Sunday, November 08, 2009

A Regular Nostradamus

Bernanke on the unemployment rate earlier this year:

Currently, we don’t think it will get to 10 percent. Our current number is somewhere in the 9s.

Last week it came in over 10%, a new multi-decade high, with most credible observers saying it will head at least a bit higher before topping out. Add it to the long list of bad predictions by Bernanke, just some of which I pointed out near the end of this article.

Look, these screw-ups might be more comical than scary, except 1) the Fed is currently engaged in the largest monetary experiment in history, 2) monetary policy by nature depends on forecasts, making predictive ability an essential part of the job description for any Fed chairman, and 3) businesses and individuals rely on the Fed's economic outlook when making strategic and investment decisions, as do federal/state/local governments planning fiscal and other policies. At this point there are only two possible explanations. Either Bernanke's economic models are flawed to the point of uselessness or he simply says whatever is expedient, politically or for the financial markets, on any given day. Based on his history, I think it's both. And Obama wants to saddle the country with this guy for another four years.


Anonymous Anonymous said...

Re (3) this is one reason budgets at various govt levels are in shambles. The "best" forecasts are more and more unreliable.

11/09/2009 11:04 AM  
Anonymous Anonymous said...

Budgets are in shambles due to politicians promising the moon and stars, not inaccurate estimates from the FED.

11/09/2009 1:06 PM  
Anonymous Pete said...

Obama doesn't have a clue. Why should he? He studied economics in the most depressed areas of America-the slums of Chicago.

11/09/2009 6:46 PM  
Anonymous judyo said...

Obama's economics did not bring us to this point. Since much of America is beginning to look like the slums of Chicago (and many of its citizens are beginning to act like slum dwellers), that background at least has familiarity with "the street" - like in the mean streets - not the lofty enclaves & gated communities.

11/09/2009 8:48 PM  
Anonymous KAIMU said...


In my studies of this private banking cartel known as the US FED I came across some very interesting and transparent admissions from the Greenspan Reign in 2003 at the US FED. Here are a few:

From October 2003 FOMC Meeting Minutes transcripts ...

These FOMC Meeting Minutes (transcripts) reflect the instability of the underlying money. The FOMC is stuck in a quagmire of forever “sampling” and “polling” and “modeling” and in the end it all boils down to just plain “guessing”! Models are utilized at the US FED in order to “forecast” a trend or an event. Doesn’t their track record speak volumes as to their success? If they were experts would America and the US Dollar be broke now? Would banks and businesses be failing and the unemployed be rampant?

In the end there are 19 egos at every FOMC Meeting trying to be heard and trying to be “right” more than the next guy, but in Greenspan’s own words he says this:

"What I’m arguing against is the capacity of the members of this Committee to have a similar view on all of the goals. We really can’t achieve that sort of unanimity—a majority determines it—because each individual member has to be free to make a final judgment on the basis of whatever conceptual framework he or she has with respect to the economy. If we all had the same conceptual framework, I will acknowledge that the proposition you are arguing would enhance our transparency. But frankly, knowing all the members of this Committee, I think we’d have trouble getting a philosophical agreement among all nineteen people on how the economy works to the degree that is required to formulate monetary policy. I’d say that would be very difficult." END

I doubt much has changed at all during the Bernanke reign in that regards, since both Bernanke and Geithner served under Greenspan. In true US FED tradition, the tradition of a MONEY MONOPOLY, egos abound at the US FED as they do in DC.

The “human condition” prevails every time those larger than life egos are at stake. I see that in how the FOMC members kowtow to Greenspan and defer to the Chairmanship dating back to Arthur Burns reign.

The propensity for every human being who has unlimited spending power is to SPEND. The propensity of every human being who has unlimited war powers is to war. The propensity of every human being who has ever wielded supreme political or monetary power is to use that power. Even GANDHI wielded his power did he not?

We have a monetary system based on the “human condition” backed by the infinite printing press of US Dollar hegemony. Perhaps it is time to consider taking the “human condition” factor out of our monetary system where unlimited spending and debt accumulation is governed not by “ego derivatives” but by tangible assets, real capital, not paper IOUs that are irredeemable.

