Posted on 10/28/2008 12:29:49 PM PDT by vietvet67
Pre-eminent economist Anna Schwartz thinks the shortcomings of the U.S. bailout plan will only lead to further problems in the credit market.
ANNA SCHWARTZ, CO-AUTHOR WITH Nobel Laureate Milton Friedman of the seminal A Monetary History of the United States, has worked with the National Bureau of Economic Research since 1941, and remains an adjunct professor emeritus at the Graduate Center of the City University of New York. About to turn 93, she has spent most of her professional life studying how the changes in money supply interact with inflation -- both within the United States and abroad.
When it comes to the unprecedented lending by the Federal Reserve Bank under Chairman Ben Bernanke and new and untested programs from the Treasury and its head, Henry Paulson, she doesn't like what she sees.
Her prescription: Stop managing by press release. The federal government needs to turn off the liquidity spigot and quarantine bad assets. Ad hoc program announcements have only undermined faith in the U.S. financial system, in her view, and, if continued, could raise fears that ultimately threaten the U.S. financial system. Here are more of her provocative thoughts on the current crisis.
Barron's: Professor Schwartz, what are your regrets about the government's handling of the credit crisis?
Schwartz: If I regret one thing, it's that Milton Friedman isn't alive to see what's happening today. It's like the only lesson the Federal Reserve took from the Great Depression was to flood the market with liquidity. Well, it isn't working. Professor Friedman would have enough stature to get them to listen and stop pooh-poohing any notion of possible inflation.
(Excerpt) Read more at online.barrons.com ...
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"The current program offers no way of determining who is solvent and who is insolvent," says monetary authority Anna Schwartz. In other words, the Government has not addressed the key problem of why banks don't trust each other and hence are hoarding cash instead of lending overnight. Folks, this is a must-read. |
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Must read ping!
See bailout detractor above, for your refutation.
Brilliant article. I LOVE an economist who is crystal clear without the jargon and circular, legalistic language that confuses so easily.
The only place she temporarily lost me was with her pet term “poo poo” regarding inflation. Evenualy I replaced it with the word “deny” or “disregard” and things clicked.
She is crystal clear that the Treasury and Fed are being inflationary. She is obviously concerned about it.
Great post — thanks.
Who owns the FED?
A must read ping, IMHO.
Too compassionate for me.
“We arguably have an obligation to help clean up Europe because we persuaded investors there to buy these securities, ...”
Nothing to do with compassion. The crap in europe is part of the same system. Different countries, but same financial systems. Money is more or less borderless these days.
Some info here: http://www.fdrs.org/federal_reserve.html
Much more when federal reserve ownership googled.
Do you think we also have an obligation to help clean up Europe?
I do wish she was a little more explicit about what she's clearly identified as the problem....in today's environment, the financial institutions which survive will not be those which have been wisely managed, but rather those who have the best government Rolodex.
That will be cataclysmic under an Obama administration, and very little better if McCain is elected.
“Who owns the FED? “
Step away from the tinfoil.
Such wit! So incisive!
The reality of the failure of the bailouts to accomplish anything is the proof you were wrong about bailouts.
The good economist, above, shows why. You have nothing but snarkiness in response. Game over.
This is the root problem: We have a solvency disclosure problem, not a liquidity problem.
If we merely knew whose Owners' Equity had been wiped out, those companies would die, the diseased bodies could be buried, and we'd be done. The healthy remainder would live.
But in the mean time, the Fed and others keep throwing life preservers to the unequivocally dying, and letting the putrid bodies stink up the place.
Since the Feds are unwilling to allow the solvency crisis to take it's necessary course, we are stuck with the Zombie Companies roaming the Earth. But nobody knows who the Zombies are!
It is a legitimate question. Why are you flaming me?
And the bailouts have already accomplished plenty - weekly bank failures of trillion dollar institutions have ceased, and Libor is falling and credit is moving again, and the stock market is bottoming. We will still have a recession, of course - the real imbalances of the boom phase of the cycle still have to be corrected.
The crisis right now is in the developing markets and their currencies, where money supply growth fueled especially by cross border bank loans from Europe, often in the originators harder currency, were at mania levels in the last several years. The IMF will be busy cleaning those up for several years more.
Financial crisis is normal, lender of last resort operations financing the smash are also normal, and entirely effective. They don't abolish the cycle, nothing ever does. S'OK. The cycle is simply part of the price of a free and growing economy.
Nationally chartered banks (as opposed to state banks) have rights of access to the 12 federal reserve branches, and along with the treasury subscribed the Fed's initial capital when it was formed. Other banks in practice have the same access, through a federal bank or directly via the discount window etc. Whether anyone wants to call any of that "ownership" is academic - certainly all the profit the Fed makes goes to the US treasury.
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