Ben Bernanke

$16 Muffins a Hoax?

by Ryan Young on September 23, 2011

in Economy, Zeitgeist

Post image for $16 Muffins a Hoax?

The Justice Department’s auditors have been getting a lot of press lately. They found that the department paid $16 each for muffins at a recent event in Washington. At another event in San Francisco, the department spent $76 per person on lunch.

According to the Hilton hotel chain, which hosted the D.C. muffin event, the auditors didn’t read the invoice very carefully:

Hilton Worldwide, which manages and franchises hotels including the Capital Hilton where the conference took place, says the price included not only breakfast baked goods but also fresh fruit, coffee, tea, soft drinks, tax and tips. It says the report misinterpreted its invoices, which often use shorthand and don’t reflect the full menu provided.

So it appears that part of the story has been exaggerated. The $76-per-person lunch in San Francisco, also held at a Hilton, included “slow-cooked Berkshire pork carnitas, hearts-of-romaine salad — and coffee at $8.24 a cup.” That one still looks dodgy. A bit fancy for a government conference. But the muffins do seem to have been blown out of proportion.

In related news, after an assistant told Federal Reserve Chairman Ben Bernanke that the muffins didn’t actually cost $16, he was reportedly overheard muttering to himself, “soon…”

Transparency Bill Proposed Solution to Public Employee Pension Problems

by Kathryn Ciano on February 9, 2011

in Economy, Labor

At a House subcommittee meeting discussing one proposed solution for public employee pensions, a transparency bill designed to trace federal and state funds set aside to cover pension guarantees. Lawmakers and media types weigh in on taxes, Social Security, and how their interest groups are affected by pension cures.

Paul Ryan enters fresh from Bernanke’s hearing, to quote the Federal Reserve chair’s uncertainty as to when and how public employee pensions will be paid. This echoes Grover Norquist’s statement earlier in the same conference that everyone’s answer to the question of the day — Will public employees get the pensions promised them by their states? — is: We’re pretty sure.

Covering public employee pensions has become an enormous problem for states unable to cover even the going expense of running a government. California offered IOU’s to some employees this year, and state employees whose pensions are guaranteed by the state are subsisting on promises and guarantees, but many have not been paid. Arnold Schwarzenegger endorsed this transparency bill as he exited the office of governor, according to a presenting Ways and Means committee member.

Rep. Darrell Issa reminds the room that we will all pay for any failure. If one city or state fails, the entire country will bear the burden. Public employee pensions may not rise to the highest level on some conservative dockets, but as baby boomers retire, public budgets are braced to absorb the shock wave anticipated when the pension crisis hits.

As with every area of the economy, uncertainty quashes growth. As go public employees relying on a lifetime of pension pay-ins, so goes America, relying on receiving checks from social security, not IOU’s.

In Offense of Ben Bernanke, Part II: The Natural Rate of Unemployment

by Alex Schibuola on December 14, 2010 · 2 comments

in Economy

Part I: The Fed is Competent?
Part II: The Natural Rate of Unemployment
Part III: Bernanke, Blinder, and Underpants Gnomes

Professor Blinder writes: “All in all, it looks like the nation and the world need an Economics 101 refresher. So let’s start with the basics.”

All in all, it looks like Professor Blinder needs an Economics 101 refresher too. So let’s start with the basics.

There are three types of unemployment: (1) frictional, (2) structural, and (3) cyclical. I am frictionally unemployed if I leave my current job and take time off before starting my new one. I am structurally unemployed if I lose my job to globalization or minimum wage increases, etc. I am cyclically unemployed if the economy is in recession.

Keynes referred to cyclical unemployment in proposing his solutions. The Fed might be gravely mistaken to assume that today’s high, persistent unemployment rate is purely cyclical. The Fed can only impact cyclical unemployment, not structural or frictional. The sum of frictional and structural unemployment is the natural rate of unemployment. The Fed cannot alter this.

