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For Discussion
Thursday, October 20, 2005
This question has been asked a few times here before, in one form or another, but with little expectation of getting an answer - it has been more of a rhetorical question (also see this interesting entry at Wikipedia). It is being left today as a discussion topic, while we once again step away from the keyboard for another break.
The question is:
Do makers of monetary and fiscal policy really understand the mess that we are all in or are they out-of-touch and/or uncaring?
Knowing a little about the lives that policymakers lead, for example Alan Greenspan hasn't driven a car in eighteen years, it seems reasonable to think that maybe central bankers, many economists, and some politicians have lost touch with what it is really like to live and work in this country today.
Do they understand the mess that they have created in these dangerous asset bubbles and the twin deficits?
Do they realize how wage earners at the middle and lower part of the scale are getting squeezed, while the quality of new job creation continues to erode?
Do they care?
10 comments:
Economics as a science inevitably includes a lot of ideology and beliefs, at least when it comes to forecasting.
Hereby I think economists, such as Greenspan and Bernanke, when looking ahead can make up whatever kind of argument for why the US is on the right track, as long as the situation seems to be all good.
The only thing that will prove them wrong is when the reality starts to differ so much from their expectations and forecasts that they cant fool themselves and the financial markets anymore on where we are headed.
The future will bring them the biggest wake up-call since the great depression...
I think they are truly out of touch. Look how long it took Greenie to fess up to his role in creating the housing bubble, and they still don't seem to understand how so many people are in way over their heads with loans that they really don't understand and should have never been allowed to take on on in the first place.
No
No
and Yes
They really think they are doing the right thing.
I think part of the problem is, when you ask, "Are they out of touch?", who is it that is out of touch with what?
When you ask, "Do they care?", who cares about what?
You see, Kohnheads do not come from Earth. They come from Remulak. They are totally in touch with conditions on Remulak, where, to take just one example, "core inflation" is the inflation that Kohnheads exerience every day. On Remulak, they don't drive, let alone drive big SUVs that consume a lot of gas, which Kohnheads don't buy. Hence they only need to worry about inflation "ex-energy." On Remulak, they don't eat, or at least what they do eat is not anything you or I would buy at a grocery store. Hence they only need to worry about inflation "ex-food." (And, lest there be any doubt on the issue, Kohnheads most emphatically do NOT do their own shopping - they have a "Maid-Unit" that does it for them).
Kohnheads fly around in space ships. So they don't buy houses.
So, no, they are not "out of touch." They are totally in touch with conditions on Remulak.
And, yes, they do care. They care about conditions on Remulak.
Interesting reading:
http://today.reuters.com/investing/FinanceArticle.aspx?type=bondsNews&storyID=uri:2005-10-19T184953Z_01_N19182876_RTRIDST_0_ECONOMY-HOUSING.XML&pageNumber=0&summit=
"The basic problem is you have huge bubbles, great big bubbles, on the coasts," said David Wyss, chief economist for Standard & Poor's.
Homes in California, Florida and along the East Coast are overvalued, Zandi said. Prices there have climbed annually by double-digit percentages, according to government data. Almost one-third of the top 100 metro areas posted price appreciation of more than 20 percent over the 12 months to June.
. . .
In the United States, income from mortgage equity extraction has accounted for some 7 percent of total disposable income this year, Zandi said. But in some areas of California, for example, it accounts for up to 22 percent of such income.
la-la-la-la-la-la-la-la (hands over ears)
Our house is worth $400,000 more than we paid for it
I'm not listening
Read the whole thing by clicking on the link to the right under References: Alan Greenspan, Meet John Law. Is this good, or what?
The personal character and career of one man are so intimately connected with the great scheme of the years 1719 and 1720, that a history of the Mississippi madness can have no fitter introduction than a sketch of the life of its great author, John Law. Historians are divided in opinion as to whether they should designate him a knave or a madman. Both epithets were unsparingly applied to him in his lifetime, and while the unhappy consequences of his projects were still deeply felt. Posterity, however, has found reason to doubt the justice of the accusation, and to confess that John Law was neither knave nor madman, but one more deceived than deceiving; more sinned against than sinning. He was thoroughly acquainted with the philosophy and true principles of credit. He understood the monetary question better than any man of his day; and if his system fell with a crash so tremendous, it was not so much his fault as that of the people amongst whom he had erected it. He did not calculate upon the avaricious frenzy of a whole nation; he did not see that confidence, like mistrust, could be increased, almost ad infinitum, and that hope was as extravagant as fear. How was he to foretell that the French people, like the man in the fable, would kill, in their frantic eagerness, the fine goose he had brought to lay them so many golden eggs? His fate was like that which may be supposed to have overtaken the first adventurous boatman who rowed from Erie to Ontario. Broad and smooth was the river on which he embarked; rapid and pleasant was his progress; and who was to stay him in his career? Alas for him! the cataract was nigh. He saw, when it was too late, that the tide which wafted him so joyously along was a tide of destruction; and when he endeavoured to retrace his way, he found that the current was too strong for his weak efforts to stem, and that he drew nearer every instant to the tremendous falls. Down he went over the sharp rocks, and the waters with him. He was dashed to pieces with his bark, but the waters, maddened and turned to foam by the rough descent, only boiled and bubbled for a time, and then flowed on again as smoothly as ever. Just so it was with Law and the French people. He was the boatman and they were the waters.
Regardless of whether they "get it". The financial integrity and security of the most powerful nation on earth should not hinge on whether a select few mere mortals "get it".
The very existence of the Fed and its role in the economy will eventually come under public scrutiny. Once everyone realizes how broken the system is, the Federal constitution will be amended to mandate a balanced budget and a gold-backed dollar.
A little chart in the editorial section of this week's Barrons says it all . . .
http://online.barrons.com/article/SB112993604201176270.html?mod=9_0031_b_this_weeks_magazine_main
(subscription required)
Hey, speaking of canaries in coal mines, how's the real estate market in Palmdale/Lancaster?
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