Dear Dr. Bernanke,
My nephew is a bad kid. He's into drugs, engages in high-risk sex, and has a steady stream of brushes with the law. But he always manages to avoid prosecution- probably because he is smart and good looking... and he has a rich uncle.
Recently he got into trouble. He was involved in some illegal gambling and had resorted to the Martingale strategy - right up until he ran out of money. Just as he lost that last hand, the hall was raided and he was arrested. I had, in the past, told him that if he ever needed help, he should call. But this time was tough for me. I knew that I could throw money at the situation and the problem would disappear; the gamblers would go away, the police would go away, and there would be no court case. I would basically restore public confidence in this boy by buying his way out of scrutiny. He would then go on to screw up another day - probably in a much bigger way.
The alternative was for me to let him collect his lumps, and watch as he got a taste of where he would end up if uncle was not around to bail him out - or if uncle chose not to bail him out because he was the cause of all his trouble.
I had to decide what the moral thing was for me to do: Shower the situation with money and make it go away; or let him learn a hard lesson - replete with bruises and a likely criminal record.
From the public's point of view, the answer was obvious; society would be better off if I let him take his lumps. He might be scared straight. And a criminal record would constitute a public record - a warning to anyone who took the time to find out about his proclivities.
But personal morality is a different beast. I have a certain loyalty to my brother to think about. And I did promise my nephew that if he ever got into trouble, I would be there for him. At the time, I did not include any contingencies in that promise. And it would break my mother's heart if my nephew went to jail - or if he was beaten up for not paying his debt.
I had to side with my posse, Dr. Bernanke. I bailed out my nephew. I paid off his gambling debt. And I found a lawyer who knows the DA - and the whole problem disappeared. It cost me a few dollars - but my brother is forever grateful. And my mother remains happy and ignorant. The cost to society, on the other hand, is going to be higher; this kid now thinks he's untouchable. Watch out, world.
On the face of it, your and my decision-making processes seem similar. Faced with a moral question of how best to restore confidence following a crisis, you too decided not to let your nephew-equivalents take their lumps; you shoveled money, just like I did, to protect those bad apples... to restore confidence in them... to restore confidence in the system.
There are a few differences in terms of the decision you made and the decision I made. For example, who, for you, is the equivalent of my brother? And who, for you, is the equivalent of my mother? And I was using my own money - thus the money was used in a way that would benefit me and my interests. Whose money were you using?
I am playing with you, Dr. Bernanke. I know where your allegiances lie, and whose money you used; you used my money. And your brothers and nephew are bankers - bad bankers. You took my money, and you funded your posse so that they would not have to face the repercussions of their dangerous ways. That is not moral, Dr. Bernanke. And it is a lot more dangerous than me letting my no-good nephew continue down his self-destructive path. I protected an insignificant fool with my own money, while you took my money and protected a behemoth - a massive, corrupt, and systemically dangerous juggernaut - in a way that ultimately imperils me, my family, and my community.
I may have done something unseemly from a public perspective, but it was my prerogative and I did what I had to do to protect my family. You did something obscene from a public perspective; you used the public's money to protect a corrupt core of powerful criminals who had imperiled our entire economy - and who, thanks to your largess, will eventually do so again. That is not central banking, Dr. Bernanke; that is centralized criminality.
You had a choice when it came to how you were going to restore confidence in our economy. You could have done it in a way that eliminated many of the industry people and practices that led to the crisis - in which case our confidence would arguably be based on having a more sound financial sector; or you could have sought to restore confidence by reinforcing the status quo - systemically dangerous institutions and people who pose a threat to our well-being - by flooding the financial sector with no-strings-attached money. You, somehow, chose the latter approach. You chose to protect the wrongdoers at the expense of the victims, you did it with the victims' money, and you did it in such a way so as to guarantee a future threat to those same victims. That is downright diabolical.
Is there something wrong with you, Dr. Bernanke?
Uncle.
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Mike Krieger's thoughts on the Fed announcement. If you haven't signed up for his email updates you should do so on his site.
