In the context I am using,the word “pobrecito” would translate “poor little guy” and “diablito” would mean” little devil”. The Washington Post article of Eugene Robinson from ten days ago would have us feel sorry for Bernanke because he is a lone hero fighting to save America while so many are attacking him. Micheal Rozeff in his recent article, in LewRockwell.Com, views Barnanke as being more akin to the devil incarnate Reading Robinson’s article should piss you off. Reading Rozeff’s article should scare the hell out of you. Whose view is correct? Is either view correct? Let me share some highlights from each article and then I’ll give you my layman’s two cents worth of opinion.
First Robinson’s point of view. here is his opening volley:
Ben Bernanke may or may not succeed in saving the economy, but at least he has the courage to try – and the honesty to tell the truth. The same cannot be said of our elected officials. Congress is buried under a crushing surplus of cynicism, while the White House seems paralyzed by a deficit of courage.
The poor little guy. Barnanke is th Lone Ranger trying to save the country and nobody wants to help. Robinson continues with this:
An expert on the Great Depression, Bernanke is determined not to be the Federal Reserve chairman who allows the nation to plummet into Great Depression II. Since our political leaders can’t be bothered to do what urgently needs to be done – stimulate the fragile economy before it sputters out – Bernanke is using a rare bit of legerdemain called “quantitative easing” to pump $600 billion into the financial system. ( emphasis is mine)
Stimulus has done such a wonderful job so far, let’s do it again. These people are consistent, aren’t they? Robinson goes on to talk at length about the recent interview that Barnanke did with “60 Minutes” where he tried to defend the FED’s actions. Robinson has this to say:
All this ought to be obvious on Capitol Hill and at the White House. But Republicans are obsessed with defending the interests of the rich and shrinking the federal government to the point where it can’t do much of anything. Democrats are determined to champion the interests of the middle class and use government as an instrument of fairness and justice. Both parties seem prepared to endure two years of gridlock and posturing until the 2012 election.
Considering past performance, I’m not sure grid-lock is such a bad thing. But Robinson saved his best comment for last:
After last month’s election, Republicans are in a mood to strut and Democrats in a mood to fret. But one official in Washington, at least, is focused on using all the powers of his office to try to make the economy grow and put Americans back to work. Someday, I’m convinced, a grateful nation will say: “Thankee, Bernanke.”
Yes. I can see myself saying that, can’t you?
Okay. We’ve heard about poor little Barnanke from the left. Now let’s hear what Rozeff has to say from the right. The title of his article is “The Fed Vastly Expands Moral Hazard” and he starts out with a definition of moral hazard.
“Moral Hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk.
“Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. For example, a person with insurance against automobile theft may be less cautious about locking his or her car, because the negative consequences of vehicle theft are (partially) the responsibility of the insurance company.”
So how does this moral hazard definition apply to the Fed? Here is what Rozeff says:
The Fed produced moral hazard all along Wall Street and all along the chain of financial companies across the nation that connected mortgage borrowers to banks, mortgage companies, bond raters, investment bankers, and the Fed itself.
Once the loans began to go bad, the shaky structure fell apart. The Fed responded as the lender of last resort, which really means the insurer of last resort, which really means the entity that produces the moral hazard and then attempts to stem the effects of its own actions by more inflation. It shifts the holding of the bags to the general public and to the taxpayers.
So as always, we get left holding the bag. But this time it is one very heavy bag.. Rozeff then talks about the Fed’s quantitative easing policy.
This brings us to the latest rounds of inflation by the Fed that are called QE for quantitative easing. QE is an invented euphemism for the creation of fiat money by the Fed. The Fed buys securities and pays for them with e-credits that it creates with the push of a keyboard button. This benefits various immediate recipients, but most of us are not in that group. Most of us find that prices are rising and the value of our dollars has fallen. Suddenly a pound of pork sausage that used to cost $2.75 costs $3.75 and then, lo and behold, it costs $4.25, all in the space of two or three years.
In the previous bubble, the Fed produced vast moral hazard in the private debt markets. When the cash flows (the mortgage payments) that held up those securities dropped or were lacking, the values of those securities dropped. Firms began to flop. The system started to fall apart. The Fed “saved” it for another go around the track by massive infusions of credit.
This is not a pretty picture he’s painting. So how does Rozeff see things going forward.
If it were not Fed Chairman Bernanke presiding over the blowing of the government bubble, it would be someone else. But he is peculiarly fitted for the job. He was in fact chosen to do it by those who knew his views and knew that more inflation would be required to keep the system afloat a little while longer.
I’d bet on the Congress continuing to spend, and spend, and spend. I’d bet on Congress continuing to add more and more to the national debt. If and when interest rates start to rise, the crunch will come. At that point, I don’t think Congress will suddenly get religion and initiate a sound system. Instead chances are high that it will use force to try to save the system. That force will fall upon most of us, if it happens.
Which view is right? Here’s my two cents analysis.
Eugene Robinson provided nothing more than typical liberal/progressive pabulum with no redeeming value. Michael Rozeff, however, has given us another Libertarian gloom and doom story. Without saying so, Rozeff is assuming the recent rising tide of conservatism in America is but a flash in the pan. If it is a flash in the pan then I would have to agree with Rozeff’s analysis. But I refuse to belive that this conservative uprising is just going to go away I have to believe that a large segment of Americans have finally woken up to the fact that big government and borrowing from our children’s futures can not be allowed to continue. We have one last chance and we must make the best of it. I am worried, however, by a recent Rasmussen poll that showed over 50% of those polled felt that the Republicans weren’t doing enough to reduce government spending. In other words, 50% of those polled didn’t realize that we are still under a lame duck congress controlled by Democrats. I read somewhere a while back that there were more than 2500 Tea Parties across America. If this Rasmussen poll is correct, we are going to need a lot more Tea Parties to help educate the public.