return the favor by helping us out when we need it, and maybe you'll be so grateful that you'll expend even more effort than we originally did, adding value (interest) to our original "investment" in your well being.

    The problem with either primitive capitalism or primitive communism (aka anarchy or "libertarianism" by one definition) is that the world is now simply too complex and society too heterogeneous for such methods to work. Sure, I can sell my house without benefit of a bank, accepting a down payment from a buyer and collecting the monthly mortgage payments myself. But it's unlikely that I'll find a buyer I know well enough to trust -- and if the payments stop I'll be in serious trouble.

    The same is true with solutions based on a return to the simple barter principle. Sure, I can go a local plumber and offer to tutor his children in math or English in return for repair work on my house, but I can't really go to the supermarket offering a similar arrangement. We no longer have grocers or butchers anymore, so there's no one to barter with for food.

    The good news is that it's perfectly possible for governments to organize things in such a way that systems more or less like barter can work. And I'm not talking only about the federal government, but local governments as well. For example, my city council can establish food banks where any city resident can acquire food, using some sort of rationing system based on some sort of credit card type arrangement. If I am employed, my credit card would be credited from my employer; if not, and I'm on the dole, it would be credited by the government. While this might sound strange, it's not fundamentally different from the way our health insurance system used to work, when almost every job came with health benefits.

    There have been many socialist systems over the years, both good and bad, workable and unworkable, so the basic mechanisms for dealing with an economy this way are not unheard of. The only difference would be that money need not change hands (since money will have ceased to mean anything). And in our computer era, with so many transactions already being done electronically, money has all but become redundant for ordinary everyday transactions in any case.

    There'd be a lot more to think about in setting up such a system, but imo it could work -- if we Americans can only get past our hangups (gateless gate) over "big government," "socialism," etc.

    ReplyDelete
  5. OK, time to answer the rest of my pop quiz questions:
    7) Here and now, only two months after his inaugaration (sp?), I have been most impressed with his a) taking responsibility aka "the buck stops here," with HIM and b) stressing the importance of tackling many different issues/concerns like health care, "green" attempts at overhauling our current and future "energy" needs and sources, rebuilding of our general infrastructures, etc. AT THE SAME TIME. I think he boiled this down to walking and chewing gum at the same time or such. Given his limitations again, how can you or anyone at such an early time in such a worldwide crisis, justify virtually ANY criticisms, at this time?

    My response: The crisis began last summer, so Obama certainly had a lot of time to think about it and solicit advice. What he appears to have concluded is that the old system must be saved AT ANY COST. Which was Paulson's take as well. Sure he's in an impossibly tough spot so we have to cut him SOME slack. This is not the sort of presidency he was originally looking forward to, obviously. And he did have lots of good ideas which he is still attempting to carry out. However, it's become increasingly clear to me that Obama, while unusually intelligent and capable, with great leadership qualities, does not have the makings of a great leader, of the type needed in times of crisis, the sort of leader who could say to the British people, for example, that he had "nothing to offer but blood, sweat and tears." Obama keeps telling us that "prosperity is just around the corner," which was Hoover's line, NOT Roosevelt's.

    8) Do you find, as I do, this recent "selected outrage" at AIG bonus-checks paid to a few corporate microbes among the bigger scheme of things (comparently and monetarily-wise as well considering the millions versus billions in created bail-out funds), much ado about nothing? I mean, haven't we really been living in the "let them eat cake," trickle-down crumbs from the super-rich to the super-poor attitude economic system which started with Reagan and continued by Clinton and two Bushies before the era of "yes we can?" What, exactly is the origin of this sudden "populist" outrage with the state of haves/have-nots besides purely political/ideological posturing, and do you feel, as I do, this is all just a big distraction, and rather meaningless topical political/media drivel?

    I agree with you, more or less. I see it as a red herring, to distract us from the huge $1.2 trillion payout referred to in my post above. At the same time it truly is an outrage and something must be done about it.

    9) What are your general or specific if you care to type away views on the "war on terror" and the "war on drugs?"

    My view of the war on terror is actually much closer to that of Bush-Cheney than Obama and the Democrats generally. Imo we are living in a new era of conflict that will be characterized primarily by intelligence (of both kinds) rather than sheer military might. So I believe in for example wire-tapping and other forms of stealth. On the other hand, where Bush-Cheney fell down was in the diplomacy arena, the "hearts and minds" issue, where I think Obama is going to do much better. Our military cannot any longer protect us, but common decency and respect for others might.

    10) If you could pose a series of questions directly to Obama (and have you tried writing directly to the white house?), what would they be?

    No I haven't written to the white house because it would be a waste of time. Maybe someday someone from the Presidents team will find his or her way to my blog, which would be nice. As for the questions you seek they are all over my blog, at least implicitly they are all directed at Obama and the Democratic leadership.

    BONUS ESSAY QUESTION

    11) Related to number #10, if you have the time and willingness to do so, could you post an "open letter" blog entry/post to the President, and if so, give us a rough draft if you please.

    My whole blog is such an open letter, as I see it. If I were to write an open letter to our President, I'd simply ask him to take a look at my blog and think about what's there, including both the posts and the comments. And not only my blog, because there are many others that make a great deal of sense and should be studied by those in power.

    ReplyDelete
  6. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


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    ReplyDelete
  7. Thanks for posting, Ruth. And thanks for reading here. I hope you'll continue to find the blog interesting.

    ReplyDelete

 
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