Counterparties: Bernanke’s polite finger-pointing

June 8, 2012

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The world’s most powerful monetary policymaker mentioned fiscal policy 23 times in his prepared testimony before Congress yesterday. The word cloud from Bernanke’s speech pretty much sums it up: Congress, Bernanke argued, has the power to boost the US economy and save us from the dreaded “fiscal cliff”.

If you haven’t been paying attention, Bernanke has spent much of the last few years very politely directing us to fiscal policy, arguing for deficit spending and, in pretty much the strongest language possible for a central banker, has begged for help propping up the economy. Tim Duy highlights something particularly pointed in Bernanke’s latest remarks: “Real federal government spending has also declined, on net, since the third quarter of last year, and the future course of federal fiscal policies remains quite uncertain”.

All of which should make Paul Krugman nod approvingly. In his column and blog Krugman argued that “Reagan was a Keynsian” and noted that total government spending adjusted for inflation and population was actually higher under Reagan than Obama. (Donald Boudreaux calls Krugman’s numbers “highly questionable”.)

Fareed Zakaria takes the spending argument a bit further:

For those who think President Obama’s policies have done little to produce growth, keep in mind that the single largest piece of his policies – in dollar terms – has been tax cuts. They actually began before Obama, with the tax cut passed under the George W. Bush administration in response to the financial crisis in 2008. Then came the stimulus bill, of which tax cuts were the largest chunk by far – one-third of the total. The Department of Transportation, by contrast, got 6 percent of the total to fix infrastructure.

To which President Obama basically replied today: “Blame Congress”. In a press conference, Obama once again called for Congress to pass the jobs bill he first proposed in September. – Ryan McCarthy

On to today’s links:

Mysteries Explained
Chaos versus order: A unified theory of Muppets – Dahlia Lithwick

The Fed boldly demands that US banks comply with minimum international capital standards (by 2019) – WSJ

New Normal
Overdraft fees cost Americans an estimated $29.5 billion in 2011 – Pew Trusts

EU Mess
Spain expected to request bank bailout from EU on Saturday – Reuters
“Spain’s banks now own 67% of the country’s bonds”, the largest proportion in the euro zone – NYT
What the Soviet Union breakup can teach us about the euro zone crisis – Bloomberg
Member states went wrong by ceding the right to print money to the ECB – George Soros
Martin Wolf eviscerates the German finance ministry – FT

Why you should want interest rates to rise, in one chart – Bespoke Investment Group

Alternative Currencies
Bitcoin’s volatility has all but disappeared – Ars Technica

Knock Offs
The Chinese secretly copy a quaint, historic Austrian village – News 24

The Big Mac Index moves to academia – The Economist

Data Points
France, Italy and Germany each have more than $25 billion in net outstanding CDS – Sober Look

Mashable is reportedly preparing for a sale to CNN – BI


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RE: – “Spain’s banks now own 67% of the country’s bonds”, the largest proportion in the euro zone – NYT”

Is it just me? Doesn’t this fit exactly what was done in the US sub-prime episode? The EZ banks are like MaMu, lending to sub-primes, who happen to be sovereigns in this case, and booking a fat return on the interest spread – and laying the credit-risk off (for free) by placing the sovereign bonds with the ECB, which is acting as Freddie and Fannie did (and do).

It couldn’t possibly end as badly as the US experience, could it? Europeans are just so much smarter and more sophisticated than Americans – everyone knows that.

RE: – “The Chinese secretly copy a quaint, historic Austrian village – News 24”

This displays it all about the essential character of the Han – an utter absence of creativity, an even more utter absence of respect for the interests of those with creative capability, and quintessentially utter incapacity to comprehend how this conduct will be assessed by those who aren’t afflicted with such disabilities. If it weren’t for the Lius – Betty and Lucy, ….

Posted by MrRFox | Report as abusive

RE: – “Spain’s banks now own 67% of the country’s bonds”, the largest proportion in the euro zone – NYT”

This is what’s supposed to happen under most models of recession (keynesian/neoclassical/post-keynesian)– banks find a safe haven in government bonds until profitable opportunities begin to arise in the private sector, and the government spurs demand through spending. The times just found one or two “experts” to make it sound more alarming than it really is. Of course, normally in recessions governments can control their own currency.

Posted by MKCurious | Report as abusive

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