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Ben Stein's Diary
Zero Interest
Bob Bartley still has Ben Bernanke figured out.
Thursday
I had some kind of extrasensory
perception connection with Bob Bartley, the late editor of the
Wall Street Journal’s edit page. He and I were often
thinking exactly the same thoughts, even before he hired me, nearly
forty years ago, to write a column for the edit page. I would run
into him and we would just right away start saying the same things
about pop culture, politics, Israel, defense, free markets.
Now, Bob has been dead for several years and he and I parted company intellectually years before that over Milken and Drexel and then about the efficacy of tax cuts.
But I still find that I will write an article or a speech about something and the next day I will awaken to see an editorial about the same subject from the same perspective on the WSJ edit page. There is still usually a similar way of viewing the world.
Example: About a week ago, I spoke to a group of investors in Phoenix. One of the subjects was Ben Bernanke’s Zero Interest Rate Policy. I said it had not worked and was just punishing savers and the retired by keeping interest rates low. The real problem, as I told my kind audience, was not bank liquidity, and thus could not be fixed by flooding the system with reserves.
The real problem, as I told them, and as had been told to the world by the genius economist, Anna Jacobson Schwartz, after the crash of 2008, was insolvency risk, not lack of liquidity. Banks can be overflowing with money from the Fed, but they will not readily lend it out because they fear they will not be repaid.
The banks were burned so horribly by the real estate crash and other crashes around 2008-2009 that they will lend to only a few entities, mostly the federal government. It is this insolvency fear — and a well placed fear — that keeps us in recession or mild growth. When Dr. Bernanke says he will keep flooding the banks with cash, he is simply working on the wrong side of the problem. He is like a mechanic trying to fix a car with a crashed transmission by changing the oil in the crankcase. The “solution” he has been advancing just does not address the problem. So I told my audience and then wrote about it here.
To my total lack of surprise, this morning’s WSJ edit page has a similar editorial. Dr. Bernanke says he will keep interest rates low or nil until unemployment greatly declines. But as the Journal notes, one thing has nothing to do with the other (as I have been saying). He can pump and pump the left rear tire and the car won’t go if it’s another tire that’s flat.
We are just getting a spectacular rise in the monetary base which will possibly lead to horrific inflation some day, and we are cheating retirees, and we are not ending the slowdown. By the way, Dr. Bernanke is the same man who said, when he was Chair of the Council of Economic Advisers under Bush 43, that there was no threat of a national real estate collapse, that there was no Wall Street built mortgage bubble, and that there was and is no retirement readiness problem. Yes. He is that guy. Chair of the Fed.
Mr. Timothy Geithner, Secretary of the Treasury, actually had the best idea of anyone about the whole subject back in 2008. He wanted the Treasury to guarantee all loans of any kind from the big banks. It would have been a good move and would still, now, be a good move.
But Mr. Bernanke’s move are just blowing in the wind. Meanwhile, taxes are about to soar, spending for defense will contract, and we slouch towards debacle. It is really sad.
About the Author
Ben Stein is a writer, actor, economist, and lawyer living in Beverly Hills and Malibu. He writes “Ben Stein’s Diary” for every issue of The American Spectator.
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Bill Hussein O'Stalin| 12.14.12 @ 9:11AM
Quotes from the Chairman:
(November 21, 2002) "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost."
(May 17, 2007) "All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable."
(October 4, 2006) "If current trends continue, the typical U.S. worker will be considerably more productive several decades from now. Thus, one might argue that letting future generations bear the burden of population aging is appropriate, as they will likely be richer than we are even taking that burden into account."
(Two months before Fannie Mae and Freddie Mac collapsed and were nationalized) "They will make it through the storm."
Von Mises Jr| 12.14.12 @ 9:58AM
Did you see Foster Brooks....wait that was Ben "The Bank" Bernanke on the business news the other day. At the end, a reporter had the gall to ask Foster, I mean Ben, if he was monetizing the debt. Foster's answer, I mean Ben's answer went something like this: we are not monetizing the debt because this is only a short-term policy. We are going to unwind this after the unemployment rate reaches 6.5% or later depending on the economy, so it is not monetizing the debt. That is like saying that you don't have a mortgage since someday you will pay it off.
His second rationale was even more brilliant. QE3 ($40B) and QE4 ($45B) or $85B per month is not financing the Federal Government. That is only half the monthly deficit, and we only buy Treasuries with about half of the $85B per month. The other half is used to buy stinky Sub-prime off the bank's Balance Sheets.
