Bernanke did the right things

[admin]

Interesting WaPo piece on how Federal Reserve actions helped the economy recover.

That the nation avoided an economic depression is due in no small part to the chairman, whose academic specialty is in the history of depressions. At a time when President Obama and lawmakers have squabbled themselves to irrelevance, Bernanke’s Fed has been a model of good government: apolitical, efficient, brutally effective — and transparent.
http://www.washingtonpost.com/opinions/ben-bernanke-smiles-in-the-face-of-critics/2012/01/25/gIQAizaWRQ_story.html

[XBoxBoy]

The level of adoration in this article reminds me of the types of things that were said about Alan Greenspan, right before everything went into the crapper. Sure hope it’s just a coincidence.

XBoxBoy

[EconProf]

Agreed, the article really is a puff piece that asserts Bernanke saved us from Great Depression II.
Actually, we’ll never know what would have happened if the massive government spending had not happened in the last months of the Bush administration and the three years of Obama’s. Coupled with unprecedented money creation and zero interest rates, three years later we are barely into a fragile recovery. What we do know is that our kids are about 4 trillion more in debt.
While there are many differences, the nation faced a deep and equally sharp contraction in the early twenties–some would even call it a mini-depression. GNP plunged by 17%, unemployment rose from 4% to 12% in 1920-21.
Mean old President Harding cut government spending, cut taxes, and the Fed did almost nothing. The economy came roaring back, and the unemployment rate went under 3% in 1923.
Lots of differences between then and now–especially that wages and prices were more flexible. But you can’t help wondering where we would be now if Bush and Obama had not been so interventionist. We will never know.

[Anonymous]

[quote]The economy came roaring back …[/quote]

Yeah, the “roaring” 20s.

How did that end, btw?

[EconProf]

The noninterventionist policies of 1920 ended with over eight years of incredible growth, low unemployment, and increased standards of living for the average American.
Then came ten years of intervention.
Google: The forgotten depression of 1920.

[markmax33]

[img_assist|nid=15772|title=Fed’s Credit Expansion|desc=I’m no genius but it looks like the Fed’s credit expansion that started in 1920 surely inflated the great depression bubble.|link=node|align=left|width=100|height=61]

I’m no genius but it looks like the Fed’s credit expansion that started in 1920 surely inflated the great depression bubble.

[Anonymous]

Now I’m confused.

Was there intervention in the 1920s or no intervention?

[patientrenter]

I saw the thread’s title, and thought this has to be a post from briansd. I opened it…. and it is.

The owners of the Washington Post, the publishers of this article praising one of the greatest bubble-blowers in human history, are members of the group that benefited hugely from Bernanke’s massive measures to keep asset prices high.

This is all about friends helping friends. The general public is just collateral damage.

[CA renter]

Well said, PR.

In many ways, we are worse off today than we were in 2008.

If asset prices were allowed to deflate, the purchasing power of workers and those on fixed incomes would have increased. As it stands, many people are making less than they were in 2008, but the things they need to buy with their wages have either gone up in price or remained the same. It’s (stagflation) the very worst possible outcome, IMHO.

Yes, wages would go down as well without all the interventions, but they tend to be “stickier” than asset prices, both on the way up and on the way down.

All the interventions managed to do was concentrate wealth into even fewer hands while destroying the purchasing power of those who work for a living and/or live on a fixed income. The damage that’s been done to seniors who are trying to live off of interest income is totally unforgivable.

We are still mired in a deep recession/depression (not “official,” but tell that to the growing number of people who are living hand-to-mouth), and the story is not over, yet. I’d hardly call what we have experienced in recent years a “success story.”

[EconProf]

CAR is right about the injustice to seniors who lived frugally and saved up for their retirement, expecting to live off their interest and nest egg. Now they are getting essentially zero rate of return and are rapidly eroding their principal. This is largely underreported by the media and ignored by the policymakers.
A similar story applies to renters. The effort by the government to prop up falling housing prices, largely supported by the media, has hurt those renters who want to buy, saved up their money, and resisted jumping in when the bubble was building. Even now the policymakers are searching for new ways to bail out the reckless instead of allowing the market to clear at a lower level. Politics dictate that the generally lower-income renters lose in this contest against the higher-income underwater homeowners.

[briansd1]

[quote=EconProf]CAR is right about the injustice to seniors who lived frugally and saved up for their retirement, expecting to live off their interest and nest egg. Now they are getting essentially zero rate of return and are rapidly eroding their principal. [/quote]

Would people with nest-eggs rather live with lower interest rates, or would they rather immediately lose 2/3 of their networths because of an economic crash.

[Coronita]

[quote=briansd1][quote=EconProf]CAR is right about the injustice to seniors who lived frugally and saved up for their retirement, expecting to live off their interest and nest egg. Now they are getting essentially zero rate of return and are rapidly eroding their principal. [/quote]

Would people with nest-eggs rather live with lower interest rates, or would they rather immediately lose 2/3 of their networths because of an economic crash.[/quote]

Well, if they live in CA and own a home, then they sure as heck dont need to worry about property taxes rising 🙂

[Anonymous]

[quote=EconProf]CAR is right about the injustice to seniors […][/quote]

You are seriously claiming that the “victims” of the past 40 years of economic policy are seniors?

The ones collecting their full social security checks, living in paid-off homes and paying 1976 tax rates, and who will be dead before the massive bill for the national debt comes due?

Yeah, those “twenty somethings” got it good compared to grandma!

[EconProf]

[quote=pri_dk][quote=EconProf]CAR is right about the injustice to seniors […][/quote]

You are seriously claiming that the “victims” of the past 40 years of economic policy are seniors?

The ones collecting their full social security checks, living in paid-off homes and paying 1976 tax rates, and who will be dead before the massive bill for the national debt comes due?

Yeah, those “twenty somethings” got it good compared to grandma![/quote]

[EconProf]

Pri-dk:
Wow, did you ever get it wrong.
Yes, seniors who saved all their lives for retirement and now get a negative rate of return on their savings (.5% minus inflation) are victims, on that front. That’s all I claimed.

As to those now getting their social security checks, I agree they are getting far more compensation for their taxes paid in during their working years, which was a very low percentage in the 1950s and 60s. They got a good deal compared to today’s twenty-something and thirty-something workers. But that’s another subject.
For those seniors living in their paid off homes (which calls for congratulations, not condemnation), and “paying 1976 level property taxes” (Prop 13 actually passed in 1978), that may comprise 1 in 10 CA seniors, at most.
Hey, lighten up!

[Author]

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