The New York Times op-ed by Paul Krugman Paralysis at the Fed needs a little parsing in terms of what’s really going on, so I thought I’d give it a try. Please excuse my non-status as an economics guru, the fact that I’ve never won a Nobel Prize, and my cynical tendencies. The real story’s out there, it just takes some digging. I’ve done some digging.
Krugman’s article formed the basis of bobswern’s diary today, Krugman Nails Barnanke On Jobless…. Which is a good rundown of what Krugman’s issues are, but in my humble opinion neglects the larger reality in play on all this in favor of a purely political spin. Which, I strongly suspect, was just how Krugman wanted his article to be parsed. So while I definitely agree that the economy will double-dip, I disagree with assigning it to Obama, or to either Democrats or Republicans in D.C. They aren’t the ones in charge.
Primarily, I question Krugman calling out Bernanke for his criticisms of Japan’s central bank in 2000 as means to attack him in 2010 as Chairman of the Federal Reserve. In 2000, Ben Bernanke was the chair of the Department of Economics at Princeton, not a Fed functionary. He did not become a governor of the Fed until two years later. When we can fairly presume his graduate training in “the way things really work” began. Thus when Krugman says:
What’s going on here? Has Mr. Bernanke been intellectually assimilated by the Fed Borg? I prefer to believe that he’s being political, unwilling to engage in open confrontation with other Fed officials – especially those regional Fed presidents who fear inflation, even with deflation the clear and present danger, and are evidently unmoved by the plight of the unemployed.
I have to cynically answer, Yes. Bernanke is now the head Borg at the Fed. And no, he’s not being particularly “political” because politics is just a sideshow that politicians engage. He works for… um… ‘other’ interests. Those actually calling the shots in this worldwide financial crisis, and who get to determine what will become of us during its tenure. They’re not politicians. They’re bankers.
Then, continuing with his political theme, Krugman said:
Last, but not least, policy is suffering from an act of neglect by President Obama, who waited until his 16th month in office before offering a full slate of nominees to fill vacancies on the Federal Reserve Board. If he had filled those slots quickly – his nominees still aren’t in place – the Fed might be less passive.
Why does Krugman not understand that Obama’s hands are tied on this level? [answer: because he’s still in academia/pundit land, hasn’t had the graduate training yet]. In June of 2008 the German magazine Der Spiegel reported that the IMF had scheduled an audit of the U.S. financial system. The nation’s books – including the financial records of the Federal Reserve – were to be on IMF’s Washington, D.C. table no later than October 1, 2008. Which, if you just look at the date, will go a long way towards explaining why Senators (including Obama and McCain, hot on the campaign trail) were called in to act immediately on a bailout of the Wall Street financial sector. Heck, even We the People were informed that the legislation had to be done in the last days of September or the nation and even the entire world’s economy would come crashing down.
Anyway, the IMF’s audit reports were finally released on July 30, 2010. [Full pdf’s of the results linked in the left column of that page]. Now, not all that many regular people are well versed in the history and nature of the International Monetary Fund, its current adjunct the World Bank, or its inception at Bretton Woods in 1944 (planning developed beginning in 1941 during the height of World War II). But a lot of Democrats and Progressives are certainly aware of the WTO and the whole ‘Globalization’ thrust of world capitalist design. WTO is a political subsidiary of IMF/WB – Globalism R Us.
What in the world would convince Krugman that President Obama could act in any way on the vacancies opened up on the Fed’s Board of Governors until the exterior audit was completed (or at least in its final write-up stages)? He had to have clearance from IMF to do so, and since it was OUR Wall Street crooks who had scammed the world into financial collapse, IMF was entirely willing to let the vacancies slide until they were good and ready to back our position, and that required the immediate taxpayer bailouts to replenish reserves, completion of the audit, and analysis of U.S. compliance with their “structural adjustment programs” first. From the IMF’s audit overview:
Macroeconomic policies are set to remain accommodative in the near term. The draft FY2011 budget includes allowances for further targeted support for growth, while proposing measures aimed at reducing the deficit to 4 percent of GDP by the middle of the decade. A new Fiscal Commission will recommend measures aimed at further reducing the deficit to roughly 3 percent of GDP and stabilizing the ratio of debt to GDP over the medium term. Most of the special liquidity facilities have been phased out and the Fed ended its mortgage-backed securities purchase program without disrupting markets, while signaling continued low policy rates for an extended period.