I haven’t turned on my television in months other than to watch Game of Thrones on HBO (I highly recommend it if you haven’t seen it although this season has been slow so far) so it was an interesting experience watching CNBC for the first time in ages on the plane. Since markets are solely at the mercy of Central Planners at the moment, when The Bernank speaks on an FOMC day I try to watch.
Despite being someone that holds the Central Banking profession in extremely low regard, every now and again there is a soft spot for in me for these guys as I realize the impossibility of the situation they are trying to manage. Overall, I thought Bernanke looked concerned and timid during today’s testimony. He had the demeanor of someone with the world on his shoulders. Although the testimony itself was a giant yawn (as was the FED statement) all did not seem well to me.
I continue to think that in his mind Bernanke believes the economy needs a lot more stimulus. I don’t think for a second he believes we are in or anywhere close to a self-sustaining recovery. While he tried to toe the line to incorporate the dissenting views of the committee, at times his true bias came out. That is why stocks… http://libertyblitzkrieg.com/
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So I laugh when I see blatant manipulation these days. I've realized it's everywhere in the media. This chart is a perfect example. They are trying to claim that Obama has done a great job in this recovery because we are better than Uk and the Eurozone. Are you kidding me? That's like saying I'm ready for the PGA Tour because I can beat my 4 year old at golf...
You frequently hear people debate the Obama recovery against the Reagan recovery, but it's pretty dicey.
The times were totally different (and the recessions were very different) so you're left with just a lot of speculation and counterfactuals and so forth.
But here's an interesting apples to apples approach.
The below chart was made by Reuters' Scotty Barber, and it shows economic growth in the US, the UK, and Europe.
Now the first thing to note is that the US has recovered WAY better than either the Eurozone or the UK. So if you think Obama has been a disaster, you might first acknowledge that the US has performed better than all its major Western peers.
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Here is another piece discussing the problem that is college graduates.
The USA Today reports graduating class of 2012 is in for a rude awakening as Half of new graduates are jobless or underemployed.
About 1.5 million, or 53.6%, of bachelor's degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. In 2000, the share was at a low of 41%, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.
Out of the 1.5 million who languished in the job market, about half were underemployed, an increase from the previous year. Broken down by occupation, young college graduates were heavily represented in jobs that require a high school diploma or less. In the last year, they were more likely to be employed as waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists and mathematicians combined (100,000 versus 90,000). There were more working in office-related jobs such as receptionist or payroll clerk than in all computer professional jobs (163,000 versus 100,000). More also were employed as cashiers, retail clerks and customer representatives than engineers (125,000 versus 80,000).
According to government projections released last month, only three of the 30 occupations with the largest projected number of job openings by 2020 will require a bachelor's degree or higher to fill the position — teachers, college professors and accountants. Most job openings are in professions such as retail sales, fast food and truck driving, jobs which aren't easily replaced by computers.
Useless Degrees
The USA Today talks about the "underemployed". Is that really what's going on?
Just what job does someone majoring in Political Science, English, History, Social Studies, Creative Writing, Art, etc., etc., etc., expect to get?
Arguably, graduates in those majors (and many more) should be thankful to get any job. Therefore, those who do land a job should therefore be considered fully employed, not underemployed.
In turn, this means a college education now has a negative payback for most degrees.
Bledsoe, currently making just above minimum wage, says he has received financial help from his parents to help pay off student loans. He is now mulling whether to go to graduate school, seeing few other options to advance his career. "There is not much out there, it seems," he said.
There is nothing out there for many degrees which means that going to graduate school will do nothing but waste more money. Nurses are still in demand, but technology and engineering majors are crapshoots. If you can land a technology or engineering job it is likely to be high paying, but if not, the next step is retail sales.
Who Benefits From Student Aid?
Students get no benefit from "student aid". Rather, teachers, administrators, and corrupt for-profit schools like the University of Phoenix do.
Obama wants to throw more money at education, and that is exactly the wrong thing to do. Instead, I propose stopping student aid programs and accrediting more online schools to lower the cost of education so that degrees do not have negative payback.
Sadly, there is a trillion dollar student loan bubble, and that debt overhang will negatively impact the economy for years to come. Let's not make the problem worse. It's time to kill the inappropriately named "student aid" program.
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