Print Now! Print Forever! Print in new ways!
I am actually a bit suprised by this article from Mr. Greider. He wrote the classic book The Secrets of the Temple. He is a smart guy. Below is a discussion of his book and the Fed from 1987. It is absolutely worth a viewing.
I would also encourage everyone who cares about Fed policy to read the attached article in The Nation at the end of this post. It is mind blowing in its premises and even more mind blowing in its prescriptions, but not in a good way, and I respect Mr. Greider.
In the article Greider argues that the Fed has not been activist enough. He argues that Fed policy has been dominated by “conservatives” who don’t want the Fed to overstep its bounds.
That is a pretty odd assertion.
The Federal Reserve is now engaged in ongoing money printing. It has held rates at 0% and in real terms negative for 4 years! How easy does Greider want the money to be?
But before we discuss what he wants the Fed to do, let’s for a moment look at how he gets there.
Despite what you may have read in the newspapers or heard from the president’s cheerful speeches, the economy is not out of the danger zone. Despite some encouraging indicators recently, both the US economy and the world’s remain in perilous condition, still threatened by the larger catastrophe Washington officials thought they had averted. That is, a renewed global recession will compound the losses and can swiftly morph into the big D, for depression.
Morph? We are in a depression. We had a fall. Now we are stuck in a hole, and we have been for a long time. We may not be backsliding at the moment, and people may have gotten used to the “new normal” but it’s still a depression.
Why are we still mired? Because markets have not been allowed to clear. That’s why.
Banks should have gone bankrupt. Houses which were overpriced should have been liquidated. There would have been pain, probably lots of it, but we’d be through it by now in all likelihood. The market would have solved the misallocation of capital problem and we then would potentially have had the first real economy (assuming the Fed got out of the way) in decades.
And one has to smile at Greider’s statement above for another reason.
“Despite what you may have read in the newspapers or heard from the president’s cheerful speeches, the economy is not out of the danger zone.”
He is clearly writing for his audience here. Who ever thought the economy was “out of the danger zone?” The only people I can imagine are people who think the #oldmedia is in any way inclined to tell the truth. (I didn’t think that Greider was one, but I guess he is). I don’t know many folks who fall into this category, but then again I don’t read The Nation regularly either.
He goes on.
Bernanke is sure to further inflame his harshest critics—the Fed’s traditional allies on the right. Hard-money Republicans and the banking interests they always defend complain bitterly that Bernanke’s already done too much, when he knows he has not yet done enough. His actions are derided as dangerous meddling that threatens to spark inflation (though it currently remains near zero).
Hard money Republicans? I can think of 1, 1, in Washington and he is leaving at the end of the lame duck session. (Actually, to be fair, Ron Paul is the only real sound money guy. There might be a handful for tightening the reins.)
It is unclear if Greider is also saying that “banking interests” are also for hard money which could not be more false. (Again, I am honestly suprised that he says this.) Banking interests LOVE easy money. Greider has more in common with the fat guys smoking cigars in 3 piece suits than he wants to admit.
But despite Greider’s poor construction here, it can be said that whatever his intention, neither Republicans nor bankers are for “hard money.”
Then he laments that the “Left” hasn’t been cheering the Fed on enough. The fact that Greider (he’s an old guy) still embraces the whole right/left thing should give us an indication of what sort of glasses he sees the world through.
Joseph Gagnon, a twenty-five-year veteran of monetary policy at the Fed and now an economist at the Peterson Institute, lamented the one-sided nature of elite debate. “What bothers me,” he said, “is one side is nothing but critical of what the Federal Reserve is doing, and the other side is just silent. I just don’t understand. Why aren’t a lot of voices complaining that the Fed isn’t doing enough? The progressive side has been absolutely silent, and yet the conservatives have been jumping up and down. And this totally distorts the Fed’s environment.”
My intention for this article is to provoke a wider argument. I hope it nudges the left to get up to speed on monetary policy and take an aggressive position instead of forfeiting the field to the right-wingers. I want progressive activists to intrude on the privileged circle that talks to the august Federal Reserve and help citizens join the conversation. So long as the insulated central bank maintains its privileged structure—unaccountable to voters but intimately connected to the bankers it regulates—the people are bound to be left out in the cold.
The people on the left side of American politics seem not to have noticed that Bernanke has lately been moving in their direction, pushing for important measures that progressives also champion. The chairman’s essential policy approach follows the basic premise of Keynesian economics: in times of deep recession or depression, only the federal government has the ability to reverse things with its interventions. Mitt Romney and the Republican Party, on the other hand, have reverted to the stiff-necked Calvinist doctrine that conservatives espoused after 1929: nothing can be done to relieve economic misery, except to let nature take its course. The New Deal blew away the smugness of the monied interests seventy-five years ago. Now they are back, peddling the same bromides.
Mitt Romney was an unabashed Keynesian (Greider MUST know this) who’s economic advisors were all Keynesians. Indeed this is probably one of the reasons he called for increased military spending. It is highly doubtful that Romney would have encouraged a hard money regime—in fact, I would say that there is no way it would have happened. Though it would have been the right course.
At the end of the above quote we also witness the bizarre nostalgia for FDR which is so often exhibited by those who want a more activist state. People forget that FDR wouldn’t leave office, despite the American tradition of presidents serving only 2 terms established by George Washington. People forget that before World War 2 people such as Benito Mussolini were held up as examples by the administration.
But statists, gonna state I suppose. And Greider, though a critic of the Fed is a statist it can safely be asserted.
He concludes his article by arguing that the Fed needs to do what it can, even if some consider such actions illegal, to jar loose the money the Fed has sent to the commercial banks.
Here, Greider is right on one very important point. Commercial banks are sitting on piles of Fed created money receiving interest payments on this money. This is a problem. The money should never have been created in the first place and the banks getting paid for sitting on this money is indeed outrageous. However, if this capital was dislodged, the fake inflation rate Greider sites at “0%” (this is total nonsense) might lurch skyward very quickly. If the glaciers of money frozen right now were thawed quickly, the world could see a catastrophic flood.
Simply, Greider is calling for policy which would end in disaster.
Again I would encourage everyone who cares about Fed policy in the least to read Greider’s article.