Boy am I relieved.
Cobalt| 12.14.12 @ 11:28AM
Anytime the Federal Reserve buys U.S. Treasuries it is monetizing the debt.
I'm pretty sure Uncle Ben already knows this, and I'm pretty sure he is familiar with QE to Infinity.
Von Mises Jr| 12.14.12 @ 11:51AM
Actually, the original founding of the Fed in 1913 did not allow the Fed to buy Treasuries. It would have probably never existed if that was the stated goal.
Rhoetus| 12.14.12 @ 9:32PM
The Fed is the ultimate Ponzi Scam - free Madoff and jail Bernanke, Bush41, Clinton, Bush43, Paulson, Geitner and Obama.
Anthony| 12.14.12 @ 1:07PM
Too funny Von. Foster Brooks could never get a position in Obozo's Administration, he's way too sober.
Von Mises Jr| 12.14.12 @ 2:09PM
Drudge has an article about Obama and he said that he is not interested in going after "stoners."
David Maraniss referred to them as the "Choom Gang."
Jack in Wi| 12.14.12 @ 9:16AM
Low rates cause savers to suffer and stops the adjustments the economy must make to end this cycle of depression. It is time to fire Bernanke, and audit the Fed. We have to see how bad the problem is before we can hope to fix it. The Fed was a bad idea 100 years ago and it still is.
TLP| 12.14.12 @ 9:25AM
If all that money, that was given to all of these Big Donour Banks, Mortgage Houses, Car Companies, and States - (so they could keep Obama's Public Employee Union contribution spigot on) - had been given to WE THE PEOPLE, instead?
Does anyone believe that we would be in this hole that we're in, now?
I believe that the number was somewhere around $300,000 for every Man, Woman, and Child in the Country. I wonder if people would have used that Capital Gain to clear up Debt? Would they have used it to purchase needed items such as Homes, a Car, or a New Bed and Appliances? what about things like Clothes, Shoes, and New Tires?
STIMULUS. JOBS. COMMERCE.
We have $6 Trillion in new Debt, and WE THE PEOPLE have nothing to show for it, except The Bill.
Getting Fckd Over is Fun.
And now he will Finish what he Started.
Pity what lies ahead for our Kids.
govnutz| 6.13.13 @ 4:59PM
Lowering the highest cost to an individual, the mortgage payment, could solve the housing and employment problem.
The Federal Government is buying $40 billion of mortgage-backed securities a month.
40 billion = 200K $200,000 mortgages per month.
40 billion = 400K $100,000 mortgages per month.
NEW FORECLOSURES 144,790 Apr 2013
AVG. FORECLOSURE SALE $177,870 Apr 2013
http://www.realtytrac.com/home/
Convert under valued mortgage accounts to
"U.S. Treasury Mortgage Relief Bonds”
.
The bond would be non-marketable security (such as savings bond) that is issued to subscribers and cannot be transferred through market sales.
Unlike a Mortgage-Backed Securities, these bonds would be held solely by the US treasury and collections made monthly or yearly to the IRS.
The payment is applied per Social Security Number (SSN) or Taxpayer Identification Number (TIN).
No principal reductions required on original loan.
The full amount of loan would be repaid, at no loss to U.S. taxpayers.
Consider a loan amount of $100,000 and home value of $ 80,000; the bond value would be $100,000.
A payment would cost the homeowner $1,000 per $100,000 withheld from bondholders tax return on a yearly bases.
No federal tax deductions for 1% 10-year bond payments or local property taxes
Equity appreciation belongs to bond holder but can’t be taken out until refinanced to conventional loan.
Local taxes must be current and assessed at local market value not amount of bond
dimwhit| 12.14.12 @ 9:27AM
Actually Ben, if the Treasury guaranteed all loans from the big banks then you get Solyndra and increased insolvency. The way out of the mess is twofold - stop zero interest Bernanke nonsense - and stop guaranteeing ALL loans including student loans. Then banks are forced to loan money to make money. The market will settle this out if the government gets out of the way.
GobBluthe| 12.14.12 @ 9:32AM
Guaranteeing all loans is a horrific idea. You'd get a new bubble then collapse with the result being the treasury itself needing a 10 Trillion bailout from china.
I read the ZIRP is costing savers who are ultimately consumers $400 b per year in lost income.
Occam's Tool| 12.14.12 @ 2:31PM
I'm trying to figure out why idemnifying scumbag bankers with my tax money is a good idea. Of course, it comes from Mr. Impending Bankruptcy himself, Ben "no concept of how to budget" Stein.
