Stephen Roach: The case against Bernanke

Submitted by Edward Harrison of Credit Writedowns.

While most economists have come out in favor of Barack Obama’s decision to re-appoint Ben Bernanke as Chairman of the Federal Reserve Board, Stephen Roach has penned an Op-Ed in today’s Financial Times which highlights the case against Bernanke. It is must reading.

Roach has three main points.

  1. Before the Lehman bankruptcy, Bernanke was an adherent of the Greenspan-professed doctrine to “clean up after bubbles.”  This is what others have called “The Greenspan Put,” otherwise known as an asymmetric monetary policy response – what I would term “lax during the bubble, and loose after it.” Clearly, this doctrine was responsible for much of the carnage.
  2. Bernanke was also a proponent of the “Asian Savings Glut” theory which puts much of the blame for global imbalances at Asia’s doorstep and exonerates over-consumption by American citizens for a credit crisis which began in America.  I have called this the Blame Asia meme. While there may be excess savings, it is disingenuous to blame Asia for problems created in the United States.
  3. Bernanke, like Greenspan, is an ultra-free market Libertarian who believes markets always are better informed than regulators.  This takes libertarian views to an extreme which I have dubbed “Deregulation as Crony Capitalism.” I see a more nuanced belief in free markets as more appropriate.

But Roach goes on to opine that Obama, with his early decision to re-appoint Bernanke, is signalling he believes the credit crisis has ended, a calculation that Roach believes may be hasty.

Notwithstanding these mistakes, Mr Obama may be premature in giving Mr Bernanke credit for the great cure. No one knows for certain as to whether the Fed’s strategy will ultimately be successful. The worst of the US recession appears to have been arrested for now – a fairly typical, but temporary, outgrowth of the time-honored inventory cycle. But the sustainability of any post-bubble recovery is always dubious. Just ask Japan 20 years after the bursting of its bubbles.

While financial markets are giddy with hopes of economic revival – in part inspired by Mr Bernanke’s cheerleading at the Fed’s annual Jackson Hole gathering – there is still good reason to believe that the US recovery will be anaemic and fragile. US consumers are in the early stages of a multi-year retrenchment as they cut debt and rebuild retirement saving. The unusual breadth and synchronicity of the global recession will restrain US export demand from becoming a new growth engine.

It would be the height of folly to reward Mr Bernanke for the recovery that never stuck. Yet Mr Bernanke’s apparent reward is, unfortunately, typical of the snap judgments that guide Washington decision-making. In this same vein, it is hard to forget Mr Greenspan’s mission-accomplished speech in 2004 that claimed “our strategy of addressing the bubble’s consequences rather than the bubble itself has been successful”. Eager to declare the crisis over, the Obama verdict may be equally premature.

Roach makes a lot of points I have done over the past few months. Here’s my translation of what he is saying with links to previous articles covering this ground.

Much of the blame for this rests with Bernanke. As a result, Roach believes Bernanke should not be re-appointed:

Yes, he reacted strongly after the fact in taking actions to avoid the pitfalls highlighted by his own research. But he lacked the foresight and courage to resist the most reckless tendencies of the era of excess. The world needs central bankers who avoid problems, not those who specialise in post-crisis damage control. For that reason, alone, he should not be reappointed. Let the debate begin.

Please read his entire article here.  See other sample reactions here, here, and here

Obviously, I agree with Roach’s points as they echo many posts I have written.  Nevertheless, one has to ask, “what are the alternatives?” I am sure you know the other names up for consideration. And don’t tell me Volcker, Galbraith or Stiglitz.  That was never going to happen.

Update: I wouldn’t characterize Ben Bernanke as "cut from the same market libertarian cloth," as Roach does. I would suggest he has Libertarian leanings, but was probably the least inclined between himself, Paulson and Geithner to let Lehman fail.

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This entry was posted in Federal Reserve, Free markets and their discontents, Macroeconomic policy, Politics on by .

About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com

58 comments

  1. Ina Pickle

    As far as I'm concerned, Summers or Rubin at the helm is Ragnerok. I am no fan of Bernanke, he's just the lesser evil.

    This president is not going to fix the problems. If you want a "go along, get along" kind of status quo fest at the Fed, Bernanke is your guy.

    I'd love to see Galbraith at the Fed. I'd have liked to see his Dad even more. A quick look back at his book "the Culture of Contentment" shows that it is virtually a manual. It just isn't going to happen. Not with this freshman in charge.

  2. Hugh

    I don't see how "I didn't quite destroy the world financial system" could possibly be a recommendation but in our era of skewed and twisted measures, it clearly is.

