The GOP’s Bernanke Letter

September 21st, 2011 at 8:46 am David Frum | 85 Comments |

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I’m not shocked by much any more, but I am shocked by this: the leaders of one of the great parties in Congress calling on the Federal Reserve to tighten money in the throes of the most prolonged downturn since the Great Depression.

One line in the letter caught my eye as summing up the unreality of the Republican leaders’ position:

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers.

Are they serious? We are living through the most rapid deleveraging of the American consumer since the 1930s. Much of that deleveraging is occurring tragically, through the process of bankruptcy and foreclosure. Some is happening more happily, through the increase in the savings rate from the 0 of the housing boom to about 6% now.

Even if consumers wanted to borrow, credit is just not very available to the typical person right now. Some credit, for example on credit cards, is not cheap. In fact, the average APR on credit cards is scraping a record peak: 14.96%.

As anxious as investors are about US personal debt however, they are blithe to nonchalance about the US public debt. Interest on that debt has sunk to record lows: under 2%.

The markets see deflation and depression, not inflation. Yet ironically this non-existent and much dreaded inflation is exactly the remedy we need to lighten the load of consumer debt.

As is, we’re looking at a continued economic slump, more unemployment, and more deleveraging via continuing catastrophic consumer default on mortgages, car loans, credit cards, and student aid. And now the GOP leadership is urging that the Federal Reserve make the catastrophe worse? To what end?

I know what the detractors will say: to the end of defeating President Obama and replacing him with a Republican president. And if you’ve convinced yourself that Obama is the Second Coming of Malcolm X, Trotsky, and the all-conquering Caliph Omar all in one, then perhaps capsizing the US economy and plunging your fellow-citizens deeper into misery will seem a price worth paying to rid the country of him.

But on any realistic assessment of the problems faced by Americans – and not just would-be Republican office-holders – it’s the recession, not the presidency, that is National Problem #1 and demands the most urgent action. It won’t be enough to save Obama if he does not deserve saving – but it may be enough to save your neighbor’s house, job, and family. Or even … your own. Republicans after all have been victims of this crisis too. It’s an hour of national emergency even more urgent and overwhelming than the aftermath of 9/11. And things may soon get worse, if the Eurozone begins to crack up, as it seems it may. This is the hour for united action against the economic crisis, not partisan maneuvering.

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85 Comments so far ↓

  • jg bennet

    The Great Depression

    INTERVIEWER: You’ve written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?

    MILTON FRIEDMAN: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe. The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy.

    The Federal Reserve system had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve system, you had the worst banking crisis in the history of the United States. There’s no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended.

    And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

    At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.

    • Churl

      “For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left.”

      Could you update the figures for us; i.e. for every $100 in paper money, in deposits, in cash, in currency in existence in, say 2007, how much is there in 2011?

  • cporet

    In a consumer based economy the absolute one thing that is needed is spending. The only entity, right now, that is doing any spending is the government. Of course, Republicans want to end government spending. If we don’t spend any money there is no demand, no growth, and no jobs. I have no idea how the Republican mind works through this. I always come back to the phrase: we are governed by feral children.

    • MBunge

      “In a consumer based economy the absolute one thing that is needed”

      But does modern conservatism understand what a consumer based economy is or that the U.S. has one? The GOP, from all their yapping about “job creators”, doesn’t seem capable of appreciating that today’s economy is driven by a million people who each spend $10, not one rich guy spending $10 million.

      Mike

      • overshoot

        Don’t confuse the marketing with belief.

      • Ripcord Jones

        All of the GOP’s economic policies are based on a single economic principle. It is called “The Law of Supply and that other thing that doesn’t really matter anyway.”

      • Banty

        Henry Ford was right.

  • abc123

    You guys are letting the inmates run the asylum, this is what will keep happening. I fully expect a Perry-Bachman ticket, then all hell will break loose.

  • SerenityNow

    Face it, David, the Republican Party of today has no use for facts, empirical data or scientific discipline of any stripe. What we are witnessing are the demographic death throes of a once great political institution. The party of “NO” has morphed into the party of “NO, NOTHING!” as long as Democrats control any levers of power. Today’s Republican Party would expel, evict or excommunicate Eisenhower, Nixon and even Ronald Reagan. The trend toward political purity will only insure that the Republican gene pool will become so inbred and sterility will be the result.