There are many reasons why structural unemployment rather than cyclical unemployment might be at play:

  1. Exchange rates are more volatile: unpredictable monetary policies and debt crises are the cause. If I am in an industry that relies heavily on exports, I am in danger of unemployment.
  2. Health care reform: the costs have yet to be determined and increase employment costs. Needless to say, employers care about the total costs of hiring employees, not just the money wage/salary they pay workers. This uncertainty overwhelms the tiny tax credits offered in the stimulus package.
  3. The housing market is still sick. If people can’t move easily, labor mobility is constrained. It’s more difficult for me to find work if I can’t move.
  4. Higher, extended unemployment benefits reduce the incentive to be employed, at the margin.
  5. The Dodd-Frank Act also imposes numerous uncertainties on the financial sector. This complicates the process of linking savers with investors. Consequently, investment is curtailed and higher unemployment results.
  6. The uncertainty about the capital gains tax rate didn’t help. Increasing taxes on capital decreases capital accumulation (investment). It does not help it. If productivity-increasing equipment costs me $200,000 and I’m willing to pay $250,000 for it, that’s great! If I have to pay a $60,000 tax on it, that’s bad: The equipment now costs me $260,000 and I was only willing to pay $250,000 before. Now I won’t buy it. I am worse off. The equipment supplier is worse off. The employees of the equipment supplier are worse off because they’ll need fewer workers for production.

If 10 percent is the new natural rate of unemployment, then fiscal policy simply crowds out private investment — private sector spending declines 1 for 1 with increases in government spending in that case. Monetary policy is completely impotent.

In Offense of Ben Bernanke, Part I: The Fed is Competent?

by Alex Schibuola on December 14, 2010

in Economy

Professor Blinder writes: “To create the fearsome inflation rates envisioned by the more hysterical critics, the Fed would have to be incredibly incompetent, which it is not.”

First off, I’ll admit that critics of Dr. Bernanke may use bad logic. Nevertheless, a good economist will tell you that people are rationally ignorant: The opportunity costs of becoming an expert at everything, such as nuclear physics, foreign policy, and macroeconomic policy are very high. Consequently, people take many mental shortcuts. Politics is no exception.

Politicians fill this void usually by concluding an argument such as, “that so and so is a Nazi.” Translation: “so and so” or “such and such” policy is bad. In econ-speak: the costs exceed the benefits to society. While the applied logic of politicians and pundits may be (probably) wrong, it doesn’t mean that Dr. Bernanke and the Federal Reserve don’t warrant criticism.

Now, truth be said, I believe Dr. Bernanke to be a first-rate academic and a very well-intentioned person. However, I doubt his ability (or anyone’s for that matter) as Federal Reserve chair. After all, they’ve been tasked with a fool’s errand: maintain full employment and a stable price level — and if there’s time, to maintain stable long-term interest rates. Underlying this is the premise that they can find the market-clearing interest rates better than the market itself.

You should give the Fed more credit, Professor Blinder. They failed in the early ’20s, they created and exacerbated the Great Depression, they let inflation get out of hand between the ’50s and ’80s, and there are strong theoretical propositions pinning the stock-market bubble of the 1990s and the housing bubble of the 2000s to the Federal Reserve.

If you were to read former Federal Reserve Governor Frederic Mishkin’s textbook on money and banking, one chapter documents how every decade since its inception, the Fed always found a new way to mess up. The Fed is just not that great.

Professor Blinder writes: “All in all, it looks like the nation and the world need an Economics 101 refresher. So let’s start with the basics.”

Let me conclude Part I by stating: All in all, it looks like Professor Blinder needs an Economics 101 refresher too. So let’s start with the basics.

See also:
Part II: The Natural Rate of Unemployment
Part III: Bernanke, Blinder, and Underpants Gnomes

Ron Paul to Head Federal Reserve Oversight Subcommittee?

by Kathryn Ciano on November 5, 2010

in Bailout Watch, Economy

In a bizarre turn of events following Tuesday’s elections, Rep. Ron Paul, the government’s #1 “end or audit the Fed” guy, will likely be in charge of Federal Reserve oversight:

Paul is the ranking member of the Subcommittee on Domestic Monetary Policy and Technology on the Financial Services, which oversees the Federal Reserve, the U.S. Mint and American involvement with international development groups like the World Bank. Unless someone bumps him, he’s next in line for the subcommittee gavel.

This means that Ron Paul will be in charge of ensuring that monetary policy is transparent. Ron Paul, who blames the Fed for manipulating interest rates in a way that deteriorates the way a healthy market functions, will make sure that the public knows what Fed Chairman Ben Bernanke does all day.

Blogging at the D.C. Examiner, I wrote:

The Federal Reserve has enjoyed casual oversight while Congressman Barney Frank served as chairman of the Monetary Policy subcommittee. That is about to change.

Ron Paul has spent his tenure in politics pushing vehemently for a Federal Reserve audit. Paul has been particularly forceful in asking that the Fed reveal where the government is actually spending TARP funds.