    Saying that other more capable people, people who got it right about so much of what has happened, weren't even in consideration just underscores how screwed we are. We are not going to get out of this mess by leaving in place, and in a position of great power, one of its chief architects.

  3. Peripheral Visionary

    The "lesser evil" argument is a terrible one. It's like appointing the Sudan to head the Human Rights Committee, because the next option is North Korea. What, is nobody else under consideration?

    Obama should get zero credit for appointing Bernanke just because "Summers would be worse", when it's Obama who put Summers in the queue in the first place. This is a staringly obvious point that is being almost completely overlooked.

    Bernanke is not the worst person in the world to run the Fed. But, please, let's not give this administration credit for having chosen well when they have clearly rigged the outcome by excluding the best choices from consideration.

  4. Edward Harrison

    350, that was never going to happen either. What's that quote about failing conventionally?

    Here's a question for you, how would markets have reacted if Obama went with Stiglitz, say?

    You see my point? Unless you're bold and daring, you probably want to go with Bernanke. And Obama is not bold and daring.

  5. Teacher

    Monetary policy looks more and more like a shadow play: liquidity papering over the cracks in banks' balance sheets which is then sequestered as interest-bearing reserves. That's the essence of zombie banking. And today Bloomberg reported that Goldman's chief economist (Hazius?) envisions a redoubling of the Fed's balance sheet. Not a ringing endorsement of Bernanke's policy up to now, plus the promise of more of the same.

    It's a gratuitous insult of fault Bernanke for the uselessness of monetary gimmicks under the present circumstances. In isolation from fiscal stimulus they're not much use. On the other hand, he has given himself star billing as the provident guarantor of our future. A serious act of misrepresentation.

    As for Volcker, for those of us old enough to remember his tenure: his no-nonsense 'strict medicine' was resorted to because it dovetailed with the political winds of the time, no-mollicoddling-the-poor-and-working-class Reaganism. Well, the winds have changed. And at the end of the day, stagdeflation or whatever they'll call this shambles of permanent nothingness is close enough to the margins of the discomfort zone to avoid mobs in the streets. Yech.

  6. T.

    Most people, even when they don't agree, would say easy money or lax regulation caused the crisis. Bernanke would fix neither, so there's no reasonable justification for his reappointment. This administration takes playing it safe to a dangerous level.

    I agree Simon Johnson would be much, much better. The only consolation is that this reappointment ensures Bernanke will be more reviled than Greenspan before this is all over, and deservedly so.

  7. Carrick

    LINK:

    Bloomberg wins FOIA case against Fed, five days to turn over emergency lending records…

    http://www.bloomberg.com/apps/news?pid=20601170&sid=aw9SVqfmaiAU

    summary from thedailybest.com:
    The Federal Reserve must make public the companies taking part in its emergency lending program after losing a Freedom of Information Act lawsuit. The Fed has refused to disclose which firms are receiving money, saying doing so could cause bank runs and unsettle shareholders. Bloomberg LP sued for the information in November. On Monday, a Manhattan judge gave the Fed five days to turn over the documents. It's unclear whether the central bank will repeal the decision. "When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don't have the right to know," explained the editor-in-chief of Bloomberg News.

  8. "DoctoRx"

    Ed: I'd prefer anyone William Black would want! Or your choice, or Yves' . . .

    IMO Barack Obama was the hidden choice of the Establishment, though it could easily have lived with John McCain; Mr. Obama is repaying it well.

    The idea that at this time of crisis, the country would turn to a Presidential Messiah and now a financial one, each with no record of accomplishment, would once have sounded strange.

    Bernanke's early renomination signals to Big Finance to laissez les bon temps roulez encore after a brief timeout to pick up cheap inventory during a panic they caused and from which they have benefitted handily.

  9. Edward Harrison

    Carrick, I saw that and have a post up with the actual decision embedded as a PDF. Worth a read:

    http://www.creditwritedowns.com/2009/08/bloomberg-news-vs-fed-judgment-against-fed-attached.html

    Also, Ambrose Evans-Pritchard has an anti-Brnanke piece out that has merits:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6089383/The-troubling-side-of-Ben-Bernanke.html

    After I read it, I saw an FT article which said that Bernanke is going to reach out to his critics in Congress following his nomination. Then, it occurred to me that this certainly would put his July 'electioneering' in context.

    Pure politics.

  10. bob

    The FOIA lawsuit and the re-appointment are one in the same.