    Under normal circumstances the GOP ought to be in a most favorable position to beat Obama but I doubt that will happen. Further, I would predict that for the foreseeable future they will serve only to obstruct and obfuscate. Just as it took 40 years in the wilderness for the Jews to enter the promised land we must wait for a generational cohort to die off before the Republican Party can regain its place in American politics. Let us pray.

  • Slide

    Whats really “shocking” David, is that you are continually shocked to find out that your party could give a rat’s ass as to what is “good for the country”. Their one and only concern is power. If the economy sinks even further into the abyss, that would be a good day for these craven pols.

    Please David, get your effing head out of the sand and see what your party has turned into. The word “treasonous” was recently uttered by one of your Presidential nominees which proves the point I have always made, that Republicans always attack in others what they are most guilty of.

  • Oldskool

    This is the hour for united action against the economic crisis, not partisan maneuvering.

    That’s really always the case, even during good times. But the GOP has succumbed to the hysteria that they create to get out the vote. Like meth cookers who sample the product too often.

  • balconesfault

    Shocked?

    The GOP wants to constrain the economy as long as “The Other” sits in the Oval Office.

    I really think that they consider the presence of any Democrat in the White House to be a cancer … and if it takes such radical chemotherapy to attack the cancer that the body will suffer extreme, in some ways irreparable harm … so be it.

    And they know after their experiences with the Debt Ceiling debate that the GOP base, including the Chamber of Commerce, is going to continue to support them no matter how ludicrous their positions, or how much havoc they wreak on the economy.

    Continue to prove them right. See where that gets ya.

    • abc123

      You’re giving them too much credit, saying they have ideals. The lawmakers don’t hate Obama, it’s the regular people frothing at the mouth. The politicians just want the power of their guy in the seat. Then they control the lobbying dollar and the interests.

  • Primrose

    “And if you’ve convinced yourself that Obama is the Second Coming of Malcolm X, Trotsky, and the all-conquering Caliph Omar”

    But they have convinced themselves of that.

    Nor do they care about the jobs of ordinary people because in the Ayn Rand philosophy that has become so popular (That is what shocks me.) most of the country is just filler, mediocrities that obstruct the ‘movers and shakers doing all the producing’ in our capitalist society.

    As I said in an earlier post, the crisis facing our country is not economic but ethical. Who is our society for? What are our obligations? And how are those obligations shared ?

  • LauraNo

    I don’t know what more they want, poverty is back up to levels last seen 30 years ago, the income and wealth gap is as great as they were at the time of the Great Depression, millions of people are losing their homes, jobs, careers, the education system is failing, our roads and bridges look like Cuba’s, (in some cases, worse!) and millions of people have no health insurance. Half of our families do not earn enough income to owe tax, for God’s sake! This is a GOP nirvana and yet they won’t stop. Now they want to raise interest rates to further sabotage our society. What radicals. What traitors.

    • overshoot

      In other words, Laura, everything is rosy except for three seats in the Senate and one in the White House.

  • JohnMcC

    But the big problem is that the investor-class and big banks & corporations — ‘job producers’ — don’t have enough money. As soon as Repubs get that little problem solved it’ll get better right away!

  • David Frum, Man of Reason – Rob Fahrni

    [...] David Frum: “But on any realistic assessment of the problems faced by Americans – and not just would-be Republican office-holders – it’s the recession, not the presidency, that is National Problem #1 and demands the most urgent action. It won’t be enough to save Obama if he does not deserve saving – but it may be enough to save your neighbor’s house, job, and family. Or even … your own. Republicans after all have been victims of this crisis too. It’s an hour of national emergency even more urgent and overwhelming than the aftermath of 9/11. And things may soon get worse, if the Eurozone begins to crack up, as it seems it may. This is the hour for united action against the economic crisis, not partisan maneuvering.” [...]

    • SideshowBill

      “It won’t be enough to save Obama if he does not deserve saving – but it may be enough to save your neighbor’s house, job, and family.” The key word there is “neighbor”, few people seem to want to do anything to help their neighbor, much less anyone else. Some of that is this stupid view that the poor are sinners and the wealthy virtuous, some is just that Atwater/Rove was a little too effective in turning anyone not like you into “other” and that “Perception is reality,” damn any evidence to the contrary.

  • rbottoms

    What shock, Frum notices the GOP is insane.

    He’ll still be voting for it next year.

  • D Furlano

    I think Krugman has it right. The GOP does not want any improvement in the economy before the elections.

