Wikinvest Wire

A much simpler way of describing monetary policy

Thursday, November 08, 2007

As Ben Bernanke gets ready to trudge up to Capitol Hill today to explain to Congress how he intends to fix the mess that former Fed chief Alan Greenspan made, Federal Reserve Bank of St. Louis President William Poole tells you all you really need to know about contemporary monetary policy in the first twenty seconds of this 45 minute speech.

Click to play in new window

Mr. Poole opens by noting, "I have a much simpler way of describing monetary policy. If you print money in your basement, it's called counterfeiting. If we print money it's called monetary policy. (Sound of economists laughing) And that's literally true, we have the power to print money - that's what we do."

He then goes on to mention Charles Kindleberger's classic book "Manics, Panics, and Crashes" in relation to the bursting credit/housing bubble and, according to the Bloomberg report (sorry, couldn't make it through more than about five minutes of the video -good luck with that), went on to predict that "the housing industry's woes may not end soon and policy makers might need to consider 'additional rate cuts' should the problems spread."

It would have been better without all the laughing at the 20 second mark as once again the question comes to mind, "How can more easy money help to fix the problems caused by too much easy money?"

It is funny though how, like the former Fed chief, central bankers can view the current situation in a detached sort of way - as if they had nothing to do with the current mess.

Funny, that is, but not in a "ha-ha" sort of way.

Also at Bloomberg today, after a brief absence, Caroline Baum is back at her post with a few thoughts on Robert Rubin's Strong Stock Policy for Citigroup and a couple other topics:
For the past month, with my dominant hand in a cast, I've been relegated to the role of consumer of financial news and commentary. That's not easy for someone who's used to asking a lot of questions and expressing her views in real time.

Let's just say I have a lot of laundry that's accumulated over the last four weeks that needs to be hung out to dry. So herewith, in no particular order of importance, are some thoughts on a few subjects:

1. Daddy, What Do They Do on an Executive Committee?

Robert Rubin, everyone's favorite Treasury secretary and the Democratic Party's eminence grise, was chairman of Citigroup Inc.'s executive committee when SUV nation caught SIV fever. He had an office next to Citi CEO Chuck Prince, the cachet to reach anyone on the global stage and the stature to make a difference.

Instead of getting swept out with the boss last weekend, Rubin was elevated to interim chairman -- in part, we're told, because there was no one else to clean up the mess (in a country of 300 million people?); and in part because of his sterling credentials as a crisis manager.
...
3. I'm Still Here

Remember the fellow who said you couldn't know a bubble until after it burst? With some distance from his perch at the Fed, Greenspan seems to have acquired 20-20 vision. He now dispenses bubble diagnoses freely (on the U.K. housing market and Chinese stock market), handicaps U.S. recession (the odds are less than 50 percent currently), and finally found a bailout he doesn't like (the Treasury-supported plan to combine the best assets from bank-related Structured Investment Vehicles into a Super SIV).

Rubin, Greenspan's former colleague on "The Committee to Save the World,'' as Time magazine put it in its Feb. 15, 1999, cover story, is back in the clean-up business. The job of cleaning up the mess that Greenspan made has been left to Bernanke.
Welcome back Caroline.

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4 comments:

Tim said...

Here's a summary of yesterday's talking Fed Heads from the WSJ Economics blog: Fedspeak Highlights Reel

More from Poole: Despite market volatility, Fed actions have demonstrated to market participants throughout the economy—those in non-financial firms as well as those in financial firms—that the Fed will not be an idle bystander. The Fed needs to be careful to do what is necessary, but not more.

That kind of reminds me of the Einstein quote ""Make everything as simple as possible, but not simpler." I think Einstein was joking.

Anonymous said...

Yeah, I don't get to print money.

Free market my ASS.

Anonymous said...

If you complete his opening thought, monetary policy = fraud. It's surprisingly easy to defeat, everyone just dump their dollars for something that cannot be counterfeited.

Anonymous said...

Dear Tim,

I am aware that people have the ability and the right to espouse whatever "knowledge" they like, whenever they like. I applaud your ability to find and cater to an audience who appreciates biased mis-knowledge. Your knowledge of economics (Econ 101) should have given you enough curiosity to delve further into micro and macro economics. The basis of economics is hypothesizing and testing.

Unfortunately, economics is a social science, meaning that economists cannot have a "control" economy vs a "test" economy. Ever hear of ceteris paribus, the magic Latin phrase meaning "all else being equal"? This is what applies to micro and macro economic decision making by: the Federal Reserve, NBER, BEA, BLS, corporations and Alan Greenspan. You take fundamental economic knowledge and a possible hypothesis (proved accurate via statistical testing) to make a decision in the real world (i.e. - cutting the Federal Funds Rate, etc.). But this assuming NOTHING else changes. Ever try solving an equation with 500 variables that all change when you change just ONE variable? Thats what happens with the Fed. They have literally hundreds of indicators about the economy that are put into forecasting models. What ANYONE can do is nothing more than the best educated guess using fundamental economic knowledge and possible peer reviewed hypotheses.

Your clear lack of economic knowledge and passive-aggressive hate of people you feel "wronged" you and/or the world via "ignorant" economic policies is laughable. Instead of being a "monday morning quaterback", why don't you go to the Federal Reserve and slip into Ben's shoes and see how you do at the helm.

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