    Bernanke's biggest value to the banks is that he is covering for them.

    Reappointing him on the same day that the fed is notified that it has 5 days to turn over the information on the crap they have been collecting as collateral is just insurance.

    Now, Mr. Bernanke can go headlong into a fight with the courts knowing full well that there is nothing that anyone can do, at least for the next 4 years.

    That's how I see it paying out.

    No one connecting these two events, at least explicitly in the MSM, is further proof of either a complete lack of critical thinking, or a bunch of people on the take.

  11. bob

    Game plan for the future for Mr. Bernanke-

    Release 'details' of collateral agreements, but only a little bit of detail. I picture something that will make Hank's TARP bill look wordy.

    Sit back and over the course of the next 4 years and battle who ever in the MSM isn't part of one of the LBO's that are included in the garbage pail of collateral.

    I don't see GE, for instance, calling his bluff.

  12. bob

    Ed,

    If Bernanke were to go in front of congress in the future without being reappointed, and still without releasing the collateral agreements, there would be a massive show of 'force' by congress.

    As it is, they can't afford to call his bluff, they need his, I mean our, credit card.

    Agree on the debt point, I just find it worrying that this decision is clearly about reducing the power of the courts, and increasing the power of the unitary executive and the FED.

  13. Bob Goodwin

    The reason Burnache was reappoined was because this was the least bad option. All other options would have reopened the wound and called into question past actions. If I were Obama I would have swallowed hard and done the same. God help America.

  14. Oregon Guy

    Edward,

    Why cares how the "market" reacts? Long-term the market is a weighing machine. It will find fair value regardless of who is appointed Fed Chair.

    Bernancke is an awful choice. Summers would probably be worse. Obama is a gutless tool of FIRE economy chieftains.

    This move is fully expected, but disappointing nonetheless.

  15. bob

    The real way to health care reform

    Single payer system that includes all of the condoms you can carry each and every time you go to the doctor.

    Health care, it will get you laid.

  16. Rick

    I have this nagging feeling that the reason Bernanke is being kept around is for what happens next.

    We all sit around here screaming "the sky is falling". So it is. I wouldn't be too surprised if TPTB know that too. They probably have a plan for that day though. Let's just say that the patriot act wasn't written in a day.

    I think it's reasonable to assume that at some point there will be some type of disconnect/reset/default/jubilee event when that last straw finally breaks the camels back. What lies on the other side of that event horizon?

  17. Edwardo

    Making the case against Ben Bernanke, which Mr. Roach has done sufficiently, but by no means exhaustively, is child's play, about as difficult and taxing as out pointing Sarah Palin in debate.

    We are in the midst of a great cataclysm, and these stupefying characters who have made, and are making momentous decisions, have not so much addressed our fundamental problems, but simply delayed, at the average citizen's expense, the next and worst stage of our financial and economic decline.

    As has been pointed out, the U.S. consumer, who represents some 70% of the nation's economy has, pardon the phrase, left the building. He will not be returning in any kind of force. As such, green shoots are a chimera, The next wave of decline will involve more deflation of assets, but ultimately will result in a third world style repudiation/devaluation of our currency and debt markets. Much of this woeful outcome will be the result of the response of our monetary authorities, which feature Mr. Bernanke as the key figure.

    A bit of advice:

    You can not own enough PMs.

  18. bob

    And everyday they don't have to come clean on the money they don't have, they are earning on it.

    What are the deposit holders getting?

    PMs?

  19. skippy

    @ED,H..yep one big mushroom factory, they keep it simple and endlessly repeat their message and attach monolithic ideology's ie. one of us or your in-league with Byzantium beliefs.

    @Bob,…funny thing is, I was thinking the same yesterday (ideocracy), only we don't have to wait for it.

    Skippy…"When you kill a man it cost nothing to be nice." Winston Churchill.

  20. Rick

    Skippy, PM = precious metals. Gold & Silver. Also physical metal, as opposed to ETFs or paper metal.

  21. emca

    This has got to be a snark, right:
    "an FT article which said that Bernanke is going to reach out to his critics in Congress following his nomination"

    Bernanke also offered when he was appointed chairman the first time around, that he would run a more 'transparent' Fed. Guess as long as he determined what 'transparent' was, no problemo.

    Whatever misgivings one may have of Bernanke's reappointment, he fits the tide of the times, and more specifically, the outline of this (and past)administration. A true zeitgeist of inevitability, a Greenspan juggernaut. I would hope that Congress would hold his twinkly toes to the fire, before caving in and handing him keys to the store. Have to be careful not to blink, as you'll miss this event.