    They say they hate big government but in reality they don’t care about government or Americans they just care about their ideology.

    • overshoot

      There’s a lively debate over whether the GOP leadership (or, arguably, any national leadership) cares about ideology either. Power, now …

    • Anonne

      All they care about is power.

  • JimBob

    Is Deleveraging Bad for the Economy?

    http://mises.org/daily/5537

    • SideshowBill

      Only for some… Maybe you’ll get sucked into the vortex too.

      • JimBob

        The consumer is cleaning up their balance sheet. Took on too much debt. Encouraged by the FED keeping interest rates too low.

        Boomers are downsizing and saving for their retirement.

        Easy money from the FED is not the answer. Bernanke is trying to reinflate the bubble. The FEDs policies led to malinvestment in housing thus we have a huge glut of unsold homes on the market.

        QUE One and Two didn’t work. And Three won’t work either.

        • D Furlano

          Agree on QE.

        • SideshowBill

          It’s not just downsizing, it’s unemployment. They’re downsizing because other people got overextended. We’re getting ready to do another round of layoffs where I work because there is not enough demand for our product. It’s slumping across the industry. Those just getting out of school can’t spend money they don’t make. Many can’t retire as they planned because their savings are worth much less than they used to be.

          Look at rental costs increasing, job rates not meeting the minimum to keep up with the birth rate. It’s unemployment.

    • D Furlano

      Personal savings has increased if you ignore the bottom 99%.

  • beleg

    The real question is, have they lost your vote yet? Until faithful GOP supporters like you actually consider voting for Obama over whoever they nominate, there’s no real pressure on them to change tactics. This is working on the huge population of no/low information voters. The only counter balance to that is for the people who understand how irresponsible the party has gotten to act on that knowledge.

  • Frumplestiltskin

    The only thing worse for Republicans than losing next year would be winning, after 4 years of economic mismanagement by whoever would win, Republicans will be so discredited that it won’t be just the very long minority status they had from the new deal to Carter, it might be a lot longer (or the Republicans will refashion themselves into something totally different which means these Republicans will be extinct)
    I used to think Romney might be able to tack to the center and be a Papa Bush type President, but the party is too mad dog to let him and he is too craven to stand up to them.

    • overshoot

      Whether winning in 2012 would be good for the Party or not depends on whether they heed the advice of the Earl of Montrose. If they play by HW Bush rules and maintain at least a pretense of principled government, then yeah they’re going to be screwed.

      On the other hand, if they take their playbook from the State legislatures and play Scott Walker “hardball with hand grenades” style then it’s all good. The key is to be unflinching in the full use of the power they have. The obvious start would be to revise the Senate rules to prevent the Democrats from doing the same thing that the GOP has been doing the last four years; I’m quite confident that they will do that given the precedent that the House set this January.

      The key is whether the Party can maintain discipline once it has a three-part control of the Government. Pushed through without hesitation or reservation, they have a very good chance of actually accomplishing the long-sought “perpetual majority.”

      • MBunge

        “they have a very good chance of actually accomplishing the long-sought “perpetual majority.””

        Hah! If there was ever a time to establish that, it was with George W. Bush in the aftermath of 9/11. Republicans could have gotten almost anything they wanted, yet threw away a chance at radically reorganizing American life and just grabbed some tax cuts and a disasterous war in Iraq.

        Mike

        • overshoot

          “Republicans could have gotten almost anything they wanted, yet threw away a chance at radically reorganizing American life and just grabbed some tax cuts and a disasterous war in Iraq.”

          Did I mention, “unflinching?” The appropriate model is Nehemiah Scudder.

  • jg bennet

    The Republican party is neo-confederate, I know you hate me saying it all the time but THEY AINT REPUBLICANS GUYS WAKE UP…

    How far has the Republican Party lost their way? Here is the Republican Party Platform of 1872 and it in no way resembles today’s party.

    I think numbers 7, 11 & 13 really put the nail in the GOP historic continuity coffin…..

    READ THE WHOLE THING and then tell me the Republicans are Republicans…. Dump them David they are not Republicans…..Join the revAlation….

    Here is the 1872 REPUBLICAN PARTY platform http://www.presidency.ucsb.edu/ws/index.php?pid=29623#axzz1Yb897mks

    Today is kind of like 1854 (new party mania) all over again and a run by a well recognized, well funded independent who was formally a Republican could unite the sane voters who vote GOP, bring in the independents and disillusioned Dems and win. There, just like 1854, could be a new party with unity, less dogma and fresh ideas.

