James Pethokoukis

Politics and policy from inside Washington

Bernanke warns Congress

Jul 21, 2009 17:58 UTC

IHS Global on Bernanke’s talk-talk:

Bernanke wanted to send the message that Congress needs to prepare its own “exit strategy” from unsustainable budget deficits. His formal remarks made no mention of a possible second stimulus package (under questioning he said that the idea was “premature”), and he said that policymakers should begin planning “now” to restore fiscal balance. He didn’t offer prescriptions on what to do (whether to raise taxes or cut spending), but said that postponing choices would only make them more difficult. He said that agreement on a sustainable fiscal path could lower long-term interest rates and boost confidence – the implication being that lack of agreement would do the opposite.


HOW can bernanke warn anybody,When he cause all this mess,PEOPLE DON,T know that congress NEVER voted to have this so call name federal reserve,these bankers took this on them self when congress went on HOLIDAY break with no approvel from congress which they think they can make there own laws,AND DID YOU ALL KNOW THAT THESE PEOPLE ARE HOLDING AMERICANS GOLD FROM FORT KNOX AND THEY PRINT OUR MONEY WITH OUR PAPPER AND THEN THIS PEOPLE CHARGE US INTEREST ON OUR OWN MONEY,PLEASE WAKE UP AMERICANS,GET RID OF THESE DECEITFUL PEOPLE.

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The case against Ben Bernanke

Jul 20, 2009 20:11 UTC

My pal John Tamny doesn’t think the Fed chairman deserves a second term for the following reasons

1) Bernanke is too much of a political operator.

2) Bernanke thinks too much economic growth causes inflation.

3) The dollar has collapsed vs. gold during Bernanke’s tenure.

4) Bernanke was a TARP enabler.

5) Zero percent interest rates are  a market of Fed failure.

Bottom line:

Here’s hoping the Obama administration ignores the establishment consensus, and realizes that the job of Fed chairman should be a prosaic, undesirable one, whereby the chairman is humble in his actions with an eye solely on issuance of a stable dollar.

Bernanke’s past and present lust for the job of Fed Chairman signals an expansive vision about what the position entails, and this means he’s unfit for the role, which should have greatly diminished prestige. Indeed, the fact that he covets the position so much tells us all we need to know about his love of status and rank. As Bagehot observed, “such men are dangerous.”


You’re smart. You should have a tv show!

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Looks like the Fed is taking its foot off the gas pedal

Jul 6, 2009 18:23 UTC

From Gluskin Sheff economist David Rosenberg:

At the same time, it looks as though the Fed is now in the process of snugging monetary policy. We don’t hear from the inflation-ists that the central bank has actually been allowing its bloated balance sheet to lose some weight in recent weeks and that the growth rate in the once-red-hot monetary aggregates is shrinking and the monetary base is also shrinking. Over the last 13-weeks, the monetary base has contracted at a 23% annual rate (!), M2 growth has softened to a 1.4% annual rate and MZM has slowed to a mere 4.6% annual rate.

Fed Succession Watch: Yellen the Dove

Jul 1, 2009 13:25 UTC

For SF Fed president Janet Yellen, it’s deflation first, inflation later:

I’ll put my cards on the table right away. I think the predominant risk is that inflation will be too low, not too high, over the next several years.  …  First of all, this very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales. Core inflation—a measure that excludes volatile food and energy prices—has drifted down below 2 percent. With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify.

For these reasons, I expect core inflation will dip to about 1 percent over the next year and remain below 2 percent for several years. If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation.


Commodities are singing another tune.

Also, would you lend money to the federal government at a 4.5% fixed rate for 30 years? Heck no!

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The Grilling of Ben Bernanke

Jun 25, 2009 21:51 UTC

Ben Bernanke’s testimony to Congress about his involvement in the Bank of America-Merrill Lynch  merger was a lot like an FOMC statement: short and unadorned, yet open to much interpretation. When the Federal Reserve wasn’t repeatedly saying “I don’t remember” or “I don’t recollect,” he was matter-of-factly stating that he didn’t intend to threaten Bank of America CEO Ken Lewis with termination if he didn’t go through with the Merrill deal.

Yet both Republicans (all) and Democrats (some) seemed astonished that Bernanke wouldn’t admit that having the Fed outline all the negative repercussions of invoking the “material adverse change” clause to escape the Merrill deal was a de facto threat to BofA management. Whether or not Bernanke actually believed his script was impossible to prove, since the Republicans, particularly Representative Darrell Issa of California, didn’t have evidence that Bernanke did intend to directly threaten Lewis.

