Way back on 15th January 2010, I raised the question around the severity of unemployment and the collateral damage it has on individuals, families and the economy. This week, Ben Bernake speaking at the Feds annual retreat at Jackson Hole Wyoming, on the economy made the following statement :
We cannot afford to stand by idly while millions of Americans remain unemployed or underemployed for years and years, Federal Reserve Chairman Ben Bernanke said Friday. It’s up to Congress and the Obama administration to do something to speed up the sluggish recovery ....
Ben Bernake - August 26th 2011
For an economist who is touted as one of the foremost exponents of the Great Depression and the economic impacts it savaged in its wake, I cannot help wondering how both Bernake and the Fed missed the following signals :
- Both the quantitative easings really seemed to miss the economic stimulus target,
- Immediately after the GFC crash initially and recently, politicians clearly exhibited a passion for arguing their own case in the senate rather than looking at the bigger global economic picture - this puerile idiocy wiped around US$7 trillion off world markets when the funding supply bill stalled in the senate last month.
- Right back in the 1940's when Keynes wrote his ground breaking work on Money, Employment and Interest rates, it was obvious then to every undergraduate that employment was the core key to economic stimulus. The dollars earnt from a job would be split between stimulating domestic consumption, impacting the velocity of money (MV=PT), and personal savings, where banks, if suitably rewarded would lend back into the economy, driving further stimulus.
- And on the regulatory & governance side of things, how could they have missed the poorly conceived impacts of Basel II on financial institutions - simply stated Basel guided banks to get better data so they could build smarter models so that they could cut their capital holdings. Enter the GFC, stage left, and retail savings dried up, wholesale markets crashed and burned so global funding markets were not prepared to lend, liquidity went from reality to a definition in a dictionary. The result was hundreds of financial institutions failed and we now have Basel III - and do you know what the result of Basel III is ? Tougher controls around liquidity holdings, removal of convoluted hybrid capital instruments from tiered capital calculations and tougher stress testing (which most banks seem to still be failing). So how does an organisation like the Fed miss these really big systemic shifts - do they need it written on the back of their cereal packets so they get a hint each morning ?
- Another great gaff : Mark to Market, Value at Risk and the accountants need to tell the world that there has been a financial change. Portfolios are marked to market each day and the accounting standards enforce that a CFO must inform the market of any material changes under the continuous disclosure rules. So when there has been a market glitch and CNBC run the story ragged and the markets sell down banks, continuous disclosure kicks in and although in many cases there was no material changes in these financial institutions structurally, the portfolio values had changed overnight due to market prices materially moving as a result of a news item or similar issue. The following day the markets open lower and the CFO reports the change, the markets reacted and the portfolios go down again & still nothing material is happening in the institution. This cycle keeps repeating until the market comes to its senses. How did the regulators deal with this ? They changed the rules and allowed institutions to make a call on when they should inform the markets and gave them discretion on how big a move would be seen as material and in conjunction with their auditors they can decide if the continuous disclosure rules will apply. Unbelievable, wish I could do this with my tax return.
- The theme that is developing here is that politicians and regulators have taken their eye of the main ball : EMPLOYMENT, and keep re-regulating and focusing on the economic symptoms which continue to occur at a more frequent and alarming rate and we continue to move ever so close to recession and or deflation.
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| Unemployed & in debt ... |