    • SteveT

      Actually, I hate you no matter what you say. When you vanish for a few days, I keep hoping you’ve died.

  • jamesj

    Most of my right wing friends and family obsess over inflation as if economic law dictates it to be the primary problem in all situations. They fear it when it is a problem. They fear it when it is not a problem. They even fear it when it is one of the best available solutions to a problem. When the country has an economic problem they erroneously attribute it to inflation and/or too much regulation. They have not studied the basic economics themselves so they don’t understand that inflation hawks lack a holistic view of macro-economics. They buy the one-sided extreme rhetoric being fed to them by right wing politicians and right wing pundits on TV. Despite their ignorance on the subject they are possessed with a deep inner certainty that they know the truth. Fanatics are cocksure while the wise are riddled with doubt.

  • He Loved Big Brother

    Has Frum started to read Krugman? We can only hope……

  • sinz54

    The GOP is correct,
    and David Frum, you are wrong.

    We definitely have a problem with the housing industry, the real estate industry.

    But it’s NOT that interest rates are too high, or that money is very tight right now.

    And hence all these Fed actions aren’t going to fix the problem. All they can end up doing is prolonging the agony, devaluing the dollar, and yes, even perhaps causing inflation in the future.

    [q]Rising foreclosures, tighter lending standards and unemployment stuck near 9 percent for more than two years are all weighing on the market. Lower borrowing costs aren’t likely to make a difference, said housing economist Brad Hunter.

    “The Fed’s actions probably won’t help housing in a meaningful way,” said Hunter, chief economist and national director of consulting at Metrostudy, a Houston-based housing research firm that provides data to 18 of the 20 largest U.S. builders. “The level of mortgage rates is not a major factor. Rates are at extremely attractive levels.” ….

    The FOMC may say that while recent data are consistent with a rebound forecast for the second half of 2011, the weak labor market and high unemployment make more easing necessary, said Dean Maki, chief U.S. economist at Barclays Capital.
    Boom-Bust Cycle

    “It is hard to argue that what is holding the recovery back is the level of interest rates,” Maki said. “We have been through a massive boom-bust cycle in housing,” and working off excess inventory will “be a long, drawn-out process.” ….

    A rebound in U.S. housing is essential for restoring the net worth of households, reviving consumer spending and strengthening the recovery, Harvard University economics professor Martin Feldstein said in a Sept. 14 interview. Neither monetary policy nor President Barack Obama’s proposed $447 billion jobs program will provide a fix, he said.
    [/q]

    http://www.bloomberg.com/news/2011-09-21/bernanke-battling-h
    ousing-slump-shows-fed-has-few-tools-to-heal-economy.html

    PLEASE tell your website designer to fix the quoting feature in the posting editor. I’m not going to compensate for its failings.

    • abc123

      What is missing from your post is what is usually missing from conservative complaints.. A solution. Party of no.

    • LFC

      Agree with you Sinz. Not only do we still have too much housing, but it’s still overpriced. Housing prices were high in 2000, and every one of the major city markets is still priced above that.

      http://blog.redfin.com/sfbay/files/2010/03/Case-Shiller-Redfin-Markets_2010-01.png

      “PLEASE tell your website designer to fix the quoting feature in the posting editor. I’m not going to compensate for its failings.”

      The only way to make it work is to quote each paragraph. Yes, it’s really bad. I’ve seen more sophisticated markup handling done by high school students.

    • SerenityNow

      Sinz, I once worked for a state-chartered bank in California back in the 80′s. The owner of the bank confided to me when he decided to close the doors that he could make more money with fewer people by simply sindicating mortgages. What he also shared was his belief that this practice would ultimately cause a huge financial problem and it did.

      The mortgage melt-down happened because people who were not credit worthy could borrow money they had no chance of repaying to the people who lent money. But the original lenders didn’t care because they very quickly got their money back and then some when the mortgages were packaged and sold en bloc as securities by Wall Street whiz bangs who cared not one whit that the money would never be repaid. Note that smaller, locally rooted banks with mortgage portfolios did not suffer from the mortgage-backed security debacle because they knew who they were lending to in the first place.

      In short, Sinz, the housing bubble was a product of monumental greed on a gynormous scale perpetrated by irrationally exhuberent free market capitalists who, at the end of the day, suffered not one little tiny bit for their greed. Too big to fail my ass.