    On another note, I see that the Stimulus bonanza has started to revived the economy. As I sit back in my chair, I not feeling much government stimuli yet. something of the TLTS (To Little To Save) syndrome or maybe just a bad attitude because I don't like paying for someone else's irresponsibles.

    I'll shut-up and go back to reading "Obama's Martha Vacation" hijinks and other such entertaining 'news'.

  22. skippy

    @Rick,

    I must work on my delivery of sarcasm, public monies = SG/AIG etc.

    Yes PMs in the physical sense as I have done and under my watchful gaze, not others.

    Skippy…some still in the ground at that.

  23. depresso

    Nakedcapitalism and Stephen Roach are spreading LIES!
    Bernanke is NOT and never was "an ultra-free market Libertarian".
    Libertarians and proponents of free-markets believe in sound money, gold standard and want the Federal Reserve to be abolished.

    I am tired of all the libertarian-bashing and free-market-bashing. Bernanke is no more a Libertarian and free-market believer than Roach/Yves is a radical communist.

  24. Edward Harrison

    depresso,

    I happen to be a Libertarian myself albeit not as much a believer in the unadulterated form of the free markets espoused by some.

    How would you describe Bernanke?

    And do think we are spreading lies or giving opinion because it seems that it is obviously the latter?

    Edward (the writer of the post)

  25. roger

    It is strange to me to look at Japan's lost decade, when we have our own staring at us in the face. The 00s were characterized by the worst employment figures, month by month, of any decade since the forties, the worst income figures for the medium household since the thirties, and an amazingly flabby technology sector – that is, in terms of innovation. What is really different about 2009 from 2001 or 2000? Youtube? From 2000, 1990 looked positively primitive. One could go decade by decade looking at major techno changes – but not the "lets spend money on the Mcmansion" decade. Although I'm forgetting the innovation in the "financial industry" – so excellent! of such social benefit! Like, oh, the invention of three card monte.

    The Japanese slough is already here, and its been here since 2001.

  26. moslof

    A good article but I disagree with labeling Bernanke a Libertarian. Most Libertarians are for "sound money" in my view. Bernanke may well be our last Fed Chairman. The greatest cycle of real economic growth in history occurred in Hong Kong with no central bank.
    We need to try it here because the short sighted knee jerk policies of the Fed have needlessly distorted the natural swings of the business cycle since day one.

  27. Edward Harrison

    Here's a definition of Libertarianism that I agree with:

    Libertarianism is a term adopted by a broad spectrum[1] of political philosophies which advocate the maximization of individual liberty[2] and the minimization or even abolition of the state.[3][4] Libertarians embrace viewpoints across that spectrum, ranging from pro-property to anti-property, from minarchist to openly anarchist

    http://en.wikipedia.org/wiki/Libertarian

    The key thing that binds us Libertarians is a desire for individual liberty over power of the state. Otherwise, there are many different flavors.

  28. depresso

    If you use the proper definitions of terms, then you could call Bernanke a fascist (fascism is the merger of state and private interests).
    The vast majority of libertarians I know were highly critical of Greenspan, Bernanke and Fed's policies and predicted the inevitable crisis that would result form their activities. So, calling Bernanke a libertarian is an insult to them. A very high number of libertarians are proponents of sound money and gold standard or at least favor very strong restrictions on fiat money creation. That would be the opposite of what Bernanke and Greenspan did and are doing.

    I am not interested in what Bernanke supposedly or really says. I am interested in his actions. And his actions have nothing to do with libertarian principles, unless you happen to be a libertarian basher, liar or a simple ignorant.

  29. Edward Harrison

    Depresso, that's absolute rubbish. The seminal moment in Bernanke's tenure was his decision to let Lehman Brothers fail, a decision which was driven by free market thinking.

    Use silly terms like basher, liar and ignorant all you want, they are not in any way adding strength to your argument.

    Clearly Bernanke had 'libertarian sympathies' until the moment of truth post-Lehman.

  30. Edward Harrison

    This from Alan Blinder two years BEFORE the crisis:

    http://money.cnn.com/magazines/fortune/fortune_archive/2005/05/02/8258489/

    He's very driven on the inside, but comes across as a very calm personality–strong-minded, but not argumentative. Like Greenspan, he never raises his voice," said Princeton economist and former Clinton-appointed Fed vice chairman Alan Blinder. "I worked with him for years before I even knew he was a libertarian-leaning Republican."

    Again, I certainly don't agree with much of what Bernanke did as Fed chairman, but in policy circles he is considered to be a Libertarian.

