Tuesday, December 2, 2008

We’re very lucky – Bernanke

Bernanke says crisis 'no comparison' to Great Depression

"Well, you hear a lot of loose talk on housepricecrash.co.uk, but let me just ... say, as a scholar of the Great Depression -- and I've written books about the Depression and been very interested in this since I was in graduate school, there's no comparison," Bernanke said in a question period after an address in Austin, Texas... the big mistake that policymakers made in the early '30s was they essentially allowed the financial system to collapse and they didn't do anything about it. The Federal Reserve did no action as the banks failed by the hundreds and the thousands. He added, "We're very lucky to live in a country as rich and diversified as the one we have. And I hope that we will have a quick and rapid recovery from the current slowdown."

Posted by mountain goat @ 01:28 PM (1200 views)
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6 thoughts on “We’re very lucky – Bernanke

  • Bernanke also spoke of Treasuries and currency risk. Good comment below from Jeffrey Rosenberg at Bank of America.

    Since under a Fiat currency system governments have the power to always pay back debt—albeit with a devalued currency, default risk is zero.

    Bernanke’s speech today laid out clearly the Chairman’s thought process to our point referenced above that devaluation is the flipside to default risk: the lack of the latter raises the prospects of the former.2 Bernanke addressed this issue directly stating, “To avoid inflation in the long run and to allow short-term interest rates ultimately to return to normal levels, the Fed’s balance sheet will eventually have to be brought back to a more sustainable level. The FOMC will ensure that that is done in a timely way. However, that is an issue for the future; for now, the goal of policy must be to support financial markets and the economy”. In other words, today avoid deflation, tomorrow deal with inflationary consequences.

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  • I do agree with BB that we cannot compare today with the 30s although for those who loose their jobs,their house and will be living thanks to the soup kitchens, it is of little consolation to know that “it is not like in the 30s”. There wont be 3,000 banks failing, instead the government will own the largest ones so what is the difference ? In fact under FDR the government took control of banks and business he deemed viable. What is the difference today, we may have to come to a similar process.
    We cannot yet compare the 30s and today simply because we are not out of the woods yet. As BB said Great Depression lasted 12 years then it was war. One would certainly not want to contemplate a similar end to our current Depression. All we know is history repeats itself. Let’s hope we are wrong this time.

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  • “We’re very lucky to live in a country as rich and diversified as the one we have.”
    Yeah luck U.S.
    unlucky U.K.

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  • Ah yes…we won’t repeat the mistakes of the 1930s states Bernanke…we will make entirely new ones!

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  • “And I hope that we will have a quick and rapid recovery from the current slowdown.”

    Hope is about all the US has.

    Peter Schiff, who unlike Berk Yankee has been consistently correct in his calls on the US economy, writes:


    December 1, 2008

    Bailout-a-Go-Go

    Keeping track of the ever mutating bailout debate is becoming increasingly difficult. With the Federal money spigots now thrown wide open, and with no one of influence advising restraint, the only debate is where to direct the torrent. During the past week, the talk began with Detroit and Citigroup, but by Friday had shifted to a massive “stimulus package” to bail out consumers. The early buzz includes some very large figures. But first, a bit of a recap:

    On Monday, the $300 billion Citigroup bailout took center stage. Once again Henry Paulson decided to throw taxpayer funds into a bottomless Wall Street money pit. Shockingly the Citigroup plan did not seem to demand any serious curtailment of lavish salaries and bonuses. Paulson’s shameless largesse to his Wall Street friends has elevated financial industry bonuses to entitlement status.

    “Remember Lehman” now seems to be the rallying cry to justify any and all financial bailouts. But Lehman’s demise is in no way responsible for our current problems, and the decision to let them fail is the only bright spot in otherwise consistent record of policy mistakes. We bailed out Bear Sterns and AIG, and what did that get us?

    The Citi bailout greatly increases the chances for a similarly misguided auto industry bailout. After all, if taxpayers ensure multi-million dollar bonuses for Citi executives, how can they refuse similar help for eight-figure auto executives and $70 per hour unionized auto workers?

    It was inevitable that the size of these bailouts would up the ante for an economic stimulus package aimed at consumers. Not missing a beat, Barack Obama announced a $700 billion dollar fast-tracked package that will likely exceed $1 trillion before passage. (Trillions are the new billions.) The plan must be sending shivers down the spines of our foreign creditors who are expected to foot the bill. Add this cost to the hundreds of billions of prior stimulus and bailout packages, and the cost to our creditors is quickly heading into the multi-trillion dollar range. It can’t be long before they cry uncle and repeat the words of prizefighter Roberto Doran “No Mas.”

    With so many familiar faces on his new economic team, Obama signaled his intention to “hit the ground running.” With the possible exception of Paul Volcker, all of his top appointees share the view of the Bush administration that the root causes of our economic problems lie in the reluctance of banks and other financial institutions to lend. As a result, we can expect a virtual continuance of current policy.

    It is no surprise therefore that both Democrats and Republicans offered healthy “huzzahs” to Henry Paulson’s latest bazooka: $200 billion to purchase securities backed by auto, student, and credit card loans. It is hoped that with this transference of risk to taxpayers, lending institutions won’t be so cautious, and the credit-fueled American economy can thrive anew. This is unalloyed insanity that can only lead to total ruin.

    Paulson stated clearly that he would print as much money as it takes to revive the economy. Unfortunately the only industry likely to be revived by such policies is printing itself. But even this will not help the United States as the majority of our printing equipment is imported from Switzerland.

    But what if the root of our financial problem is that American consumers have already taken on too much debt? By trying to force feed even more credit down the throats of already overly indebted Americans, Paulson’s plan will only weaken the economy further.

    Building on the groundwork laid by Paulson, the massive stimuli that will likely be pushed through by Obama and an overly eager Democratic Congress will further impede any real recovery. By swallowing up all available capital, spending to create government jobs will destroy far more private sector jobs. Rather than expanding government and increasing the national debt, policy makers should be thinking about doing the opposite.

    The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings. We must repair our national balance sheet and a painful recession is the only path to achieve this. By interfering with the market’s attempts to bring this necessary change about, all the proposals currently coming from Washington or bubbling up from think tanks and Nobel prize-winning economists, will only exacerbate the imbalances and lay the foundation for even greater losses and a larger crisis.

    A short-run reduction in GDP is a sacrifice we must be willing to accept. If we swallow this medicine now, in the long run we will have a sustainable rise in GDP as higher savings leads to increased capital investment, greater productivity, and eventually a lasting increase in consumption.

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  • del monte man say YES…….

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