Divvying Up Blame for Economic Ignorance

We weren’t really defending Helicopter Ben here yesterday for his handling of the economy, we were only trying to provoke a discussion by suggesting he did as much as was politically possible. Could he have done more – or perhaps less – to put the economy on the right track?  We doubt it. Less – much less – would have been the right answer. But since when has the Fed been allowed by the tide of popular opinion, let alone by political consensus, to do nothing when the economy was sinking into deep recession?

Some readers said that if they’d been in Bernanke’s shoes, they’d have had the courage to do the right thing anyway, letting the banks fail — and with them the entire financial system. But it is naïve to think that mere courage would have sufficed to carry the day for laissez faire’s version of the nuclear option. Indeed, many a courageous leader has wound up in front of a firing squad.  Bernanke, and more than a few of his colleagues, would have found themselves in front of one too if just one more company – AIG – had been allowed to go down.

The fact that Bernanke’s egregiously misguided efforts have set the U.S. economy inexorably on course for a Second Great Depression is as much an indictment of our political system as it is of one man.  Some would say he deserves the blame anyway because, as chairman of the Federal Reserve, he is The Most Powerful Banker in the World. But we never bought that line to begin with.  As far as we were concerned, it was just a bunch of hype – like calling Mel Gibson the Sexiest Man Alive. 

 Especially Greenspan…

 In truth, most of the men who have held the reins at the Fed have gotten much better press than they deserved. Especially Alan Greenspan. The news media seemed to hold him in awe, but in reality they merely propped him up with stupid headlines:  “When Alan Greenspan Speaks, People Listen”.  What hogwash! If anyone had actually been listening, they’d have realized Greenspan was just a real-life version of Chauncey Gardiner, the empty-headed advisor to Presidents in the movie Being There.  Need we remind you yet again that Greenspan encouraged us all — more than once — to think of inflated home values as real wealth? He also spoke of a capital investment boom in the U.S. at a time when household savings growth was negative. How this guy passed Econ 101 will always be a mystery to us.

Lest we heap all the blame on just a few eggheads with friends in high places, we should mention the news media’s disgraceful complicity and dumbfounding ignorance, which seem to be growing more blatant with each passing day.  How else to characterize this opener from a Wall Street Journal stock-market wrap-up yesterday:  “U.S. stocks snapped back Wednesday as investors reined in their expectations for a major bout of easing by the Federal Reserve to stimulate the economy.”  Where to begin? The sentence is a nightmare to deconstruct, but we’ll give it a try. For starters, there is the question of who actually believes more “stimulus” will achieve anything.  There is also the matter of whether the mere purchase of Treasury debt by the Fed constitutes “stimulus” at all.  And, pray tell, what caused investors to all of a sudden “rein in their expectations” when, just a few days earlier, stocks were flying, supposedly, on expectations that QEII would amount to at least $1 trillion?

 Come Again?

Usually, when impossible-to-answer questions like these threaten the narrative arc of a news story, the reporter will find someone he can quote to pull things together.  Instead, we get an explanation from a money manager that somehow manages to encrypt the facts-at-hand:   ”The Fed will probably indicate that easing will be open-ended — they’ll want to see how that first round plays out,” said David Katz, principal at Weiser Capital Management, who says that any attempt at “shock and awe” by the Fed could spook the markets. “If there was a perception that the Fed needed to drop $2 trillion into the economy on day one, then perhaps things are a lot worse under the rug than we think they are.”

So, let’s see if we’ve got this straight: If the Fed were to quietly dribble another $2 trillion onto the economy on days two, three and four, maybe we won’t think things are so bad? 

Rick Ackerman

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Rick Ackerman is the editor of Rick’s Picks, a daily trading newsletter and intraday advisory packed with detailed strategies, fresh ideas and plain old horse sense. Access to it and to all other Rick’s Picks services is available via a free seven day trial subscription available by clicking here.

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