Thursday, April 22, 2010

Questions I'd like to ask Ben Bernanke

Here are some questions I'd love to ask Bernanke. I've taken the liberty of providing Ben's answers since he'll never actually answer questions like this.

Me: What is your estimate of inflation for the next 10 years?
Ben: It's difficult to predict economic variables over a long time period. Our job is to respond to the data as we get it.

Me: Okay, what is your target rate for inflation over the next 10 years? What rate of inflation does your policy aim for?
Ben: Our stated inflation goal is 2%.

Me: For how much of that 10 year period do you anticipate that real interest rates will be negative? Currently savers are lending their money to the banks at zero percent, while inflation is running 2% year over year. We lose money, or donate to your banker friends, every day due to loss of purchasing power. How long will retirees and the risk averse individuals be required to fund the bonuses of your friends?
Ben: It's unfortunate that savers aren't getting a good return, but my mandate is to do what's best for the country.

Me: Repeating the question, for how much of that 10 year period will savers get a negative return on their money?
Ben: Interest rates will remain at exceptionally low levels for an extended period of time.

Me: I see. So what would be your advice to a retiree who can't tolerate the blowup of another liquidity induced asset bubble created by the federal reserve? What about the millions of Americans who don't trust their money to the Wall Street sharks? How much risk do they have to take on just to maintain the value of their dollars, much less make a small return? Should they run the risk of buying overvalued stocks, which currently return more every week than their money market fund returns in a year? Or should they just chew up their savings and depend on the state for support after the money's gone?
Ben: We don't see any evidence of significant mispricing of any asset classes.

Me: All due respect, Ben, you and your institution have missed two of the three largest bubbles in US history in the last decade. Your assurances are worthless.
Ben: The S&P 500 is still 20% below 2007 levels. That doesn't suggest a bubble.

Me: Uh, Ben, 2007 was a bubble. It was a very big bubble. I know you are blind to them in progress, but now you can't see them in retrospect either?
Ben: It wasn't a bubble, it was a credit crisis. It was due to an imbalance of savings by the Chinese, which they imprudently loaned to American home buyers.

Me: And keeping the Fed Funds rate at 1% for a couple of years while housing prices were going up 20% a year had nothing to do with it?
Ben: My mandate is to do what's best for the country.

Me: So what is your response to critics who say that your policy right now is brewing up a bad bout of inflation. Negative real interest rates, printing money to buy overpriced assets, massive government fiscal stimulus, all leading us toward high inflation, possibly hyperinflation?
Ben: The risk of inflation is low. We are more concerned about deflation.

Me: Deflation would be bad for your friends in the banking business, eh?
Ben: Yes, and that would hurt the rest of us.

Me: Don't you mean the rest of "you"?
Ben: Whatever.

Me: Is the price of gold suggesting deflation, near all time highs and rising?
Ben: The price of gold reflects concern about the economic system.

Me: Oil? Up 150% in the last 13 months?
Ben: Speculative activity can temporarily misprice assets?

Me: I thought you didn't see any mispriced asset classes?
Ben: Not broad classes.

Me: Oh. What about copper, up about 200% over the same period? Nickel, iron, farmland, silver, platinum, palladium, coal. All up sharply and rising faster.
Ben: Those are just signs of economic recovery.

Me: But not enough recovery to tolerate anything other than free money.
Ben: No.

Me: So is the stock market signalling deflation? The Nasdaq 100, the highest beta growth stocks are up 100% in 13 months. High growth stocks hate deflation. How do you reconcile that?
Ben: Markets can sometimes get a little ahead of themselves. We at the Fed see an economy still at risk of deflation.

Me: But Apple Computer, with a market cap of a quarter trillion dollars and a PE ratio in the upper 20's is not a sign of a bubble. Retail indexes hitting all time highs. Stocks jumping 10-15% a day, after running up 300% in the last year.
Ben: I can't comment on individual stocks.

Me: Do you own gold, Ben?
Ben: No comment.

No comments:

Post a Comment