      • armstp

        SerenityNow,

        Actually there was more to the mortgage meltdown than that…. mortgage consumers were sold variable rate mortgages (1/3 of all mortgages and most the those that failed), often fradulently, at a time of low interest rates when they could afford the payments and then Greenspan went on a interest rate raising binge of 22 consecutive interest rate raises (he raised rates from near zero to 5% between 2004 and 2006) and priced everyone out of the market and sunk the housing market.

        Greenspan even promoted adjustable rate mortgages before he sunk all those with them:

        In a speech in February 2004, Greenspan suggested that more homeowners should consider taking out Adjustable Rate Mortgages (ARMs) where the interest rate adjusts itself to the current interest in the market.

        The fed own funds rate was at a then all-time-low of 1%. A few months after his recommendation, Greenspan began raising interest rates, in a series of rate hikes that would bring the funds rate to 5.25% about two years later.

        A triggering factor in the 2007 subprime mortgage financial crisis is believed to be the many subprime ARMs that reset at much higher interest rates than what the borrower paid during the first few years of the mortgage.”

  • iamchilli

    What are moderate conservatives (and I used to be one before Monica) doing to take back their party from The Crazy, David? Nothing. The days of The Hammer, are gone. I know Congress has a few GOP moderates left. Why not start a moderate conservative movement, give it a good Don Draper name, position it as the party of Sanity, oppositional to Obama, but not crazy to the point of smashing the country to bits.

  • overshoot

    “And now the GOP leadership is urging that the Federal Reserve make the catastrophe worse? To what end?”

    Well, there are two possibilities:

    On the one hand, the GOP leadership are idiots.

    On the other hand, they know the consequences of what they are demanding and intend those consequences to happen.

    Take your pick. Personally, for all of the rhetoric on the Left, I don’t believe that you can survive for decades in Washington and rise to the top of the heap by being stupid.

    • SideshowBill

      Personally, for all of the rhetoric on the Left, I don’t believe that you can survive for decades in Washington and rise to the top of the heap by being stupid.

      Sure you can, it’s just a matter of lobbyist/think tank welfare and who outspends who. It’s the best government money can buy.

      • jg bennet

        It is short & worth a read

        Perhaps the most rhetorically powerful and historically influential language of corruption appears in the tradition of civic republicanism

        http://science.jrank.org/pages/8840/Corruption-Corruption-Civic-Republicanism-Republican-Historiography.html

        It is a shame what our “republic” has become. From Obama and the solar dudes to Barton apologizing to BP.

        Eisenhower said it best and by the looks of it he was prophetic. He was a good republican and the type of republican we need today….

        “We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.”

  • jg bennet

    Speaking of Ike…..

    Dwight D. Eisenhower’s landslide Presidential election in 1952, while a momentous Republican victory after twenty years of Democratic rule, masked intense factionalism within the Republican party.

    Conservatives wanted to overturn a generation of New Deal/Fair Deal domestic policies and internationalist foreign policies.

    Liberal Republicans, with whom Eisenhower was associated, supported an active role for the federal government in domestic policy and an internationalist posture in foreign affairs.

    To conservatives these policies appeared to be a mere continuation of the Democratic party policies of the previous twenty years, but this was not Eisenhower’s intention.

    The key to understanding the way Eisenhower differentiated his policies from Democrats to his left and conservatives to his right is his philosophy of the “middle way.”

    The “middle way” represented a political philosophy that believed that certain time-honored American traditions needed to be compromised in order to preserve the foundation upon which they rested.

    While Eisenhower shared conservatives’ beliefs in limited government, free enterprise and individual initiative, he believed that occasionally, government had to infringe on these virtues in order to preserve the liberty that made them possible.

    Eisenhower’s enormous popularity assured him re-election and high approval ratings throughout his eight years in office.

    • overshoot

      Speaking of Ike, indeed.

      Rachel Maddow describes herself as an Eisenhower Republican, otherwise known today as a radical leftist.

      • jg bennet

        Perhaps I should have pasted the entire abstract because it shows that the party actually went off course and shot way to the right, it lost its direction and today you have the righty rights running the show…………….

        Unfortunately, for Republicans, this popularity did not carry over to the party, a fact that contributed to the defeat of Vice President Richard Nixon in the presidential race of 1960.