IMF is saying here that continued targeted stimulus assistance will remain available in the short term, at least through the FY 2011 budget period. Because the FY budget shows acceptance of IMF-imposed deficit cutting measures. They plan to impose harsher measures in the long term to bring the deficit down to 3% of GDP (from it’s current 90-something percent). Remember that the taxpayer bailout of the nation’s financial system was accomplished with borrowed money (deficit), not with the future tax revenues of our great-grandchildren, which was just the collateral. Note that the report makes the separation between ‘short term’ and ‘long term’ plans based on the Fed ending its mortgage-backed securities purchase program. You can bet your bippy Bernanke didn’t begin or end that program on any politician’s orders.
More from IMF:
Progress has been made in addressing long-term challenges. The health care reform widens coverage and introduces cost-containment measures, and seeks to reduce near-term deficits as well as the long-term fiscal gap. The financial regulation reform, which is broadly consistent with proposals in the IMF’s Financial Stability Assessment Program, includes a broadening of the regulatory perimeter to all systemic institutions and markets, a new council of regulators to improve systemic risk detection and resolution, tighter prudential regulation parameters, and stronger resolution mechanisms for nonbank financial institutions.
Ah, good old “health care reform.” Something they argued about endlessly in Kabuki Congress over nearly a year, but already predestined to come about in precisely its current form because it’s part of IMF’s deficit-reduction ‘adjustments’ to our nation’s economy. So also is the financial reform package dutifully passed in acceptable (to IMF) form. Now, IMF is entirely cognizant of what could happen if the health insurance reform we got turns out not to control health care costs sufficiently in the long run. And has left itself room to tweak things:
Directors welcomed the health care reform, including enhanced coverage and measures to control costs, the key long-term fiscal risk. However, with payoffs highly uncertain, close monitoring of costs and remedial actions, if needed, will be essential. Further action is also necessary on Social Security, where needed measures are well known and payoff more certain.
I just can’t wait for those “remedial actions,” can you? [grumble, grumble]. All told, “the Directors” of IMF expressed confidence that, “the Federal Reserve [is] well placed to manage the monetary exit given its expanded toolkit. The Fed has credibly communicated its commitment to sustaining accommodative monetary conditions while preparing for exit. Continued clear communication is essential as the exit evolves.” They like Bernanke just fine.
But then, Ben Bernanke, in addition to being the Chairman of the Federal Reserve during this economically troubled time, also happens to be the Alternate Governor for the United States of the International Monetary Fund. Luckily, he’s getting a lot of help managing the meltdown of the U.S. economy from the Secretary of the Treasury. You know, the Administration department head who crafts things like budgets and monetary policy. Obama didn’t have much choice in that appointment either, so we got (Republican) Timothy Geithner. Who, it just so happens, is primary Governor for the United States of the International Monetary Fund.
I hope nobody’s surprised.
What I’m trying to say is that as things are in reality at present, our politicians really don’t have much control over things like the availability of credit, the conditions on Main Street, the outrageous unemployment rate, or anything else directly related to the actual financial situation of the United States. We are at the mercy of IMF/WB, and no matter what kind of silly street theater any of our politicians stage for our diversion and amusement, they must (and will) dance to their masters’ tune. We are not their masters. We’re just the voters, and in reality it doesn’t much matter who’s king for a day (who’s in charge). So while the Republicans can play to their ‘Bagger base as a ‘united bloc’ obstructionists with a vengeance, any IMF-determined “necessary” legislation addressing the economy and any austerity measures – and this relates most importantly to what will come of Social Security and Medicare – they decide to impose will always get enough votes to pass. This helps to explain some mysterious last minute position-switching that has pundits scratching their heads on a regular basis.
Post Script: Here’s a few related links to interesting information about what the IMF is concurrently doing in the rest of the world. We’re just the base currency nation as well as the instigator of the collapse. There’s Big Trouble elsewhere too, and I want to make it very clear that those notorious “austerity measures” IMF was long believed to impose only on third world debtor states like Haiti (et al.) can and are at the present time being imposed upon the first world and top IMF member states…
IMF warns euro zone against austerity side effects
IMF tells Japanese government to raise consumption tax despite election defeat
IMF changing its mantra?
[Bretton Woods Project, 4/15/10]