Why I'm buying Gold and Silver.
TLP| 12.14.12 @ 3:41PM
Contest at Tuesday's Story: More Pants Than Fire.
Look for Pinnochio.
C. Vernon Crisler | 12.14.12 @ 10:07AM
Austrian economists have been saying for a long time now that the only thing stopping mass inflation is the fact that banks are afraid to lend. Hence v (or velocity) is low.
An apt metaphor would be a huge stash of drugs from Mexico becomes available for pushers. However, the pushers aren't selling either because they are afraid of tough law enforcement, or will only sell to the richest junkies or to the junkies who are on the dole and have a government guaranteed income. Even then, they are hesistant.
Hence the possibility of the user community getting high, then crashing is lessened. Similarly, the possibility of mass inflation and the inevitable crash is less probable.
Anthony| 12.14.12 @ 10:40AM
We need a real man to handle this situation. Bernanke is a weenie. I suggest we get Stein's pal, Dominique Strass Kahn, to become our new Fed Chair.
Now that Stein's hero, Mr. Kahn, has settled his messy problem with that damn African chambermaid vixen, who took complete advantage of poor Mr. Kahn, he's now able to focus on helping to get America to come clean on our debt situation.
I am also hoping that this former chamber maid, now rich beyond her dreams, thanks to Bennie's pal, will move next door to Stein to further complicate Stein's legal problems and give him another "stunning woman" to ogle.
Get them eye drops out Bennie, she's a looker!!!!
Cabermon| 12.14.12 @ 10:50AM
What Ben (Stein, not Bernanke) says about banks' reluctance to lend rings true, but here's an additional reason:
Who would you want to take a risk by lending money to anybody at less than 1% interest? If there's inflation, you'd invest in whats inflating in value. If there's deflation, you'd just keep the cash. This is too simple.
C. Vernon Crisler | 12.14.12 @ 11:44AM
Even at 1% interest, the banks would make money. Besides the banks would be the cause of the inflation, not the ones who take advantage of it. Or that is to say, the banks would take advantage of it precisely IN spreading the money around. (The Fed is the ultimate cause, but not the sufficient cause).
Deflation would occur when banks stop spreading the money around. Again, the pusher/junkie metaphor is apt. You can't have the pains of withdrawal without first having the highs of addiction.
JP| 12.14.12 @ 1:32PM
And why should banks lend to businesses or consumers when they can simply lend to the federal government? At such low interest rates the banks can still enjoy a 2-3 point spread on Treasuries. And if you realize that the Prime is so low there interest rates are actually negative, lending to Uncle Sam is a win-win. Say Wells Fargo buys $1 billion of 12 month Treasuries. In 12 months WF would realize a $40 million profit (counting in inflation) for doing nothing. That is far less riskier than borrowing the money out to consumers or businesses.
C. Vernon Crisler | 12.14.12 @ 3:09PM
Yep, the banks are going to profit no matter what.
TSIndiana| 12.29.12 @ 8:00AM
Remember that part of the system known as "fractional" reserve, meaning for every dollar in YOUR savings (goes to reserve acct of bank), they can loan out $90-95 more. The Idea that they have to charge high interest for the saver to get good interest is a dog and pony show...all because the "fraction" portion is ignored. If the bank loans out 10/1...they can surely pay out 5% and still make double, as those "savings" are essentially multiplied, based on the reserve accounts.
JP| 12.14.12 @ 1:27PM
Outside of energy, food, and commodities there are significant deflationary pressures out there. Real estate prices over-all continue to sag; corporate profits while not falling, are worrisome; banks are in no way out of the woods. Most still possess large portfolios of mortgages that continue to lose value. As Ben wrote, banks cannot lend what they don't have. Large cash reserves of inflated dollars in no way take the risk out of borrowing -even to credit worthy clients. This also holds true for all of those corporations who continue to sit on $2-3 trillion of cash. They risk much by holding on to an asset that is losing value (ie dollars). Perhaps that is Bernecke's long term strategy. Inflating the dollar will force corporations to spend those dollars.
Peter McGrath| 12.14.12 @ 2:35PM
Brilliant analysis. Thanks, for that.
Mazzuchelli| 12.14.12 @ 2:42PM
Bartley hooked me on the Journal and then died. It ain't been the same since.
Mazzuchelli| 12.14.12 @ 2:45PM
P.S. I am retiring early 2014. Plan on massive inflation to begin then.
