Newly Released Transcripts Reveal the Federal Reserve's Incompetence

More than four years into the start of The Long Emergency, one astonishing aspect of the crisis is that so many people still retain their faith in the system and that their so-called "leaders" are wise and all knowing and will do the right thing and see us through to a glorious economic recovery. Even though there are overwhelming indicators that the government and banking officials charged with running the economy are incompetent dolts whose groupthink is so pervasive that they are unable to see what is right in front of their eyes, most people still believe and put their trust in them. I guess in a way we should be thankful for that, because an overwhelming loss of that faith would no doubt cause a nearly instantaneous economic collapse.

Up until now, however, those few of us who actually understand what has been going on have only been able to speculate about the incompetence of our economic stewards, particularly at the Federal Reserve. What we lacked was hard evidence of just how the disastrous decisions leading up to the crisis were being made. Thanks to a New York Times story printed on Thursday, however, the true story of the Fed's utter cluelessness is now out there for all to read:

As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.
The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was “rising through the roof.”

But the officials, meeting every six weeks to discuss the health of the nation’s economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast.

“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006.

Some officials, including Susan Bies, a Fed governor, suggested that a housing downturn actually could bolster the economy by redirecting money to other kinds of investments.

And there was general acclaim for Alan Greenspan, who stepped down as chairman at the beginning of the year, for presiding over one of the longest economic expansions in the nation’s history. Mr. Geithner suggested that Mr. Greenspan’s greatness still was not fully appreciated, an opinion now held by a much smaller number of people.

Meanwhile, by the end of 2006, the economy already was shrinking by at least one important measure, total income. And by the end of the next year, the Fed had started its desperate struggle to prevent the collapse of the financial system and to avert the onset of what could have been the nation’s first full-fledged depression in about 70 years.

The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation’s pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.

“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”

“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.”

The whole article is quite lengthy and worth reading in its entirety. What's truly amazing is how the mantra was repeated after the 2008 market crash that "nobody could have predicted" that the housing market would be a catalyst for tanking the entire economy. Which was complete and utter bullshit. There were plenty of voices predicting what would happen, they just weren't allowed to be heard in those Federal Reserve meetings.

Even more amazing is how none of these people who completely blew the most important call of their professional lives have suffered any negative career consequences as a result. Geithner, who comes off as particularly clueless in this article, was of course subsequently installed by President Hopey-Changey as his Treasury Secretary. That's how it works in America these days. "Accountability" is only a word that applies to the little people. The movers and shakers have nothing to fear in that regard, no matter how badly they fuck up.

So today, these same feckless SOBs are still running the economy, and the vast majority of the population still retain their faith in them. But you have to wonder how much longer that can possibly remain the case.


Bonus: So when did Alicia Silverstone join the Federal Reserve?

Ben Bernanke + Climate Change = Higher Peanut Butter Prices

Part of my job as a blogger is to sit around analyzing seemingly unrelated news stories, establishing links that are often missed by the mainstream media. Usually, it really isn’t all that difficult. You would think the reporters could do this stuff themselves, except for the fact that they are all hyper-allergic to engaging in any form of speculation on issues of real importance, lest they offend their corporate masters and get themselves fired.

I’ve documented on this blog numerous times how Federal Reserve Chairman Ben Bernanke’s reckless Zero Interest Rate and Quantitative Easing policies have driven up the costs of food and energy around the world. Because the dollar is the world’s reserve currency, and thus is the preferred method of valuing commodities in international trade, any action that causes it to slip in value makes those commodities more expensive. In the case of agriculture products, the effect has been magnified because of poor harvests resulting from the recent run of historically bad weather. When these two factors combine, you get stories like this one last week from the Cleveland Plain Dealer:

First gas, then coffee, and now peanut butter.

Consumers fed up with the higher cost of filling up their cars and buying their morning java might now have to pay more for their PB&J.

Scorching hot, dry weather in the major peanut-growing states like Georgia and Texas has devastated this year's peanut crop.

Some plants shriveled before they could produce peanuts, while other plants got too hot to mature into anything edible. And some of the plants that did mature developed a toxin that makes them more difficult to process.

The U.S. Department of Agriculture is predicting this year’s peanut crop could be about 3.61 billion pounds, 13 percent smaller than last year's 4.16 billion pounds.

Bottom line: Consumers will see higher prices on peanuts and peanut butter at least through the winter.