It was Issa who said on television that Bernanke was engaged in a “cover-up” to disguise his actions in pushing the merger. Great claims require great proof. And Issa didn’t have great proof, just a bit of hearsay.
Yes, there was an email showing that Richmond Federal Reserve President Jeffrey Lacker claimed he told Lewis, after having a long talk with Bernanke, that BofA management was “gone” if it played the MAC threat. But Bernanke said that was a misinterpretation of his chat with Lacker.

So unless there is a transcript of the Lacker-Bernanke chat floating around somewhere, a dead end has been reached. Issa clearly overplayed his hand if what he actually meant to prove was that an outright deception had taken place. (Even if he had a smoking gun and Bernanke was somehow forced to resign, Issa would probably not like Fed Chairman Lawrence Summers any better.)

Then again, perhaps what the Republicans were actually trying to do was to paint Bernanke as an enabler of President Obama’s supposed big government policies. There has been a conservative backlash against the notion of the Fed operating as a “systemic risk” regulator that could serve as a catalyst for government takeovers of financial institutions — or bullying them, as the GOP charged Bernanke with doing in this case.

Of course, another criticism of the Fed as super-regulator would be that such a role would overly politicize the central bank. Indeed, it did seem weird that after grilling Bernanke for three hours and implying that he was lying, one Republican offered up a question about M2 and monetary policy.

Perhaps the one bit of evidence that did come out of the Bernanke interrogation was that having the Fed regulate banks and conduct monetary policy is a bad idea if you care about central bank independence.

Thoughts on Bernanke, Lewis and Bank of America-Merrill Lynch

Jun 25, 2009 18:22 UTC

I sat through most of the Ben Bernanke/BofA hearing before having to duck out to do some CNBC. But these are my takeaways

1) It sure would be great to have a transcript of the conversation between Richmond Fed President Jeffrey Lacker and Bernanke that led Lacker having a chat with BofA’s Ken Lewis that then led Lewis to claim he was being threatened.

2) Without #1, there is no smoking gun. Rep. Issa overreached when he said there was a coverup.

3)  Some Dems, particularly Elijah Cummings, indicated frustration with Bernanke’s narrow, legalistic answers.  Bernanke to Lewis was like asking your mechanic if you need new brakes and he says, “I wouldn’t drive the car with these brakes, but that’s me. It’s up to you.” Lewis read between the lines. Bernanke said he should not have, that the Fed was merely outlining the market reaction to BofA trying to scuttle the deal with Merrill.

4)  A three-hour grilling where the GOpers basically accused Bernanke of lying and perjury. And then at the end, a question about M2 and monetary policy. Still think having the Fed as a super-regulator is a good idea?


Having the fed period is a horrible idea.

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Issa vs. Bernanke

Jun 24, 2009 19:25 UTC

Rep. Darrell Issa of the House Oversight and Government Reform Committee: ”The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the ‘shotgun wedding’ that was the Merrill Lynch acquisition. The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies.”


Judge Mary W: in WMI- JPM
ORDERED that the Debtors’ Motion for an Order Pursuant to
Bankruptcy Rule 2004 and Local Bankruptcy Rule 2004.1 Directing
the Examination of JPMorgan Chase Bank, National Association is

Asj a lawyer what is Rule 2004

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Today’s Federal Reserve statement

Jun 24, 2009 18:59 UTC

Here is your bottom line: The Fed seems to think growth is ready to resume this year. It doesn’t think inflation will be a problem as long as the economy is operating under its growth potential. Rates aren’t going to budge until at least late 2010.


lol what a joke.

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The next Fed chairman will be …

Jun 23, 2009 16:35 UTC

Looking for a short list of replacements for Ben Bernanke for Federal Reserve chairman? You can start with Larry Summers, Alan Blinder, Janet Yellen (with a bullet!), Roger Ferguson, Donald Kohn, Robert Rubin (I am going broad here!), Donald Kohn. And how about tossing in the old Greenspan replacement short list: Glenn Hubbard, Martin Feldstein. Kohn was on that one, too. Any more suggestions???


Larry Kudlow for Fed Chairman!

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The Fed’s next move …

Jun 22, 2009 18:29 UTC

I think Mike Darda of MKM Partners nicely encapsualtes the Fed’s thinking:

With the unemployment rate 3-4 percentage points above what is widely deemed to be neutral, the Fed probably believes the economy is running more than $1 trillionbelow potential. In other words, don’t expect the Fed to start laying the groundwork for tighter monetary policy until a sustained turn in both output and employment is underway. Of course, this will risk an eventual inflation problem, but as long as inflation doesn’t escape the mid-single-digit range, it’s a risk the Fed is probably willing to take (as opposed to a relapse in the credit markets, and a third leg down in the economy, if they tighten too soon).