Ben Bernanke isn’t just campaigning for his own reappointment — though that certainly is part of what’s going on. He is also bolstering the public image of the Fed, which could use some help:
Politics and policy from inside Washington
If Ben Bernanke were running TV ads, taking polls and holding town hall-style meetings, it wouldn’t be any clearer that he’s conducting an explicit reelection campaign for another four-year term as Federal Reserve chairman come next January. Oh, wait a second, he just did hold an unprecedented town hall meeting. And it was one worthy of a presidential candidate charming primary voters in Iowa.
At the Kansas City Fed last night, Bernanke answered a couple dozen questions from 190 area residents for a three-part public television broadcast. Like a veteran politico, he tossed out the occasional platitude (“The best way to have a strong dollar is to have a strong economy”), railed against Washington (“I don’t think the American people want Congress running monetary policy”), gave a riveting and heroic personal narrative (“I was not going to be the Federal Reserve Chairman who presided over the second Great Depression”), and got downright folksy when talking about too-big-too-fail (“When the elephant falls down, all the grass gets crushed as well”).
Message to America: Ben Bernanke, a pharmacist’s son from Dillon, South Carolina, feels your pain. Now it’s not as if previous Fed chairmen haven’t campaigned for another four-year hitch. But the usual modus operandi is to curry favor with the Electorate of One — the president — who will be doing the renominating. And the precise mechanism has been a growth-friendly monetary policy.
Of course, the Fed has already been, to use Bernanke’s town hall phrase, “putting the pedal to the metal” to bolster the fragile economy and financial system. And that’s sure been to Wall Street’s liking. A Reuters poll last month found that economists rated Bernanke at eight out of 10 for his handling of the financial crisis.
But Bernanke’s smart to try and also get Main Street on his side. Obama, for instance, might prefer a more dovish Fed chair, such as San Francisco Fed President Janet Yellen, who’ll worry more about unemployment than inflation as the 2010 and 2012 elections near. Bernanke’s pushback against Obama’s proposals for a consumer financial protection agency is also another sign of his independence.
Plus, the president could desire to make more diversity history by nominating the first woman Fed chair — while leaving it to aides to rip Bernanke in background briefs to reporters. (“He was part of the Fed team that left rates too low for too long and failed to regulate Wall Street.” “Remember, he called the mortgage crisis a $100 billion problem.” “Bernanke was way too slow to ease in 2007.”) What’s more, Bernanke has to worry about a Congress where populists in both parties have been critical of his role in providing bailouts to Wall Street banks and AIG, as well as Bank of America’s takeover of Merrill Lynch.
So if Bernanke wants to keep his job, the PR campaign should continue. More TV interviews like the one he did on 60 Minutes in March. Maybe a televised town hall meeting in each Fed district. How about a Chairman’s Blog? And if we start heading into November and Obama still hasn’t renominated him? Two words: Oprah Winfrey.
Jim Paulsen of Wells Capital Mangement points out that companies have cut to the bone in preparation for near-depression. This could result in some spectacular profit numbers ahead (and check out the chart below) — assuming no near-depression:
Second quarter earnings reports have reflected this new trend where a number of companies have thus far surpassed earnings estimates even though sales remain weak. As economic recovery brings renewed top-line growth, corporate profits may continue to amaze and outpace expectations during this recovery. Chart 4 illustrates a fairly good “leading indicator” (by one year) of profit growth based on profit leverage. The dotted line is the multiplicative sum of the business productivity index, the labor unemployment rate and the factory unemployment rate. Essentially, when businesses focus on “rightsizing” (by improving productivity and purging payrolls and factory capacity), about one year later, corporate profits have tended to rise. The dotted line leads profit growth (solid line) by one year and currently forecasts about a 45 percent advance in nonfinancial profits in the coming year! Did the surge in fears produced by the subprime debt crisis cause U.S. businesses to act in ways
which may now lead to a “profit leveraged” bull market?
Ed Yardeni takes note:
The S&P 500 is one of the ten components of the Index of Leading Economic Indicators. It seems to be forecasting a robust V-shaped economic recovery. This has got to be the most contrary scenario of all right now. Everybody is hung up about the anemic outlook for employment. I am too. So what is the S&P 500 seeing out there? How about yet another global bubble boom? This one is led by China, where M2 was up 28.5% y/y in June. Professor Copper seems to agree with this outlook. The price of this basic metal rose to $2.52 a pound at the end of last week, the highest since October 7, 2008. China’s Dow Jones Shanghai Composite is up 53% since March 6, well ahead of the S&P 500. It actually bottomed on November 4, 2008, and is up 122% since then to 383.78. That’s certainly an impressive meltup. Even more impressive would be if it recovers back to its record high of 588 on October 16, 2007. Anything is possible in a bubble.
Chinese and American officials meet today in the latest edition of the “strategic dialogue” between the two nations. Here is an interesting 1998 take from Alvin Rabushka of the Hoover Institution about the role of tax policy in China’s economic ascent.