"In my 20 years in the nut business, I've never seen peanut prices this high," said Marty Kanan, president and chief executive of the King Nut Co. in Solon.

I have a confession to make. Peanut butter is very much a guilty pleasure of mine. I got hooked on the stuff as a kid and I can’t seem to kick the habit. Good thing I have low cholesterol by heredity. That said; paying a higher price at the supermarket for my occasional jar of Jif isn’t going to break my bank account. The people this is going to hurt are the ones on the lower end of socio-economic ladder. Besides being tasty, peanut butter provides a cheap source of protein to those without a whole lot of money to spend, like, say, food stamp recipients.

I checked over the entire article and there wasn’t a single mention of climate change or the fiscal policies of the Federal Reserve anywhere to be found. There was, however, this quote:

(Executive Director of the Georgia Peanut Commission Don) Koehler said supplies are plunging just as consumption has reached record highs, which he credits to Smucker and its “Choosy Moms Choose Jif” commercials.

Smucker is the world's largest buyer of peanuts for roasting, he said.

"If everybody goes out right now and buys it off the shelf, it's going to take that much longer to replace it and cost that much more," he said. "If we can make it through this year," next year's crop looks much more promising, he said.

I’m not sure what rock Mr. Koehler has been living under, but I remember that same television advertising slogan for Jif peanut butter from when I was a kid decades ago. Attributing the increased demand to an advertising campaign old enough to BE a mom is simply daffy. The reason everybody is going out and buying peanut butter off the shelf, Mr. Koehler, is because they can no longer afford prime rib or even ground beef anymore. If you were a food stamp recipient with just $133 a month to spend on your sustenance, peanut butter might be high on your shopping list as well. And when you consider that the number of food stamp recipients has increased from around 27 million to over 45 million since 2007, the cause of the increased demand for the stuff isn’t too difficult to comprehend.

I guess it really is too much to expect mainstream reporters to stop acting like glorified stenographers just copying down without question whatever the people they interview tell them. But in a way I’m grateful, since calling them out on it is part of what makes blogging so fun and rewarding these days.

How Ben Bernanke Killed a Century Old Coffee Company

I’ve recounted numerous times in this space how Federal Reserve Chairman Ben Bernanke’s reckless Zero Interest Rate Policy and Quantitative Easing shenanigans have been driving up the cost of food and energy around the world. The effects of "Helicopter" Ben’s attempts to jump start the economy have bee seen everywhere from the sky high prices at your local gas station to the revolutionary violence breaking out all over the Middle East.

But there are also plenty of small examples of the economic damage being wrought by the Fed that largely pass unnoticed. One such sad instance was the announcement last Thursday that Norfolk, Virginia’s First Colony Coffee Company is closing its doors after over a century in business. Here’s the Hampton Roads Virginian-Pilot with the story:

First Colony Coffee & Tea Co., a 109-year-old manufacturer based in the Ghent neighborhood, has roasted its last batch of beans and shut down, its president confirmed Wednesday.

Bruce Grembowitz, First Colony's president, cited the continued high price of beans, which has more than doubled in the past two years, as well as the weak economy for the decision to close.

"Over the past two years, a lot of the business that we've been doing has kind of dried up and disappeared," he said during his first interview since the plant stopped operating Aug. 19.

First Colony's 55 workers learned of its fate about 10 days before the end, Grembowitz said. He and five other employees remain at the factory at 204 W. 22nd St. to work out the final details, including the potential sale of the building, which the company owns and has occupied since the 1920s.

So a venerable U.S. company that had weathered the Great Depression, two world wars and the oil shocks of the 1970s found that it couldn’t survive the current Fed Chairman’s hideous Reign of Error. This story also exposes as a cruel farce the idea promoted by the defenders of the Fed’s policies that we need to devalue the dollar so that American manufactured goods will be more competitive overseas. Right here we have an example of a company that was still producing goods domestically having its business model crushed by the effects of a weak dollar.

What’s really sad about this situation is the utter lack of outrage being shown by the public. Americans should be taking to the streets en mass demanding the resignation of Bernanke and the end of monetary policies designed to help the big banks and Wall Street at the expense of working people like the 55 now-former employees of the First Colony Coffee Company. Until such time as there are such mass protests at what is being perpetrated by our so-called “leaders” on behalf of their Wall Street masters, we can expect more of the same until the eventual day when the whole rotten system collapses under its own dead weight.