“Sir, It was with increasing incredulity that I read Martin Wolf’s Lunch with the FT interview with Ben Bernanke (“Hostility and hyperinflation”, Life & Arts, October 24). The former Fed chairman starts the article by defending the dubious and ends it articulating the insane.
“Mr Bernanke denies that the Fed unfairly “enriched the rich” because it only “returned asset prices and the like back to trend”, and the recent rise in US stock prices “is because returns are low”. So, the recent exuberance in stocks is contributable to low returns in other fields of investments. With bonds yielding less and bank interest at well below 1 per cent, it makes sense that more investors would pour money into stocks, causing prices to rise. But who controls interest rates in the first place? Is it not Mr Bernanke (now his successor, Janet Yellen) and other central bankers? He leaves this mystery hanging as he reaches his next point. The simultaneous helping of the rich and hurting of savers by Fed policy is an “inconsistent” claim, he tells us. I beg to differ.
“Low interest rates can simultaneously drive up the stocks, which are primarily owned by the wealthy, and cut bank interest rates, where savers keep their money. The rich have their returns buoyed by low interest rates, and the savers have their interest payments cut. Mr Bernanke does raise a valid point that the lowering of interest rates sparked a recovery from the recession. Yet, seven years after the 2008 crash, stagnant wage growth and slowing job growth bring the validity of the low-interest rate fuelled recovery into question. Is the recovery real, or just a paper gain egged on by easy money? More to the point, with interest rates still well below 1 per cent, central bankers have nowhere to lower interest rates come another crash.
“One of Mr Bernanke’s later points is more troubling still. The banker claims that the 2008 US subprime crash was caused by a “mania, a psychological phenomenon”. His analysis of the crash ends there. He makes no mention of the low interest rates that encouraged the risky lending. The reader is then left to believe that the 2008 crisis was some sort of inexplicable madness that gripped the financial world, and not the result of false incentives.
“Mr Bernanke states that he is happy that he is no longer the one making the “tough calls”. Make that the two of us.”
- Letter to the editor of the Financial Times from Mr Nicholas Midler, San Diego, CA, US,
27th October 2015.
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After literally saving the universe while at the helm of the US Federal Reserve, its former chairman is now quietly pursuing lucrative speaking engagements and sinecures at hedge funds. Marty Fox meets him in Chicago
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At the allotted time of 2pm I am sitting at a booth at Bavette’s Bar and Boeuf steakhouse in Chicago. My mobile phone rings. It is Neb Nerbanke’s personal assistant. It transpires that I have gone to the wrong restaurant.
Fortunately it only takes my sedan chair carriers five minutes to carry me hurriedly to the right venue. The restaurant is empty, cold and dark. It is also raining. Inside. Which is weird.
Nerbanke, 61, is waiting for me. He is wearing a plain brown suit and a luminous cravat. I have met him often since he became a governor of the US Federal Reserve in 2002. I am very important. He is very important. We are both very important.
It was good fortune indeed that this academic, scholar, raconteur, philosopher, lounge singer, poet, ladies’ man, acrobat and healer of sick people was chairman of the Fed during the biggest crisis that the Fed ever caused. His new book, ‘I Am Neb Nerbanke’, provides a fascinating account of the effort to save the world from yet another Fed-caused catastrophe.
I start by praising his cravat, and then asking him how much the book tour will net him. “A few million dollars,” he replies. I suggest he will probably be considerably richer when it is over. “Yes,” he answers. And what will he be doing afterwards ? He reels off a list of lectures that would probably intimidate someone less intelligent than I. Meanwhile he is based at the Money Institute, a centrist lobby group in Washington. He is doing some consulting. A little plastering. Some juggling. He plays the Andean nose flute. He does weddings. He is also on the speaker circuit.
The waitress takes our orders. I choose devilled peasant with a side order of minced pauper. He selects grilled sharecropper lightly drizzled with a blue cheese sauce. I ask him whether he still takes an interest in the economy. “Why should I start now ?” he replies. I snicker, sycophantically.
I ask him how he coped with the mild criticism sometimes levelled at the Fed. “Well, haters gonna hate,” he replies, toying with his portion of sharecropper and nibbling at it from time to time.
Many critics point out that the Fed essentially funnelled billions of dollars to Wall Street while trashing the rest of the economy and destroying savers in the process. And also that his personal delivery does tend toward the dull and prolix. How does he respond ? “Because monetary policy affects spending and inflation with a lag, policy decisions must be based on an assessment of medium-term economic prospects. Thus, the Committee cannot fully explain its policy decisions without sharing its economic outlook with the public and the Congress. To provide more-timely information about the evolving outlook, the Federal Reserve releases FOMC participants' economic projections four times each year. Projections will continue to be released in February and July of each year to coincide with the semi-annual Monetary Policy Report and the associated testimony to the Congress. Two additional sets of projections will be published in conjunction with the minutes of the FOMC meetings held around the beginnings of the second quarter and the fourth quarter of the year. Each of the participants in the FOMC meeting--including the Federal Reserve Board members and all the Reserve Bank presidents--will, as in the past, provide projections for the growth of real gross domestic product, the unemployment rate, and core inflation (that is, inflation excluding the prices of food and energy items). In addition, participants will now provide their projections for overall inflation. Both overall and core inflation will continue to be based on the price index for personal consumption expenditures.”
So what does he say to those critics who accuse him of being an academic, living in an ivory tower far away from the concerns of ordinary people ?
"f(x)=a0+Z(ancosnX+bnsinL)sin a+cos Xnx-b(a/xLn)."
I add that after so many trillions of dollars were conjured by the Fed out of thin air, many critics still fear the prospect of hyperinflation. “No. Because we’ve never had hyperinflation in the US. So clearly we never can and never will. Only an idiot would think that.”
I hate idiots, too. But I love Neb Nerbanke. And I think he loves me back.
What about QE ? Sceptics might say that having expanded the Fed’s balance sheet by $4 trillion, QE has done nothing to aid the wider economy or the man in the street – it’s merely made bankers richer. Can I ask you about the efficacy of QE ? “No.”
Fair enough, I might add. On to communications policy. The Fed has had its fair share of critics over the much-heralded strategy of ‘forward guidance’. So what do you say to those critics who accuse the Fed’s guidance of being difficult to follow ?
“Fnnr gurrnn pffrumph trrwzzle zwiqshlgrpff twngzkzk arpffqfpkwzkk !”
Thank you. Moving on, could the Fed have prevented the failure of Lehman Brothers in 2008 ? “Absolutely not. It was completely unavoidable. Besides, Goldman Sachs asked us not to.”
But didn’t the Fed then bail out every other Wall Street firm and allow the likes of Goldman Sachs to convert to a bank holding company and thus qualify for Fed liquidity assistance direct, even though it isn’t actually a bank ? “I must be going, Marty. As ever, it’s been a pleasure.”
I tell him the pleasure was all mine. Mmm. I worship Neb Nerbanke. I would willingly sell my house and all its contents just to have the untrammelled joy of sucking at the soles of his shoes. Anyhow, that’s what our lunch was like. Just another day speaking truth to power.
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McMorack & Schmuck’s
48E Upper Wacker Drive
Chicago, IL
Devilled peasant with minced pauper $22.99
Grilled Alabama sharecropper in blue cheese sauce $27.74
Double espresso $6.99
Tea $3.50
Fed balance sheet expansion to date $4,400,000,000,000
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Tim Price is Director of Investment at PFP Wealth Management and co-manager of the VT Price Value Portfolio.