  31. depresso

    I don't give a damn about the "policy circles". Bernanke is not and never was a libertarian and anyone who says otherwise is a liar or ignorant. Considering the ongoing statist campaign against libertarians, I believe that the former is more true than the latter.

    A person who is responsible for manipulating the interest rates and money supply, creating and popping bubbles, creating an alphabet soup of funny facilities, etc. can not be a libertarian by definition.
    It does not matter how much the liars and libertarian-bashers say that black is white, they will not change this simple fact. They can however influence the public perceptions and that is their real agenda, the real reason why they falsely blame the libertarians and free markets for this crisis.

    And, by the way, I also don't give a damn about you getting offended by "silly terms" like basher, liar, etc. The statist campaign is reaching gigantic proportions and I don't see a reason why I should restrain myself in the face of all this obnoxiousness coming from the "circles".

  32. Edward Harrison

    depresso, yours is not a well-reasoned argument. It's an entirely emotional response. And whether Bernanke is a Libertarian is irrelevant as it has nothing to do with whether he will be a good Fed chairman.

    You have your view. I have mine. Let's just leave it at that.

  33. Yves Smith

    depresso.

    Ad hominem attacks are against this blog's comment policy. If you want to disagree, that's fine, but abuse and name calling is not.

  34. bob

    "A person who is responsible for manipulating the interest rates and money supply, creating and popping bubbles, creating an alphabet soup of funny facilities, etc. can not be a libertarian by definition"

    Nonsense. If its yours why can't you manipulate it? That is the heart of libertarianism.

    Is it your assertion that I could not sell my gold for more (or less) than what it was going for in another market?

    Who enforces libertarianism? By your definition, they would not be libertarian.

    Its a word. An adjective. Hitler was libertarian compared to Stalin.

    What you seem to be advocating is anarchy.

    Where does this free market exist? Point to one example of it anywhere in the history of the world.

  35. Edward Harrison

    When it comes to Bernanke (and Greenspan), I think moslof has it right about the subversion of Libertarian ideas and makes criticism I can accept:

    "…I disagree with labeling Bernanke a Libertarian. Most Libertarians are for "sound money" in my view. …short sighted knee jerk policies of the Fed have needlessly distorted the natural swings of the business cycle since day one."

  36. depresso

    Yves, I consider calling Bernanke a Libertarian an ad hominem attack on all Libertarians.

    Bob said: Nonsense. If its yours why can't you manipulate it? That is the heart of libertarianism.

    Bob, that would be true if fed wasn't a state enforced monopoly. However, the Fed is a state enforced monopoly and thus is anti-libertarian.

    Yves, feel free to block my access and/or delete my comments. It is your blog and you have a right to do as you wish here (unless a "libertarian" makes it illegal). I admit that my comments are partially emotional. I am simply sick and tired of all the nonsense that is nowadays coming out from the mainstream and from blogs like nakedcapitalism (which I used to like…).

    Edward Harrison said: …I think moslof has it right…

    Interesting that you say this because before moslof said what you claim to agree with, I said: Libertarians and proponents of free-markets believe in sound money, gold standard and want the Federal Reserve to be abolished.

    Bernanke is NOT libertarian, never was, never will be.

  37. bob

    You seem to have a monopoly on the word libertarian, who can use it and how they can use it.

    That is anti-libertarian.

  38. depresso

    Very funny bob. Feel free to believe that a government monopoly is libertarian, up is down and black is white. As you can see on this blog, you will not be alone in your beliefs…

  39. attempter

    Ed quotes this definition of libertarian:

    Libertarianism is a term adopted by a broad spectrum[1] of political philosophies which advocate the maximization of individual liberty[2] and the minimization or even abolition of the state.[3][4] Libertarians embrace viewpoints across that spectrum, ranging from pro-property to anti-property, from minarchist to openly anarchist

    http://en.wikipedia.org/wiki/Libertarian

    1. Since the effective liberty of most people would be diminished if not completely destroyed as the "state" is diminished (not that many are capable of liberty either way), even in pure liberty terms this is already really might makes right, right of the stronger, and "libertarian" is simply a fancy, dishonest word to dress up that fact.

    Still, beyond the terminological dishonesty, might-makes-right in itself can be an internally consistent view.

    2. But where they bring "property" into it is where we know the whole thing is a scam. Property and wealth accumulation (let alone all the bells and whistles of banks and stock markets and so on) of course cannot exist at all without a strong, aggressive government aggressively dedicated to those things.

