In a gesture worthy of his achievements as Chairman of the Federal Reserve Board, the State of South Carolina bestowed upon Ben Bernanke the signal honor of ... naming a rural highway exit ramp (Exit 190) in his honor.
Chairman Ben S. Bernanke
At the Interstate Interchange Dedication Ceremony, Dillon, South Carolina
March 7, 2009
It is a great pleasure to be back in Dillon today and to enjoy the signal distinction of having Exit 190 on Interstate 95 named in my honor.
As some of you know, my family ties to Dillon extend back more than six decades. My paternal grandparents, Jonas and Lina Bernanke, purchased a drugstore on Dillon's Main Street in 1941 and moved here from New York. Jonas called the store Jay Bee Drugs, after his own initials. Eventually, my dad, Philip, and his brother, Mort--who still lives in Dillon--bought the store from my grandfather and ran it for many years. Dillon had very few doctors at the time, so a lot of people came to my dad and uncle for advice on basic health matters. They became known to their customers as "Dr. Phil" and "Dr. Mort." When my mother, Edna, wasn't keeping an eye on me or my siblings, she kept the store books and paid the bills. I remember working in the store as a boy, or, as Uncle Mort likes to remind me, avoiding work by hiding out by the comic-book rack. I attended East Elementary, J.V. Martin Junior High, and Dillon High School, where I played saxophone in the marching band. (I wish Dillon High had a math team when I was attending; I understand this year's team had done quite well.) I especially remember with fondness the many friends I made during those years. I remember, too, in the summer after I graduated from high school, working construction to help build Saint Eugene Hospital, now McLeod Medical Center, and I remember, during the summers of my college years, waiting tables six days a week at South of the Border.
As a teenager, like many teenagers, I itched to get away from the small town in which I grew up. I got my wish when I left Dillon to attend Harvard University. And, although I have since been privileged to study and teach at some of the finest universities in this country, I realize now how much I learned during my 17 years here. First and foremost, I learned how very hard people in small towns like Dillon, and in communities large and small all across the United States, have to work to support themselves and their families and to offer opportunities to their children. I got a taste of that when, on the first day I came home from working on the construction site at St. Eugene's, I was too tired to eat and fell asleep in my chair. Second, I learned in Dillon that Americans are economically ambitious. I remember the fellow construction worker who wanted to become a foreman and the waitress at South of the Border who wanted to be the first in her family to go to college. I knew that these things characterized Americans then, and know that they still do today. So, in that way and many others, I carry my hometown with me, and it is very good to return, if only for a short visit to accept this honor.
I must confess that, until recently, I did not realize that highway interchanges were named after people. But, as I thought about it, I realized that it is indeed a high honor for someone whose job is focused on supporting the economy.
Mervyn King will be gone next year from the Bank of England. His replacement should soon be announced. Fed Chief Ben Bernanke is not expected to stay for a third term when his current stint expires in January 2014. And now China’s top central banker has been put out to pasture.
As Taylor Swift might sing, “We are never getting back together.
First China's central bank governor Zhou Xiaochuan didn’t go to the IMF meeting in Japan in October. Now, Zhou has been left off the Communist Central Committee – meaning he is slated for retirement after a decade in his job.
Reuters reported: “Market analysts have long thought that Zhou was likely to leave the PBOC in any reshuffle of top economic posts prompted by a change of leadership at the top of the party, agreed in a once-a-decade handover of power at a congress held in Beijing this past week.
The surprise though is to see him out of the party’s inner circle of power that precludes him from elevation to another senior role, such as state councillor, from which many analysts had expected him to drive the next round of long-anticipated financial market reforms.”
Zhou took the news stoically. “When it comes to retirement, you have to retire when you reach an old age,” the 64-year-old central banker told reporters. “I hope this matter doesn’t have much to do with monetary policy.”
There are a number of possible replacments for Zhou – as there are for Bernanke. Among the possible Obama appointees are former Treasury Secretary Lawrence Summers, Fed Vice Chair Janet Yellen and former Assistant Secretary of the Treasury Alan Krueger, a former assistant secretary of the Treasury for economic policy.
The time is overdue for a monetary reset by the new central bankers.