        Nixon’s defeat led to open warfare for control of the Republican party. Conservatives began a campaign to nominate Arizona Senator Barry Goldwater, while New York Governor Nelson Rockefeller was the reluctant choice of the liberal wing.

        The nomination of Barry Goldwater, despite his devastating defeat in the general election, signaled victory for the conservatives in their factional struggle with Republican liberals for control of the party.

        But before you go “say we won” watch this video about Goldwater & the Republican party. Notice the abortion & religious issues and why they went down the path.
        http://www.youtube.com/watch?v=k7kdLEjb9gM&feature=related

  • WillyP

    TARP, TALF, ARRA, QE1, QE2, and a thousand other derivations…

    Now we’re supposed to believe that buying long term bonds is the solution.

    Nothing will satiate the statists but a total collapse of the civil society. Rioting (see England, Greece, Spain), inflation (see Argentina, Peru, Wiemar Republic, Zimbabwe, elevated food prices in Egypt leading to a revolution, etc.), turmoil (as the EU disintegrates), and war (the legacy of the 1930s, and what’s beginning to stink in the Middle East). That’s where all their plans have taken us in the past and are leading us now. To not speak out against yet another Fed snatch up of assets is to display either unspeakable ignorance or egregious deception.

    As for Mr. Frum, his fundamental misunderstanding of monetary theory is on brazen display yet again. Printing a bunch of money ain’t gonna do nothing it already hasn’t.

    • Montysano

      The “statists” have taken over Goldman Sachs and BAC? Who knew?

      You’re probably listening to too much Mark Levin. Anyone who believes that statists are prevailing is delusional.

      • overshoot

        “Anyone who believes that statists are prevailing is delusional.”

        Warrantless wiretapping, “extraordinary rendition,” extrajudicial death orders for US citizens, “enhanced interrogation,” a party proud of executing innocent prisoners, groping travelers in ways that would be felonies for anyone else, Kelo, etc.

        There is no voice for individual rights in our national forum. Both major parties stand for plutocrats directing the power of the State [1]; the only difference between them is in how that power over us is to be abused.

        [1] I think there’s a name for that. Does anyone remember?

        • balconesfault

          groping travelers in ways that would be felonies for anyone else

          Meh. For the record, there’s no need to get “groped” if you aren’t getting aboard an airplane full of other passengers who could all be killed if one person manages to get the right contraband aboard with malicious intent.

          Last I checked, nobody groped me at bus terminals, train stations, or (unless you’re looking for that sort of thing) public highway rest areas. Hell, you can even climb aboard your corporate jet without a groping.

  • TexasDog

    It is time for real Republican leaders to cast off the smothering cloak of the far-right and to fight for America not the Tea party. But who are these Republican leaders we hope to see lead the party out of this disaster? Is Boehner the answer?

  • dubmod

    Of course there will plenty of money for Perry’s Judeo Christian Crusade against the Muslims. Wonder will he ride a white horse like El Cid? How can any person with common sense continue to support this lunatic party?

  • Republican Letter To Bernanke Sparks Amusement | Neon Tommy

    [...] letter has drawn baffled responses from commentators such as former George W. Bush speachwriter David Frum, who latches onto suggestion later in the letter that the Fed's actions will "promote more [...]

  • Watusie

    Shorter version of the letter:

    Dear Fed,

    We are afraid what you are doing will make things better. We want things to get worse. So stop. Or else.

    Sincerely,
    The Republican Party

  • think4yourself

    So I read the text of the letter. I don’t think it’s all that Frum is alluding to. I welcome Frum’s criticism of the GOP. He is also correct that overleveraging the US consumer is not one of the big issues of the day and in fact consumers have lowered debt and increased cash at one of the fastest rates in history over the last 3 years.

    What the letter does say is that they ask the FED not to engage in additional stimulus without providing evidence or information as to how that will benefit the economy and also mention that there are many economic experts that do not agree that additional stimulus will be of benefit.

    Given that large stimulus will increase the Federal debt significantly, it’s a reasonable point to ask if the results of that stimulus are worth the cost – which we will have to deal with for generations to come.

    • Primrose

      But the Fed won’t pass the stimulus that leads to debt. They can only do things like loosen or tighten the money supply, and loosening it would ease debt, or at least would if it created inflation.

      • zaybu

        That’s the problem with many people in this country. They don’t understand such basic differences between fiscal and monetary policies, yet they think they know economics better than the expert in the field.