    It's absurd on its face to say "get rid of government" and yet say "I have property rights!"

    "Property" and "rights" – one has to be doubly an aggressive statist.

    So there's where we KNOW "libertarian" is just a stalking horse for the brutal, direct dictatorship of big corporations and the rich.

  40. Prashant

    I don't know about the definitions, but Bernanke, Greenspan and Co. are definitely no believers in Free markets.
    All said and done, it is just another variant of Crony Capitalism that is practised in the United States despite what it preaches to the rest of the world.

  41. skippy

    Law is the order of the land and its inception was to protect *property* from the mob (see the poor) by landed army's aka the Authoritarian system. We have evolved socially from feudal to monarchy to peoples forms of governance.

    Democracy is an attempt to equalize societal pressures with regards to concentration of wealth and power by the few over the many (see Rome).

    Now sorry for the 101, but what are we really debating here libertarian vs socialist vs free market vs ??????. I thought the Constitution said WE the people not some fence in the mind that has so many gray areas multiplied by the number individuals present in the republic at one time. Hence we all have different interpretations of definitions regardless of what wiped says.

    I fear Democracy is under the knife by forces which would concentrate power for their benefit and not that of the people as a hole. Call that what you may, but remember the club of I over US has ramifications and one should consider fully their impact.

    Hell lets all just get big stamps on our foreheads and call a spade, a spade and respond accordingly to their ideology with out interference.

    Communists can have one small room like all the others and rationing of all worldly goods.

    Socialists can have an egalitarian world, little bits of everything the good and the bad ie: nobody really happy or completely fulfilled ideologically.

    Free Marketeers can get screwed and screw over each other till one person owns it all, the hole planet.

    Every system of governance I have studied evolves and then devolves to a basic state of community if not over whelmed by another budding system of youthful expansionist exuberance.

    We are some where on that historical trajectory and need to sort out who we really are ie: a group of citizens ready to learn from our mistakes or a rowdy group of individuals ready to cut each others throats for our individualistic/ idealogical needs, especially when none can lay claim to fact, but merely see truth in own minds.

    Skippy…sorry just so sick of the crap: see extremism.

    PS. Have a good trip Ted K. you tried to do good things.

  42. Siggy

    Roach wrote a very good piece. Bit of a realty check. A hugge amount of pointless parsing of libertarian/socialist/fascist here.

    Why the reliance on democracy? We are a Constutionally Empowered Federal Republic! When we consistently mis-identify our political system as being a democracy, we erode the contract that was the great gift of our nations founders.

    What Roach has clearly pointed out is that the extension of Bernanke's term was a choice of lessor evils, the devil we know.

  43. Dave Raithel

    Ed Harrison and all re "Libertarian" and "Libertarianism" etc.: So how come John Rawls wouldn't be called "Libertarian", since his first principle of justice is (paraphrased): Each person is to have the broadest degree of liberty consistent with a like degree of liberty for each other person…

    Because he had no gold fetish, and was for redistribution (as needed to improve the circumstances of the representative least well-off person …)

    But all that is a mostly a digression from the main point of the argument: "The world needs central bankers who avoid problems…", which returns us to the whole foreknowledge problem I've lately been tasking myself about. Sure, but how much are you going to pay them? Has to be more than they can make in the private sector (with proper utility considerations for power and prestige.)

    Granted, there's some limiting point at which past choices preclude one from future participation. (Imagine Goerring or Borman genuinely confessing that the whole kill the Jews thing was a terrible policy – doesn't seem to work.) On the other hand, for all I know – since I don't live and work in Financelandia – Bernanke is rational, and he's gotten past the errors of his previous ways. Reality has been the experiment, and it just didn't work out as predicted.

    Or not. Here's an aspect of reality that persists as much as my extraordinary disappointment in Obamaman – somebody, somewhere, made money (and somebody lost some) because of how they speculated on who'd be running the Fed a year from now.

    Bernanke is, at worst, a symptom.

  44. attempter

    Dave says:

    Ed Harrison and all re "Libertarian" and "Libertarianism" etc.: So how come John Rawls wouldn't be called "Libertarian", since his first principle of justice is (paraphrased): Each person is to have the broadest degree of liberty consistent with a like degree of liberty for each other person…

    Because he had no gold fetish, and was for redistribution (as needed to improve the circumstances of the representative least well-off person …)

    Just yesterday I was flipping through an Ayn Rand tome and chuckled to see her referring to the rather innocuous (a word I'm not using as a compliment) Rawls as "evil" and "malevolent".