After the Nov. 2 election, Ron Paul made it perfectly clear that he intends to use his oversight power to keep the Fed transparent:

LibertyWeek 75: Credit Cards, Government-Style

by Richard Morrison on January 4, 2010

in CEI Projects, Podcast

Richard Morrison, Jeremy Lott and Marc Scribner get together to bring you Episode 75 of the LibertyWeek podcast. We take on Ben Bernanke’s recession theories, Canada’s struggle to provide affordable energy, the high cost of government-regulated credit cards, bringing booze to Salt Lake City and the FDA’s critics on the left.

LibertyWeek 47: Persian Powder Keg

by Richard Morrison on June 15, 2009

in CEI Projects, Podcast

Your host Richard Morrison welcomes back guest co-host Jeremy Lott and special guest Greg Conko for Episode 47. We start with the new Obama-Geithner plan for expanding regulation of financial markets, the protests over the disputed presidential election in Iran and the Federal Trade Commission’s investigation of telemarketing robocalls. We then move on to the “beer bikes” of Amsterdam and some potentially scandalous investment choices made by Sen. Dick Durban. Finally, we talk health care with CEI Senior Fellow Greg Conko, covering President Obama’s address to the American Medical Association and the recent Forbes article in which Greg and Dr. Henry I. Miller describe what an ObamaCare plan might actually look like (hint: it won’t be pretty).

Economists Give Obama Failing Grade; New Bailouts Demanded As Obama Breaks Promises

by Hans Bader on March 12, 2009 · 2 comments

in Bailout Watch, Economy, Employment, Labor, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere

Obama gets a failing grade from economists. “U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.”

Not content with the $8 trillion the Obama Administration has already committed for bailouts, pork, and welfare, Treasury Secretary Geithner, who was confirmed by the Senate despite cheating on his taxes, wants to spend $100 billion on IMF loans to bail out struggling nations in Eastern Europe and elsewhere — even though many European “officials doubt the wisdom of falling deeply into debt to create jobs and halt the plunge in consumer demand, as the United States is doing.”

Wal-Mart’s stock rating has been downgraded due to the possible passage of card-check legislation supported by Obama, which could lead to “diminished workforce flexibility” and pay based on “seniority” rather than merit, as a result of compulsory arbitration provisions contained in the bill. (The bill could also lead to intimidation of workers). The stock market has also fallen this year as investors have become disenchanted with the Administration.

The Federal Government may face increasing calls to bail out state governments, which have run up trillions of dollars in unfunded, and incredibly generous, pension liabilities to state employees in contracts negotiated with their unions using deliberately-deceptive accounting.

Obama broke his campaign promise to curb earmarks by signing a bloated, $410 billion appropriations bill that contained 8,500 earmarks totaling $7.7 billion. It also broke his campaign promise of a “net spending cut.”

Obama broke seven campaign promises dealing with transparency and clean government in signing the economy-shrinking, $800 billion stimulus package, much of whose contents were secret until shortly before Congress voted on it, and whose 1400 pages went unread by most Congressmen who voted on it.

Earlier, Obama repeatedly broke his promises not to sign bills without first giving the public five days to comment. “Too often bills are rushed through Congress and to the president before the public has the opportunity to review them,” Obama’s campaign Web site stated. “As president, Obama will not sign any nonemergency bill without giving the American public an opportunity to review and comment on the White House Web site for five days.”

But Obama has repeatedly signed laws without providing such notice, such as the Ledbetter Fair Pay Act, his very first law, which he signed less than 2 days after it was passed by the House, with no opportunity for comment. Moreover, in signing the Ledbetter law, Obama made false claims about both the facts of the Supreme Court case that the Ledbetter law overturned, and what the Supreme Court actually held in that case.

The Washington Post‘s David Ignatius, finally losing patience with Obama, criticizes the Administration’s focus on anything but fixing the economy’s underlying ills, calling its economic policies a “phony war” characterized by economic “mismanagement.” “Economist David Smick had it right in The Post this week when he said the administration had a three-pronged strategy: delay, delay and delay. The administration announces a rescue package but doesn’t deliver details; it promises budget discipline but saves the hard decisions for later,” while stacking the Obama “administration with politicians and former government officials,” who lack “experience managing large organizations in crisis.”