  • Curmudgeon

    David,

    Your mentioning of the average credit card interest points to a large part of the problem, and a possible solution.

    Everyone looks at consumer debt in the net amount, that is, how much principle is owed. But what is not taken into account is that deleveraging from 15%, 26%, or even 36% interest takes an incredibly long time. In addition, when most of the consumer debt created in this current cycle, the interest rates were lower, in some case much lower, than they are today. So the cost of servicing ones household debt has increased at the same time that wages have been flat or decreased.

    So hear’s a possible solution. Bring back usury. The very old, in fact biblical, idea that one should not charge excessive interest on borrowed money. Most states have such laws already on the books with legal interest limits in single figures. 8% seems to be about the average. Credit card companies and other consumer lenders can only charge rates like loan sharks because of of The National Bank Act, as interpreted by the U.S. Supreme Court in the 1978 case of MARQUETTE NATIONAL BANK OF MINNEAPOLIS v. FIRST OF OMAHA SERVICE CORP. ET AL. The Court ruled that National Banks can charge credit card interest based upon the Usury law of the state where the bank is located. They said basically that:

    “The National Bank Act provision codified as 12 U.S.C. 85, authorizes a national banking association “to charge on any loan” interest at the rate allowed by the laws of the State “where the bank is located,”

    That is the reason why most credit card companies are incorporated in states like Delaware and South Dakota. High or nonexistent usury limits.

    So, if our dysfunctional leaders would just amend 12 U.S.C. 85 to read, “where the borrower is located,” every consumer with applicable debt would get an immediate break on payments. The banks, you know the guys we the taxpayer bailed out, wouldn’t lose a dime of the principle owed them, they would just have to make a little less profit on existing balances. This would put more money in the consumers hands with the, I would hope, result of increased consumer demand for goods and services. Further, the banks might not want to make the argument that such a change would be “unfair,” to them. These are the same bunch that creates credit agreements that allow them, the bank, to change any term at will while preventing the borrower from changing anything. A fair contract it is not.

    So let the government act in the consumers’ behalf, for a change. Bring back usury.

    More details at my blog: http://thereasonablecurmudgeon.blogspot.com/2011/08/this-might-work.html

    • Primrose

      Good idea Curmudgeon! That would help a lot of families I know out. And it wouldn’t change the idea that you owe what you owe since the companies can change the rates anytime (of course usually that’s up).

      At 8%, they are still getting a decent profit on the money too.

  • D Furlano

    I guess the GOP letter didn’t mean much.

    The FED did the twist on 400b of bond shifting.

  • StreetSign

    I think mild mannered Ben Bernanke just stuffed Boehner and the Tea Party whipped Republican Congressional leadership, not to mention Rick Perry.
    Instead of the $300 Billion Operation Twist as has been widely suggested, it is $400. So, thank you very much, Tea Party Congress.
    Richard Fisher, President of the Dallas Fed, dissented again, as he did in the last FOMC meeting. IMO Fisher’s position has nothing to do with the Perry or Tea Party jargon. Fisher’s issue is with effectiveness-pushing on a string. He doesn’t see a “transmission” system of funneling the liquidity to the end users.

  • think4yourself

    My 2nd comment on this. Not that I support the GOP. It’s simply that I’m not sure that another round of easing will make much of a difference.

    Consumers aren’t spending because interest rates are too high. Or even not having access to borrowing – Banks are happy to lend to people with great credit and good financials – but those people are not borrowing. The ones who want to borrow have poor or marginal credit and financials and banks are no longer lending to them or do so at incredibly high rates (see payday loans at 1,000%). Same goes for companies. Corporate profits for large companies are near record highs. Corporate cash in the bank are at all time highs. But, these companies are not deploying that cash, instead they are hoarding it.

    Finding ways to convince those individuals and companies that it is okay to part with some of their hoarded cash is what it will take to jumpstart the economy and then it will be another 12 months for that cash to start to take effect in new orders which will create new jobs, which will lower unemployment. I don’t think more quantitative easing will convince those individuals and companies to spend more.

    • balconesfault

      There may be some economic things going on that I don’t fully understand … but I’ve been inclined to agree with you.

      At this point easing seems like trying to push a rope. If we really want the rope to move, it makes a lot more sense for government to actually start pulling it.

