Bernanke Speaks On The Protests

The wall street protestors are having some success at gaining recognition from key policy makers like Ben Bernanke who responded to a question yesterday about the protests to the joint economic committee . He claimed to sympathize with the protests by saying that, “Like everyone else I am dissatisfied with what the economy is doing right now. Certainly 9% unemployment and a very slow growth rate is not a very good situation – which is what they are protesting.” However, while I am sure that no one is celebrating the sluggish growth of the US economy, I really don’t think that is precisely what is driving the protests.

I think people are more likely protesting excessive profits on wall street. They are appalled by bonuses distributed to executives of insolvent institutions and there is general feeling that wall street has profited at the expense of the broader population. People though seem to have differing opinions as to the exact message behind the protests. Bernanke´s past solutions to what he interprets to be the cause of the protests (high unemployment and weak growth) has been to increase monetary stimulus and quantitative easing. Unfortunately for the protestors, these policies tend to be ones that might stimulate growth but mainly through the financial sector at the expense of the middle class. Instead of persuading the Fed to temper monetary stimulus, the protests might inadvertenly influence him to step on the accelerator.

A friend of mine suggested on a current events forum that the protests, even without a clear message would, “capture the world’s attention and allow for the change-agents, policy guys, the lobbyists and lawyers to step in and use the moment to direct peoples’ attention towards legitimate structural, legal, economic change.” Unfortunately, as I pointed out to him, policy makers are already aware of the huge economic problems and that just reinforcing this awareness wouldn’t add anything useful to the general discourse. This seems to be what is happening as Bernanke believes that the protests are reflecting his own positions when I imagine they were intended to change them.

Barack Obama, who should be pretty influential in setting policy in the United States, wasn’t even able to push through small revenue increases as part of the budget plan necessary to raise the debt ceiling a couple months ago. If Obama can´t pass such a reasonable and simple request through Congress, it seems unlikely to imagine that the protestors will make any progress with a message that seems convuluted to many people. I think for the protests to be successful, they are going to need a clear and unified economic message that someone like Bernanke won’t be able to mistake. He is obviously not going to spend a lot of time listening to the protestors to formulate his understanding of the economy, so the message that trickles through needs to be consistent and unmistakable.

Talk with David Rosenberg

I recently had the pleasure of talking with David Rosenberg, chief economist at Gluskin and Sheff and we talked about some of his impressions on the economics behind several of the songs on Recession Sessions .

Greenspan’s Defense
Rosenberg is no defender of the Maestro, and gave the legendary Central Banker a very poor grade. He also made clear to differentiate between the easy money policies of Greenspan and Bernanke. Rosenberg told me, “If you Gave Bernanke an economy that was growing at 5% – he certainly would not have kept rates that low for so long.” Rosenberg feeling was that at least Bernanke can pin his ultra-loose monetary policy on a weak economy, whereas, Greenspan had no such excuse.

This Time Around (Song about the Canadian Economy)
Rosenberg is still fairly bullish on the Canadian economy. Canadian banks have strong balance sheets, the fiscal situation is relatively better than other developed countries and the Canadian economy benefits from a recent strengthening in commodity prices. That being said, he doesn’t think that the Canadian fiscal situation is very solid either. He used the expression, “in the land of the blind, the one-eyed man is king” to sum up Canada’s fiscal situation. He understands the American economy to be 20 years behind the Canadian economy right now in terms of dealing with a serious fiscal situation.

Gold Price Factors
There was a story a month ago when George Soros sold most of his gold holdings that gold could be in a bubble.
Rosenberg’s opinion was that Gold is not even experiencing a mania let alone a bubble. He said that if you normalize the price of gold by the money supply that you don’t have a bubble at all. A bubble would start to emerge at around 3000 dollars an ounce.
He says, that gold is trading more like a currency now and less like a commodity.

Is it over yet?
Is it over yet was Rosenberg’s favourite song on the album.
His answer to the question was a resounding NO.
The global economy still faces major risks. The biggest of which are the European Debt crisis, the Japanese economy and the US economy which also faces major headwinds. However, he was not completely gloomy about the US. He added to his claim that, “The United States has immense wealth and they have a knack for getting their act together.”

Let’s hope they can do it again this time before the August 3rd deadline to raise the debt limit.