In 1978, the late Chinese leader Deng Xiaoping launched economic reforms that set China on a path of rapid growth. … Deng’s reform package included the establishment of coastal economic zones, increased investment by foreigners, liberalized trade, and a free market in agriculture. But the application of supply-side tax policy was the main component. In 1978, total government revenue consumed about 31 percent of GDP. Deng’s policies reduced China’s tax burden relentlessly, year in and year out. By the end of 1995, the tax burden had fallen to 10.7 percent of GDP, a cut of more than 20 percentage points, or two-thirds in relative terms.
Tax cuts fueled the privatization of the economy. Deng’s policy of massive tax reduction shifted one-fifth of all resources from government hands to the emerging town and village enterprises and private firms, which productively used those resources. The private sector grew faster than the country’s 10 percent annual average. Since the government didn’t tax away the private sector’s prosperity, the fruits of growth were plowed back into expanded activity. This had a snowballing effect, speeding the transformation toward private ownership.
It is the last part of this bit from Brad DeLong that really caught my attention (bold is mine):
The fact is that the approporiate fiscal policy for the U.S, right now is to pass: (a) a bigger stimulus over the next two years, (b) a standby tax increase to return the federal budget to primary surplus by 2012, and (c) devout and lengthy prayers that confidence in the dollar doesn’t collapse and send interest rates on U.S. Treasuries above the economy’s growth rate–in which case the situation changes from its current value of “dire” to “catastrophic.”
Ezra Klein does his gosh-darned best to help restore momentum to healthcare reform, which he is sure people will love to bits if only it passes:
Democrats know full well that there are two plausible outcomes to the health-care reform process. Health-care reform will fail, dealing a huge blow to the Democratic Party and giving Republicans tremendous momentum as we enter the 2010 campaign season. Or health-care reform will pass, and Democrats will criss-cross the country touting the largest legislative accomplishment in decades. Republicans may still attack them on the plan. But attacking a historic legislative success is a whole lot harder than attacking a historic legislative failure. Republicans know that, which is why they want to kill the bill. Democrats know it too, which is why they won’t let them.
Ugh. So House GOPers have put out their alternative to ObamaCare. It’s really more of a statement of principles with a few numbers. Yes, it is a good idea to level the playing field between those who get their insurance through their employers and those who buy it on their own. But this is the part that put me back on me heels:
Strengthens employer-provided health coverage by helping the 10 million uninsured Americans who are eligible, but not enrolled in, an employer-sponsored plan get health care coverage. The plan does this by encouraging employers to move to opt-out, rather than opt-in rules.
Employer-based covering should be scrapped, not strenghthened. (In fact, doing so really is key to reform.) The great Arnold Kling gives five good reasons why:
- The cost of health insurance is disguised from consumers, because firms do not report what they pay in premiums. Workers are under the illusion that their health coverage is inexpensive, and if they subsequently find themselves having to obtain their own health insurance, they are offended by the cost and instead choose to go uninsured.
- Workers who are concerned about the availability of health insurance may suffer from “job lock.” They might wish to leave their job for self-employment, pursuit of formal education, an opportunity with a smaller firm, or early retirement, but the potential loss of health insurance is a deterrent.
- Workers may not enjoy the range of insurance choices that they would have if health insurance were not negotiated for them by employers. For example, if they could choose their own insurance, some workers might elect coverage with higher co-pays and deductibles but lower premiums, in order to have more cash income.
- Because employer-provided health insurance is subsidized through the tax system, the benefits accrue relatively more to high-income workers.
Workers who are fired or laid off can find themselves without health insurance at a point where they can least afford to be uninsured.
A weak dollar is not always a bad thing. Stocks are up 43 percent from their March lows while the greenback is off 11 percent against major currencies. Scott Grannis explains the correlation:
As panic set in late last summer, people all over the world flocked to the dollar as a safe haven. People stopped spending money, stockpiling it in the form of currency and in the form of higher money balances. … It all reached a head in early March of this year, as fear of massive deficits and massive tax increases paralyzed financial markets. Since that time, everything has reversed. The economy avoided the catastrophe many had feared, and Obama’s legislative agenda has stalled and his approval ratings have plunged. People have stopped accumulating dollar currency and money deposits, and so spending is starting to ramp up. The economy is starting to come back to life.
But economist David Rosenberg of Gluskin Sheff has begun to worry (this is the second time he has written about it this month) that a weaker dollar is starting to reflect a plan by the White House to send it lower to give the economy a short-term boost, as well as the political fortunes the Obamacrats:
[US Dollar Index futures are] starting to break down, and the moving averages are moving down across the board. Meanwhile, the commodity complex and the commodity-based currencies are on fire. The Kiwi is at a nine-month high; the Rand at an 11-month high and the Loonie at a seven-week high. Meanwhile we saw sugar, wheat, corn, cotton and gold all rally significantly yesterday. As we said before, the last policy shoe to drop, which may be dropping already, is the dollar.