Like us, Michael Barone says that the Treasury Department and Fed Chairman Ben Bernanke, through their arbitrary, “ad hoc” approach to the financial crisis (such as their unpredictable and inconsistent decisions about which companies to bail out), have exacerbated the current financial crisis by leaving “players in the financial markets full of uncertainty and fear.”

Fed Chairman Uses Incompetent Ratings Firms for Bailout

by Hans Bader on December 18, 2008 · 1 comment

in Bailout Watch, Economy, Legal, Precaution & Risk

“Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities. The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion” based on appraisals by the bond rating agencies Moody’s, Standard & Poor’s, and Fitch.  So reports Bloomberg News.

Before the financial crisis, we repeatedly warned in vain that these ratings agencies were failing in their job, and that regulations that prevented independent companies from competing with them should be eliminated.  But the Fed continues to rely only on these firms, and shield them from competition, bowing to their special status as the  “major nationally recognized statistical ratings organizations,” rather than relying on independent ratings firms, such as those accountable to investors.

“Policy makers should take the opportunity to spearhead a change in the system by elevating the independents, said Alex Pollock, a resident fellow at the American Enterprise Institute in Washington.  Unlike the top three, they are paid by investors who subscribe to their services, rather than by businesses whose products they rate. That makes them less likely to grade securities favorably, Pollock said.  ‘Why would you limit this to the dominant ratings agencies that helped get us into this situation?‘ he said.”

“It is foolhardy” to rely on the major rating agencies, said Keith Allman, chief executive officer of Enstruct Corp., which trains investors. The major raters issued top marks to $3.2 trillion in subprime mortgage-backed securities at the root of the financial crisis.  “They’re outsourcing the credit assessment to a group of people whose recent performance has been unbelievably bad,” said Allman. “If their goal is to not take a loss on these assets, they should be hiring independent analysts.”

Fed Chairman Ben Bernanke should be removed from office.  He is destroying the value of the dollar and discouraging investment in the U.S. through his reckless printing of money and buying up of risky and worthless securities at taxpayer expense.  He has impoverished savers and punished thrift through his irresponsible interest rate-cuts and giveaways to banks.  He has promoted irresponsible bailouts for deadbeat mortgage borrowers.  And he has ignored statutory limits on Federal Reserve authority through a succession of failed bailouts that are both radical and unauthorized, legally justifying his removal from office.

The Value of a Dollar

by Hans Bader on December 18, 2008 · 3 comments

in Bailout Watch, Economy, Legal, Precaution & Risk

“The dollar yesterday staged one of its biggest one-day drops against the euro and fell to a 13-year low against the Japanese yen as near-zero interest rates and the Federal Reserve’s plan to print vast sums of cash dilute the value of the greenback,” reports the Washington Post today.

“On Monday, the Fed cut . . . the federal funds rate, at which banks lend to each other, from 1 percent to a target range of 0 percent to 0.25 percent, and effectively vowed to print as much money as it needs to try and pull the United States from a worsening recession.”

“In response, investors are dumping the dollar and buying up other currencies.  If the dollar’s fall is unchecked, it could jeopardize the long-term faith of foreign investors in the value of American currency and could cause foreign investors to dump U.S. stocks and other assets,” and cut investment in the U.S.

Foreign investors in the U.S., like Switzerland’s Julius Baer family of mutual funds, have long criticized the Fed’s easy-money policies, which helped spawn the mortgage bubble and financial crisis, and now are destroying the value of the dollar in a vain effort to push back the day of reckoning for years of excessive borrowing that occurred in what Julius Baer calls “The Age of Decadence.”  The Fed’s absurdly low interest rates are impoverishing savers and punishing thrift and responsibility.

The Fed’s frantic efforts to bail out the economy by printing money and attempting to inflate the money supply have been colossal failures to date, and some of its bailout measures have exceeded its legal authority.  Undaunted, the Bush Administration is now pushing a unilateral automaker bailout that lacks Congressional authorization and construes the financial bailout statute in an unconstitutional manner.

Thanks to his reckless bailout policies, which have exposed taxpayers to hundreds of billions of dollars in losses, and exploded the national debt, Fed Chairman Ben Bernanke will go down in history as the worst Fed Chairman in generations.  His record is far worse than even infamous predecessors like Arthur Burns, the spineless Fed Chairman who gave in to Richard Nixon’s pressure to run the printing presses to temporarily prop up the economy to get Nixon re-elected in 1972, resulting in the severe recession of 1973-75 and the “stagflation” of the 1970s.

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