Sixteen Questions for Dr. Bernanke’s Press Conference

Mmmm… I live near DC, but what does it take to get an invite to the Fed’s press conference?  One e-mail, four phone calls, four messages… and not even the courtesy of a reply?  What, does the Fed think they run this place?!  (Uh, maybe.)

I mean, it would be reasonable to receive a response that says, “Sorry, bloggers are NOT a part of the press, no matter how much reach you have.  We only deal with REP-utable media.  You are not an impartial reporter of information.”  But being ignored is just tacky.

I’m assuming that I will have no access to the press conference.  So, I’m writing out a list of questions that those in the press can use if they like.  Some questions are normal ones, some less so.  To those that follow me that may have contact with those who are invited to the press briefing, I ask that you pass the questions along to them.  Thanks.

1) Why has the NY Fed’s open market’s desk been buying predominantly intermediate nominal Treasuries, but with TIPS, predominantly the long end?  Is the Fed trying to purchase a long-dated inflation hedge?

2) Growth in developing world means more competition for food and energy supplies, and other commodities, which are forcing prices up in those areas.  Why does the Fed focus on so-called “core” measures of inflation, when food and energy prices (though volatile), always seem to go up more than the “core?”

3) If you are trying to smooth out fluctuations in inflation, wouldn’t it be better to use the median or a trimmed mean, rather than ignore data, particularly data that minimizes the effect of inflation for households for which food and energy are a large portion of their budgets?

4) In 1992-1993, the Fed held the Fed Funds rate down at levels that produced a very steep Treasury yield curve.  When the Fed began tightening policy, in 1994 the bond market had annus horribilis, with a self-reinforcing sell-off in the Residential Mortgage-Backed Securities market.  As you begin removing policy accommodation, what assurances can you give that we won’t have a similar selloff?

5) How are you regulating banks differently now than you were in 2005?

6) Why did the Fed resist legitimate FOIA requests so vehemently?  In the insurance industry, every asset is public.  Why did the Fed and the banks resist disclosure of items that should have been regarded as trivial?

7) Why did state-regulated insurers come through the crisis better than federally-regulated depositary institutions?

 Why does the Fed employ so many Ph.D. Economists when the economics profession proved incapable of forecasting the recent crisis, when all anyone had to do was look at overall debt levels relative to GDP to see that we had surpassed the levels of the Great Depression?  Why employ so many from a failed area, when it would be better to hire History Ph. Ds. who might note the problem?

9) Why is the Fed so big in terms of employment, when all you do is set monetary policy, and pretend to regulate financials?  Why can’t the Fed  be slimmed down to provide a greater payback to the US Treasury?

10) Are you concerned that the Fed’s balance sheet is a record 16-17% of US GDP?  If you begin to shrink your balance sheet, what will the effect be on the banks, lending and the general economy?

11) Some suggest that the removal of liquidity will prove difficult.  So far the Fed has minimized price inflation, but how will you manage the removal of accomodation from QE2, particularly if inflation begins to accelerate?

12) If you find the US in stagflation one year from now, how will your policy be different from that of the Fed in the late ’70s?

13) What evidence is there that quantitative easing works?  Japan is still a basket case, and they have done it the most.  Ignore theory, and give concrete examples.

14) Quantitative easing has forced investors to take more risk, particularly retirees who need income.  Is it fair to engage in an economic policy that is unfair to investors and seniors?  Why harm savers who deserve a good return on their savings?

15) Don’t you think that holding interest rates so low just builds another bubble?  Low interest rates relative to growth in GDP often fosters speculation that blows up once the economy overheats and the Fed adjusts policy.  Why engage in such policy?  Why not aim for something more sustainable, a la Knut Wicksell?

16) Why is the Fed sucking down 50% of the US Government’s issuance of debt?

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Okay, so I am biased and not politically realistic.  Yet I am trying to be real with the economy as it is, and the distortions that the Fed has created through their horrendously loose monetary policy.  I firmly believe that the history books will condemn Greenspan, and to a slightly lesser extent Bernanke, for their mishandling of monetary policy and supervision of financial companies.

Questions For Ben

Posted 2011-04-26 10:31
by Karl Denninger 
in Federal Reserve 

Since he's going to take them, here are a few in no particular order:

• You testified in front of Congress, under oath that you would not monetize the Federal Debt.  Yet one of the Fed Presidents, Mr. Hoenig, has said that you are, under any reasonable interpretation of reality, now monetizing federal debt.  How was your previous statement, made under oath to Congress, not an act of perjury?
  
• In the lead-up to the crisis of 2007 and 2008 you emphatically stated on multiple occasions that you saw no material risk of recession or of the housing downturn becoming a widespread phenomena.  Not only was the first economic call incorrect, the second was spectacularly wrong to the point of complete irrelevance, particularly given the recent Case-Schiller report.  Why should anyone believe that similar claims of ability to avoid serious inflationary or other disruptive impacts of your monetary policy decisions, given your past track record of inaccuracy?
  
• How do you justify stealing essentially all of the income of Senior Citizens and others who are not in a position to take market risk?  To put this in perspective the average rate on 1-year CDs were around 5.25% prior to the collapse in 2007.  $1 million in such a CD would return $52,500 - enough money for a retired couple, along with Social Security, to have a reasonable lifestyle.  Accumulating $1 million, while not particularly easy, was entirely possible for most working couples during their lifetimes.  $50,000 is reasonably close to the median household income; as such a retired couple could thus live a decent middle-class lifestyle on this income without taking market risk.
  
  Today a 1 year CD yields, at best, about 1.25%.  That same household now has an income from their CDs of $12,500.   This is below the poverty line for a two-person household (currently $14,570.)  Your zero-interest rate policy has literally resulted in the descent of an average-income retired household into poverty.  Given that 13% of the population of the United States is over 65, how do you justify intentionally plunging those retirees into poverty?
  
• You have repeatedly claimed that your "QE2" program was intended to "help the economy."  Yet it is clear that this bond-buying was, in fact, very close in size to the gross federal deficit during that time.  How do you defend the obvious financing of the Federal deficit and when do you intend to stop doing so, given that everyone, including you in Congressional testimony, have stated that this deficit spending is unsustainable?

Those will do for a start.