11/10/2009 3:53 AM  
Anonymous KAIMU said...



The FOMC meeting for January 28-29, 2003 had a lively discussion about risk aversion and how US FED fund rate modeling should be moving more towards “risk neutral” to optimize efficiency in terms of market stress or shocks to policy.
Here is what Alan Greenspan said about this topic on page 24.

"GREENSPAN: I used to trade copper, gold, silver, and other commodities on the commodity exchange ring. I would sit there with full confidence that the price of a particular commodity was going to go up and that, therefore, as the price went down I should be doubling up on my position. What did I do? I sold at the end of the day, largely because I wanted to sleep that night. [Laughter] That may seem like an idiosyncratic event. It isn’t. That’s the way we behave. It strikes me that if we find ways to move away from risk aversion and try to be strictly risk neutral, we will get a far more optimal policy outcome. I’m not sure we can do that, but we ought to try." END

11/10/2009 3:59 AM  
Anonymous KAIMU said...


Welcome to the NEW DEBT of 2003! SECURITIZED FOR YOUR PROTECTION! Not a clue as to the future risk of ABS and MBS or even CMBS ...



MS. BIES. I have a question on page 3 also, on the bottom chart showing a decline in U.S. corporate debt issuance. Do those figures also include obligations involving funds raised by corporations through securitization, or is that just straight corporate debt?

MS. KOS. I believe it is straight corporate debt. I would have to check on that, but I don’t believe it would include Ford ABS, for example.

MS. BIES. Well, that’s what I was wondering. Back to your risk aversion—to the extent that corporate debt has gotten very expensive to issue, some companies are substituting commercial mortgage-backed securities, collateralized debt obligations, and those types of things in lieu of straight corporate debt.

MR. KOS. Yes, some clearly have. That was especially true in the fall, when a lot of corporations could not issue straight debt, and they went that route because it was still available to them.

VICE CHAIRMAN MCDONOUGH. We ought to amplify the charts to show that.

CHAIRMAN GREENSPAN. Yes, I think that’s right. If it included securitization, those data, which are included in the sources and uses of funds, would have to show a huge sale of securities. They don’t show that, which suggests that it is a different set of data. END

11/10/2009 4:08 AM  
Anonymous KAIMU said...


Here is a hint on Greenspan’s true feelings about FOMC press releases that came at the very end of the meeting. Notice how their objectives are to be “vague enough”!

CHAIRMAN GREENSPAN. The press statement that we scribbled out is perhaps slightly more optimistic than was the tone of the Committee’s discussion, but it fits pretty well the forecasts that the individual Bank presidents and Board members have submitted. I think what we’re confronted with is what we were discussing yesterday. There is a sense of risk aversion here. That is, if we have a risk neutral evaluation in this type of environment, we tend to be more concerned about the downside. Anyway, take a look at the draft of the press statement. I think we’ve got it as close as we can get. My preference would have been to issue no statement, but we can’t retreat from our practice.

MR. STERN. Not issuing a statement would attract a lot of attention.


VICE CHAIRMAN MCDONOUGH. A lot more attention than the statement would.

MR. GRAMLICH. As a bear, let me say that this middle paragraph is vague enough that it’s fine.

VICE CHAIRMAN MCDONOUGH. Perfect draftsmanship.

CHAIRMAN GREENSPAN. Any questions? If not, we will go with it. I forgot to mention earlier that for those of you who’d like to change your forecasts, please give the revised forecasts to Dave Stockton by the close of business this Friday. The meeting is adjourned. We will reconvene on March 18, if not before. END

Just a note here ...

While Greenspan and the FOMC gang were perfecting "vagueness" the very next day after they reconvened the IRAQ WAR began on March 19, 2003, in what the US PENTAGON dubbed "SHOCK & AWE"!

After six years now and a a new President the old PENTAGON moniker of SHOCK & AWE has taken on a whole new TRILLION DOLLAR meaning!

11/10/2009 4:16 AM  
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Anonymous Chad said...

@ Kaimu
That was annoying.

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