‘What a Way to Run a Country’

Clive Crook wrote an interesting piece in FT recently on how the States are facing real challenges in meeting fiscal constraints while Washington – both the Congress and the Executive – ‘fiddles’. He wondered, in conclusion, if it was the right way to run a country. The article is worth a read. Close on the heels of that piece comes this one at Free Exchange. The blogger observes that this was no way to run a country. That makes it two of them. 

Then, as part of his daily Breakfast serving, David Rosenberg of Gluskin Sheff notes that:

The United States is a 236-year old country, and almost 40% of the entire public sector debt has been built up by the current Administration in barely more than two years. The United States has a monetary base of $2.06 trillion, and nearly 60% of that has been created since Helicopter Ben took over the cockpit in early 2006. A 236 year-old country, and well over half of the stock of money has been created in just the past half-decade. Remarkable. [The full stuff is here. But, it might need you to subscribe. For now, it is free]

In recent testimonies and public statements, Mr. Bernanke has refused to take any responsibility for the spike in global commodities prices. I was pleasantly surprised to note that the Wall Street Journal is not impressed with that abdication of responsibility:

Asked about all this at a recent House hearing, Fed Chairman Ben Bernanke said QE2 is a success because stock prices are rising. He blamed the increase in commodity prices on other things, such as growing world demand and the weather. Mr. Bernanke holds himself accountable only for the asset price increases that are popular.

If that answer sounds familiar, it is because Mr. Bernanke said the same thing in 2003 and 2004 when the Fed last fretted about deflation. Then the Fed also maintained a policy of negative real interest rates for years and blamed asset price spikes on everyone else. Once again the Fed seems to have worried about deflation long after the threat had passed and even as price pressures from its easier policy were preparing to build. Let’s hope it turns out better than it did the last time. [Full edit here]

Thanks to good friend Srinivas Thiruvadanthai at Levy Forecasting, I was alerted to this useful speech by the President of the Federal Reserve Bank of Kansas City. It is good to know that it is not just outsiders/arm-chair critics who are displeased with the progress (or, the lack of it) on financial sector reform in the US. The speech is short and worth reading.

We have a government and the Congress that are cooking up irresponsible and short-term focused fiscal policy that does nothing to address fundamental issues, a Central Bank governor who thinks that successful monetary policy is all about creating and fostering asset bubbles and all three of them that combine to do nothing on an all-powerful financial sector. Indeed, this country deserves a AAA credit rating and a stock market that trades at 24 times cyclically adjusted earnings.

[p.s: Talking of the power of the financial sector, the pressure being brought to bear on Philipp Hildebrand of the Swiss National Bank to resign made for sad reading]


Originally published at The Gold Standard and reproduced here with permission.

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