“China’s unfair trade practices have indeed taken a very heavy toll on the American economy,” wrote Peter Navarro in World Affairs recently. “Consider that for the second half of the twentieth century, the US gross domestic product grew at a healthy rate of about 3.5 percent annually. Since China joined the WTO in 2001, however, that rate has fallen to an average of only 1.6 percent. While the loss of almost two percentage points of GDP growth a year may not seem like much, it translates into a failure to create two million jobs a year and cumulatively more than twenty million jobs lost to slow growth since 2001. Not incidentally, that’s almost the exact number of jobs America now needs to get its people fully back to work.”
Navarro noted: “As bad as America’s economic engagement with China has been for American workers, its been even worse for China’s huddled masses. As the economist Ian Fletcher has pointed out, ‘Economic growth in China has not led to its becoming more democratic. It has led to a more sophisticated, better-financed form of authorianism.’”
Brazil’s economy isn’t doing the Samba. After growing 7.5 percent last year, Brazil has slowed to a near stop in 2012. And Brazil thinks one of its problems is the monetary policy being pursued by Federal Reserve Chairman Ben S. Bernanke.
The Brazil vs. Bernanke rivalry played out most recently in Tokyo where on October 14, Bernanke defended his policies against critics in a speech before a conference sponsored by the bank of Japan and the International Monetary Fund: “I am sympathetic to the challenges faced by many economies in a world of volatile international capital flows. And, to be sure, highly accommodative monetary policies in the United States, as well as in other advanced economies, shift interest rate differentials in favor of emerging markets and thus probably contribute to private capital flows to these markets. I would argue, though, that it is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies, for several reasons.”
First, the linkage between advanced-economy monetary policies and international capital flows is looser than is sometimes asserted. Even in normal times, differences in growth prospects among countries--and the resulting differences in expected returns--are the most important determinant of capital flows. The rebound in emerging market economies from the global financial crisis, even as the advanced economies remained weak, provided still greater encouragement to these flows. Another important determinant of capital flows is the appetite for risk by global investors. Over the past few years, swings in investor sentiment between "risk-on" and "risk-off," often in response to developments in Europe, have led to corresponding swings in capital flows. All told, recent research, including studies by the International Monetary Fund, does not support the view that advanced-economy monetary policies are the dominant factor behind emerging market capital flows.1 Consistent with such findings, these flows have diminished in the past couple of years or so, even as monetary policies in advanced economies have continued to ease and longer-term interest rates in those economies have continued to decline.
Second, the effects of capital inflows, whatever their cause, on emerging market economies are not predetermined, but instead depend greatly on the choices made by policymakers in those economies. In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth. However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation. In other words, the perceived advantages of undervaluation and the problem of unwanted capital inflows must be understood as a package--you can't have one without the other.
Brazil was not appeased by Bernanke. “Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging market economies," complained Brazilian Finance Minister Guido Mantega. "Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers." Mantega has been complaining about the policies of the Federal Reserve and ECB since 2010.
IMF Managing Director Christine Lagarde acknowledged the danger of monetary easing in developed economies leading to economic contraction in emerging markets: "Accommodative monetary policies in many advanced economies are likely to entail large and volatile capital flows to emerging economies...This could ... lead to (economic) overheating, asset price bubbles and the buildup of financial imbalances."
Don’t look for this argument to be settled any time soon – so long as the Fed keeps turning on the spigot and the developing world keeps feeling the flood.
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only,” wrote Charles Dickens in Tale of Two Cities.
Now, Federal Reserve Chairman Benjamin Bernanke has addressed the autumn of our discontent – and unleashed the spring of Federal Reserve credit to refresh the economy. Indeed,, Fed Chief Ben Bernanke has placed his bet on his version of economic light – a third round of Quantitative Easing. Apparently, QE3 is expected to do what QE1 and QE2 did not do. As the Washington Post reported: “The Fed’s steps were in many ways remarkable: For the first time, it made a definitive promise that it would keep interest rates ultra-low even if the economy starts to recover. That sent a clear signal that for years it will be cheap for consumers to borrow to buy homes and cars or for businesses to get loans to expand.
To reinforce the point, the Fed said it will buy $40 billion per month in mortgage bonds in addition to $45 billion in Treasury bonds through the end of the year, a process known as “quantitative easing.” After that, the Fed will reassess its actions, but it is likely to continue buying tens of billions of dollars of mortgage bonds unless the economy suddenly shows signs of a major rebound.
