On June 17, Barack Obama had one of his most awesome reality TV events of the year when he fired central bank chairman Ben Bernanke on PBS with liberal mope and host Charlie Rose moderating.
“He essentially fired Ben Bernanke on the spot and gave him a fairly tepid testimonial afterward,” said former Fed Governor Laurence Meyer, in an interview on CNBC the next day.
And the bankers have been in revolt ever since.
The government, meanwhile, has revised the economy’s performance downward. The newest do-over by government economists comes three months after they gave the economy one of the strongest readings since 2007.
“The economy grew at a 1.8% annual rate in the first quarter, the government reported Wednesday, well below previous estimates of 2.4% growth and missing forecasts,” reported USAToday.
Still, several voices that had been the strongest advocates for monetary stimulus have suddenly and inexplicably reversed course, saying that the limits of monetary policy to help the economy have been reached.
Left unsaid is that perhaps those limits were reached when Obama fired Bernanke.
For those keeping score at home, monetary policy is the policy that determines how much money is made available in an economy through both the money supply and the availability of credit. More money and lower interest rates, supposedly, equals more growth, so the theory goes.
This is different than fiscal policy, which has to do with how much the government taxes and spends on operations.
Last week the market got spooked because Bernanke, perhaps in reply to Obama’s bonehead handling of the termination of the employment of the Fed head, said that the central bank was revising its monetary benchmarks from a target rate of 6.5 percent unemployment to 7 percent unemployment.
“In this scenario, when [monetary stimulus] ultimately come to an end, the unemployment rate would likely be in the vicinity of 7 percent,” said Bernanke last week according to Reuters, “with solid economic growth supporting further job gains.”
The move is curious given that the Federal Reserve chairman likely knew what we know now: that GDP would be revised downward by 25 percent, from a sluggish 2.4 percent to an anemic 1.8 percent.
It’s tough to create “further jobs gains,” when you can’t even support “solid economic growth.”
Historically, GDP growth is around 3 percent.
Right after Bernanke’s comments, Jaime Caruana, General Manager of the Bank for International Settlements, the central banks’ worldwide central bank, said at the BIS’s annual meeting on June 23rd that central banks around the world had reached the limits of what monetary measures could do to help the economy around the globe.
“More stimulus cannot revive productivity growth or remove the impediments that block a worker from shifting into a promising sector,” said Caruana. “Debt-financed growth masked the downward trend in labor productivity and the large-scale distortion of resource allocation in many economies. Adding more debt will not strengthen the financial sector nor will it reallocate resources needed to return economies to the real growth that authorities and the public both want and expect.”
In short, he told governments to get their act together, promote policies that would restore economic growth- and jobs- while cutting down on government deficits.
“Debt-financed growth has made it easier for authorities to delay the contentious work of removing labor and product market rigidities,” he continued. “The boom masked the need to reform economies even as resource allocation became less and less efficient. And the crisis-motivated macroeconomic stimulus of the past few years has exacerbated these distortions. Hence, progress in labor and product market reforms has been slow.”
I don’t know if Ben Bernanke or Jaime Caruana speak with each other, but one might suppose that since there are probably less than a dozen central bankers who control monetary policy worldwide that perhaps these two most-powerful men might have a working acquaintance with each other.
Into the mix then stepped Jean Claude Trichet, former head of the European Central Bank, who together with Bernanke, created the easy money policies that many central bank advocates feel saved the day during the economic storm of 2008-2009.
And I know that Trichet and Bernanke have more than a working knowledge of each other.
"If [central banks] do too much, then they are only paving the way for the other partners, the governments, the parliament and the private sector, not to do their own job. It's clear that the central bank cannot do everything…. They have their own responsibility but what counts now is really that the structural reforms are made in all major advanced economies, certainly Europe," Trichet told CNBC while defending Bernanke.
Imagine that? Asking politicians to reform their spending policies?
That’s more than a firing offense. That’s fighting words.
It’s possible of course that I am reading too much into this. It’s possible that it’s all just a big coincidence. It’s possible that Obama, the Brat, who has no sensitivities to anyone but himself, just treated Bernanke the way he treats all the menials he is done with.
But it’s far more likely that central banks finally realize, like the rest of us had, that there is no way one can work with Barack Obama.
He’s the problem.
And in response, the bank has closed their doors to him.They should have done that last year.