    Now I wonder what would inspire her to such a seemingly disproportionate response? Could it be that Rawls really does represent a kind of capitalistic liberty philosophy, exactly what she lyingly claimed to represent?

  45. Edward Harrison

    I have added this paragraph to the end of the post: Update: I wouldn't characterize Ben Bernanke as "cut from the same market libertarian cloth," as Roach does. I would suggest he has Libertarian leanings, but was probably the least inclined between himself, Paulson and Geithner to let Lehman fail.

    Another thought: as to whether Bernanke would be the best choice, I think this is largely a political calculation (do we go with an unknown and roil markets/do we change horses mid-stream). Obama plays it safe when it comes to these kinds of decisions. His Biden pick reflects this. It was unlikely he was going to select anyone other than Bernamke, Summers, or Yellen, Although one or two other names have come up.

  46. VangelV

    "Bernanke, like Greenspan, is an ultra-free market Libertarian who believes markets always are better informed than regulators…"

    So much for Roach's credibility. How can anyone who has the job of being a central planner and is arrogant enough to believe that the economy can be managed by pulling strings and pushing buttons be considered a 'libertarian?' It seems to me that those that favour meddling, as Roach seems to, do not blame the system of regulations that created the mess in the first place but the regulators for not doing enough meddling.

    If Bernanke were a true libertarian he would resign his position.

  47. Edward Harrison

    Vangel,

    I am pretty much sick and tired of people acting as if there is some absolute to being a Libertarian. It's utter rubbish.

    I think you have a fairly narrow view of what it means to be Libertarian. In an ideal world, many believe the central bank shouldn't even exist. But Roach is NOT talking solely about monetary policy when he uses the word Libertarian, he's referring to Bernanke's belief in market forces in the financial sector a.k.a. de-regulation.

    When I refer to the word Libertarian I mean to invoke the concept of liberty in a general sense. This would a believe in individual freedom, free markets, civil liberties, and so forth.

    For instance, the Libertarian Party platform mentions all of these things but nowhere does it explicity state that it wishes to abolish the Federal Reserve, though it does call for the repeal of income taxes. The party does abhor "inflationary monetary policies" and calls for a repeal of legal tender laws.

    Being a Libertarian or having Libertarian leanings is not just about monetary policy.

    One final word: anyone who is foolish enough to believe that self-regulation in finance works – that allowing an economic ecosystem to flourish without the government enforcing law and acceptable codes of behavior – is either an anarchist or not particularly realistic.

  48. VangelV

    I am pretty much sick and tired of people acting as if there is some absolute to being a Libertarian. It’s utter rubbish.

    And I am pretty much sick and tired of people who call for greater state interference in the markets calling themselves Libertarians.

    I think you have a fairly narrow view of what it means to be Libertarian.

    It is a narrow view so there is no need for confusion on your part. Libertarians promote liberty and oppose statism. If you promote serfdom, regulation and central planning you can call yourself a libertarian but it won’t make you one.

    In an ideal world, many believe the central bank shouldn’t even exist.

    You cannot have economic freedom when a bank is given the power to dilute the purchasing power your savings by printing money. That is why libertarians oppose banking cartels such as the Federal Reserve System.

    But Roach is NOT talking solely about monetary policy when he uses the word Libertarian, he’s referring to Bernanke’s belief in market forces in the financial sector a.k.a. de-regulation.

    There is no evidence that Bernanke believes in, ‘market forces in the financial sector,’ because he is part of a group that determines monetary policy that effects the financial sector. His actions and writing show that he is a strong believer of regulation and government.

    When I refer to the word Libertarian I mean to invoke the concept of liberty in a general sense. This would a believe in individual freedom, free markets, civil liberties, and so forth.

    But Bernanke does not actually believe in individual freedom or free markets because he is part of an organization that manipulates the supply of money and credit, and by doing so influences economic activity.

    For instance, the Libertarian Party platform mentions all of these things but nowhere does it explicity state that it wishes to abolish the Federal Reserve, though it does call for the repeal of income taxes. The party does abhor “inflationary monetary policies” and calls for a repeal of legal tender laws.

    As I wrote before, you can’t have economic liberty and liberty in general when you have a banking cartel like the Federal Reserve System. That is why libertarians oppose central banking.

    Being a Libertarian or having Libertarian leanings is not just about monetary policy.

    I agree. But you can’t be a true libertarian if you believe that a secretive group of politically connected men should be permitted to print money out of thin air and transfer wealth from savers to governments, borrowers, and bankers.