Critics have noted that the Fed’s action is a tacit omission that the American economy is still weak. Of course, many observers have prophesied what Chairman Bernanke would do. It didn’t take a PhD in economics. The New York Times’ Jeff Sommer wrote of such predictions at the beginning of August. After an interview with James W. Paulsen, chief investment strategist at Wells Capital Management, Sommers wrote: “Despite the signs of weakness, Mr. Paulsen is focusing on indications that the United States economy may have ‘bottomed.’ He said the biggest remaining problem might be psychological — that people’s ‘animal spirits’ have been depressed by the negative comments of American political and economic leaders.”
Further Fed action now — with both short- and long-term government interest rates extraordinarily low — would signal that the economy is ill, not healthy. The Fed ought to consider raising rates, not lowering them, he said.
“We need a sign of confidence in the strength of the economy,” he said. “And we need to let the economy continue to self-medicate, to heal itself, and that process is already well under way.”
Mr. [Eric] Stein, for his part, says that if there is no big improvement soon — and he doesn’t expect one — it’s likely that Ben S. Bernanke, the Fed chairman, will embark on more large-scale asset purchases, or quantitative easing, later this election year, possibly in September. “I think Ben Bernanke just needs to see more data,” Mr. Stein said. “I think if the data comes in and it continues to be weak, the Fed will have to act.’
Well, the data is in, and the Fed has acted – apparently with knowledge that is not really propriety: these are not the best of times. Perhaps some central bankers claim say with Sydney Carton at the end of Dickens’ book: “It is a far, far better thing that I do, than I have ever done; it is a far, far better rest that I go to than I have ever known.”
Those central bankers would be wrong. Perhaps some central bankers might sacrifice fiat money for a far better thing – the gold standard. It is, after all, time to go the other way from that direction chosen Bernanke in the United States and Mario Draghi in the European Monetary Union.
The fluffy clouds hung over the Grand Tetons last week. Outside Jackson Lake Lodge, there is an unparalleled view of the majestic mountains where tourists gather each morning to watch the sun splash the peaks with glorious color.
Inside the lodge, there was less light. “Federal Reserve Chairman Ben Bernanke gave no hint Friday as to whether the central bank was leaning toward easing fiscal policy again in an effort to rouse the sleepy U.S. economy,” wrote Fox Business Channel´s Dunstan Prial. “Instead, in a closely-watched speech at the Federal Reserve’s economic symposium in Jackson Hole, Wyo., Bernanke made a point of saying monetary policy alone isn’t a cure-all for the economic ills that have plagued global markets since the credit crisis of 2008.
Prial noted: “Bernanke’s dour assessment of the U.S. economy hardly extinguished speculation that another round of bond buying could be announced at the Fed’s September meeting.”
“As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation,” said Bernanke. “The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”
“As is common of Fed pronouncements, Bernanke hinted but offered no certainty of action to come. Still, the urgent tone of his remarks will leave investors disappointed if the Fed does not launch new stimulus at its Sept. 12-13 policymaking meeting. Investors seemed hopeful, with stocks trending up by about 1 percent in the early afternoon,” reported the Washington Post. The New York Times Binyamin Appelbaum saw things more clearly, writing that Bernanke “delivered a detailed and forceful argument on Friday for new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action.”
“Bernanke offered a full-throated defense of the Fed's past efforts to juice the economy and promised that more help could be on the way—admonishments to the contrary be damned,” wrote Barron´s Bradley Davis. “Bernanke did all but hit control-P in his speech from Jackson Hole, Wyo. If the Fed embarks on another round of quantitative easing—"printing money" by committing to buying large amounts of long-term Treasury bonds—Treasury prices would rise and yields would fall.”
European Central Bank President Mario Draghi skipped the meeting, but in Europe, there was still no assurance that the sun would shine anytime soon. Unemployment there reached the highest level since 1999 when the European monetary union was put in place. “The 11.3% unemployment rate, up 1.2 points from a year earlier, failed to come down after joblessness increased in Spain and bailed-out Greece. In Spain youth unemployment stood at 52.9%, in Greece at 53.8%,” noted The Guardian. The Financial Times wrote that German citizens were ready to cut Greece loose from the euro.
So sign yet when central bankers were cut loose from their failed policies.