Archie| 12.14.12 @ 3:06PM
"We are just getting a spectacular rise in the monetary base which will possibly lead to horrific inflation some day, and we are cheating retirees, and we are not ending the slowdown."
It's just part of the plan, Ben. Struggling seniors tend to die sooner.
sdfhlk | 12.14.12 @ 9:07PM
merry christmas to u,thank you so much.
Marc Jeric| 12.15.12 @ 3:28PM
Sooner or later we shall see a huge inflation hit us.
Mnestheus| 12.16.12 @ 2:39AM
While no one with a pulse has ever mistaken Ben for Bob Bartley, for the last decade it has been difficult to distinguish Stein , and for that matter Bartley's successor, Paul Gigot , from Jaques Barzun.
This almost never happened before Jaques turned 100 in 2007, but since this October, Ben and Paul seem to have been locked in a friendly competition to see who can deliver the best imitation in prose of a recently deceased past master.
As of this writing, it seems a draw.
ExpelledFan| 12.16.12 @ 10:46AM
Drilling for our own oil, reducing deficit spending, etc, would restore the faith "animal spirits" needed to place bets on future growth.
Bernanke's policy is "politically neutral". He doesn't have to recognize the atrocious policies that got us into the mess in the first place if the "only problem" is liquidity.
Thus, Bernanke's policies are the perfect vehicle for someone aspiring to power and status as no criticism of the president's or congress's policies will ever be necessary.
"ExpelledFan" here, by the way, Mr. Ben Stein, just saved a close friend from the clutches of one Richard Dawkins and a certain organization here in the Northwest that was giving him an award.
I did pepper the anti-atheist soup with some Campbell and some Jung.
Just wanted you to know. :)
merlin| 12.16.12 @ 11:25AM
ExpelledFan,
I totally agree with your first three sentences, but the rest puzzles me? Richard "I can't come up with any actualy positive mutations in humans" Dawkins is getting an award from Discovery Institute? For his new book, "The Apearance of Design Inference"? Campbell and Jung? Soup and tea peppering a fossilized soup? A singing group? Maybe all coded racism, but what race?
Help.
ExpelledFan| 12.16.12 @ 1:44PM
Dawkins was getting an award from Freedom From Religion Foundation in Portland. My friend went to hear him speak. I forgot about the Discovery Institute being in Seattle.
My "nourishment" for my friend has included a lot but "Expelled" turned out to be a key element in his thorough turnabout.
Joseph Campbell and Jung, as well. There are cures for Darwinian excess that do not exclude the mechanism of evolution, as you know, as mechanism.
Most of that derives from introspection of the basis of our thoughts, feelings, values, and dreams.
Basically, you find a new center of the psyche outside of the ego.
Essentially, he had to find a new path outside of his creationist upbringing. Talking about the reality of evil and how no new ethos comes out of Darwin's theory to deal with it helped burst the last of the atheist balloons.
Hope that made more sense. :)
Thanks for responding.
sdfhlk | 12.16.12 @ 10:34PM
Merry Christmas
Lysander Spooner Law Scho | 12.17.12 @ 12:51AM
Isn't there a youtube video of Ben Stein ridiculing Peter Schiff when Schiff was predicting the real estate collapse? Oh well. Nobody's prefect.
TSIndiana| 12.29.12 @ 8:07AM
Easy to forget if it does not fit your agenda.
oldeham| 12.17.12 @ 4:25AM
Invest? Invest in what? One driving force is that people are NOT spending. Spending is 70% of the economy. I am just a little younger than Mr. Stein (go Blazers) and I am paying off any and all debt I have. After that - put money in banks at .1% - I think not - getting into collecting gold coins. I used to collet coins as a kid, now they are they gold - the Loonie is a real pretty coin.
TSIndiana| 12.29.12 @ 8:17AM
Unfortunately the only one making any real returns of gold or silver are the middle men. If you like the feeling of thinking your well hedged...have you tried to eat or trade that gold for food, pay your house payment or buy gas? No...your purchasing power is limited by your ability to find a middle man that is less than 1/3 mark-up. Good luck.
A collection of heavy old farm machinery (or some similar basic resourse with intrensic value) would give a lot better return.
Venjones| 12.18.12 @ 12:28AM
Everyone says Obama has no plan to deal with the deficit. It looks like he does. Spend like crazy with the Fed pumping money. Eventually inflation takes off so it becomes easier to pay the old debt. Tough luck creditors and those who plan to retire. Didn't say it was a good plan, just a plan.