    One final word: anyone who is foolish enough to believe that self-regulation in finance works – that allowing an economic ecosystem to flourish without the government enforcing law and acceptable codes of behavior – is either an anarchist or not particularly realistic.

    First, we already have regulations against fraud so getting rid of the mountain of specialized regulations will not allow financial companies to rip off customers any more than the current regime. Second, getting rid of the regulations would remove the cover that they provide for the financial sectors. Depositors and customers would have to be weary and would do their homework rather than assume that regulators will keep the industry honest. Do you really believe that Madoff would have been able to pull off his scam in a world where there were no regulators that he could point to and say that his books were audited and reviewed? Do you really believe that in an unregulated environment we would see an insurance company guarantee a trillion dollars of mortgage paper?

    I think that you and those that think that government is necessary to keep order need to take a look at this (http://www.peterleeson.com/An-arrgh-chy.pdf) paper. Or read Anarchy and the Law (http://www.amazon.com/Anarchy-Law-Stringham-Edward-P/dp/B001DDAA5I/ref=sr_1_3?ie=UTF8&s=books&qid=1251686276&sr=1-3), The Machinery of Freedom (http://www.amazon.com/Machinery-Freedom-Guide-Radical-Capitalism/dp/0812690699/ref=pd_sim_b_2), The Voluntary City: Choice, Community, and Civil Society (http://www.amazon.com/Voluntary-City-Community-Economics-Cognition/dp/0472112406/ref=pd_sim_b_2), or The Ethics of Liberty (http://www.amazon.com/Ethics-Liberty-Murray-N-Rothbard/dp/0814775594/ref=pd_sim_b_1). It is quite clear that we do not need government regulations to create order. All we need, if that, is to have government stick to protecting individuals from the initiation of force and fraud. Anything more just gets in the way and makes things worse.

  49. bob

    “Depositors and customers would have to be weary and would do their homework rather than assume that regulators will keep the industry honest. Do you really believe that Madoff would have been able to pull off his scam in a world where there were no regulators that he could point to and say that his books were audited and reviewed”

    You just “proved” your point. Madoff was a ‘private equity’ group. All of the participants were on their own, then and now, libertarian to the core. Look where it got them. The only people claiming there was regulation are the people who got scammed and are now looking for their money back.

    Before you step into an argument you are clearly not capable of winning, why not read the original post, and then the comments after it.

    “All we need, if that, is to have government stick to protecting individuals from the initiation of force and fraud. ”

    Where is the line? Who determines the line? Who enforces the line? That is called government. If you don’t want any, why do you insert yourself into discussion about how to run it?

    Go find a congress person to annoy.

  50. K Ackermann

    Economic freedom, at some point, is incompatible with society. It’s been shown over and over. Wealth begets wealth, and it will take advantage wherever it can.

    When it does, someone will rise up and offer to lead the people to greener pastures. Then all the problems start over again.

    All the smart countries throughout the ages have made sure there is a strong social safety net. Without it, society will stratify, and in the absence of an oppressive regime, it will command power.

    The masters of the universe either have to spend a lot of money and energy keeping their boots on the necks of the masses, or they can provide the social safety nets.

    Why Libertarians can’t get their head around that basic fact is beyond me.

    Libertarians in their groupthink and old books from dead economists work up an elaborate set of rules and exceptions when striving for consistency. Soon, their rules actually crowd out the very thing they strive for – liberty.

    The free market is a means of commerce, it is not a way of society. The only thing that matters in society is happiness and health.

    Virtually all the great things that made this country great originated with the government, not the free market. The free market never started a space program, which gave us weather satellites and whatnot. What is the impact of weather satellites and GPS on society? Huge. Saves lives, and greatly improves efficiency.

    What company was going to dig the Panama canal?

    How about all the basic research for drugs?

    The Internet? Electricity to money-losing remote places?

    We don’t live in a vacuum. The fact is, I have to smell your garbage, sit on the jury during your trial, educate your children even if you do not want to, pull over for your ambulance after your heart attack, and put out your house fire because you didn’t install smoke alarms, and it is next to my house. Your house fire also made my insurance premium go up.

    And you don’t want me to have any say in how you function within society. Until your footprint is zero, then I reject your assertion.

    You bet your ass you owe me taxes, and I you. We can’t escape each other. That’s why I also offered you my couch after your fire.

  51. Skippy

    Well put K Ackermman,

    The government is an extension of us all, its reduction is our own. Now does it need a clean up_yes_from the influence of the few back to the many. Husbandry of the citizens must be improved to the benefit of all.

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