      • Banty

        The problem is, that the big knob that the Fed could normally turn, to tighten up on or juice an economy, which is the federal fund interest rate, was already turned nearly all the way down during the Bush administration. What’s left is relatively ineffective measures to drop long term interest rates, so that’s what they do. The Fed was left with little ammo to deal with a nearly deflationary economy, and they’re running out of it. And what’s left, is like BB guns. The problem is aggregate demand; there’s nothing having to do with interest rates holding back economic activity; it’s that no one is going to build capacity, to make things people aren’t going to spend their money on.

        • Demosthenes

          There are also less conventional approaches, e.g. Sweden’s:

          In summer 2009, the Riksbank had assets on its balance sheet equivalent to more than 25 percent of the nation’s gross domestic product. For the Fed, that level never got much over 15 percent. In 2009, the Riksbank even moved one key interest rate it manages below zero. Under this negative interest rate, banks that parked money at the central bank actually had to pay 0.25 percent for the privilege.

          http://www.washingtonpost.com/business/economy/five-economic-lessons-from-sweden-the-rock-star-of-the-recovery/2011/06/21/AGyuJ3iH_story.html

          That WaPo article cites Swedish officials as saying that the negative interest rate was largely symbolic, even so, the effect of the same fits in well with standard theory. Whether or not such a policy — however demonstrably well it works — could pass in the current political climate, is a different question…

    • zaybu

      think4yourself , you’re quite right, and that’s why the stock market reacted negatively to Bernancke’s move. Investors know that monetary policies are not going to budge the economy forward by that much. What’s needed is another stimulus package, which won’t get passed by the gridlocked Congress, and also resolving the housing crisis by alleviating those whose homes are underwater. And I share Frum’s pessimism that we are headed for some really turbulent times.

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  • sdspringy

    Bernanke has been an unmitigated disaster, TARP a massive fraud on the US taxpayer and the QE2 was a Wall Street free for all for taxpayer cash.

    TARP, the purpose so stated in the legislation, was to buy toxic assets, thus the name TOXIC ASSET RELIEF Program. What did we buy, nothing. The CDOs were without value, based on failed mortgages on property that was losing value. To place a value on them and then buy them as the legislation dictated would have bankrupted the banks that held them. What did Bernanke do, he funneled cash, bought nothing, to all the banks. Those banks which didn’t need the cash were forced to take it because it would make the other banks look bad.

    But wait what happened to the toxic assets?? Who owns them now, why we do, at full or greater value because of the well practiced technique known as “front running”. Wall Street knew Ole Ben was going to buy those CDOs and spend whatever was asked for the value. So with this info certain WS wise guys started buying up the assets and reselling them to Ole Ben, with his tax payer funded credit card and printing press, for huge amounts of money and profit.

    You wonder why 2009 was a cash cow of a year for the banks, foreign and domestic, thank Ole Ben. QE2, was for public consumption, the real money flowed through to banks and hedge funds via the buy back.

    Where did the Fed park those CDOs?? Well guess, what Fannie/Freddie now guarantee those toxic assets at full value. You know Fannie/Freddie the GSEs that Ole Barney Frank said were sound financial institutions providing a valuable service that would never be bailed out by the Federal government.

    http://www.commondreams.org/headline/2011/04/16-1

    http://www.huffingtonpost.com/2010/12/01/fed-opens-books-revealing_n_790529.html

    None of us knows the amount we as collective taxpayers owe via the shadow budget of Ole Ben. It makes a 1.5 TRILLION dollar deficit a mole hill compared to what Ole Ben has placed on our shoulder.

  • armstp

    And to think Bernanke is a Republican appointed by Bush….

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  • rokkitman

    I know what the detractors will say: to the end of defeating President Obama and replacing him with a Republican president.

    David, since you propose no alternative, I presume you’re accepting this explanation. You should, as it is correct. Now all you have to do is figure out that the Republican Party will not be salvaged within your life span, and you may as well join the Democrats and help those of us who respect fiscal responsibility to re-balance the only sane political party left in the USA.

  • farrago

    Mr. Frum, get over the shock. The more the economy goes down the tubes in the next year, the more people will blame Obama and vote to replace him. It’s about power, especially to dole out the spoils to those who enabled the victory. It’s not about patriotism. You are a relic of an earlier time for thinking it might be so.

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  • ceruleanbill

    There has to be a meeting point between people honestly concerned about the macro-economy, and people honestly concerned about individuals. It has to start with accepting that the other side isn’t entirely populated with fools and windbags…. no matter how it may seem.

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