Dear Senators Feinstein and Boxer, December 8, 2009
I recommend a No vote for Chairman Bernanke’s
Did you know that the household wealth in the U.S. has declined by 26% in the
past two years. 2007-2009? It collapsed from $65 trillion to $49 trillion. That involved a lot of retirement accounts and home mortgages. You should know. This comes from a report by the Brookings Insititute derived from the Survey of Consumer Finances, a report of the Federal Reserve Bank. Most of this was financial wealth, fortunately. Millions of families have suffered.
I am drawing from the report “The Wealth of Older Americans and the Subprime Debacle” by Barry Bosworth and Rosanna Smart, Nov. 2009, Brookings Institute, page 33. One can also look to Edward Wolff’s report “The Squeeze Before the Storm” in Pathways, Stanford University Institute on Poverty and Inequality, Fall 2009. Wolff states, “According to my estimates, while mean wealth (in 2007 dollars) fell by 17.3 percent between 2007 and 2009 (to $443,600), median wealth plunged by an astounding 36.1 percent (to $65,400), about the same level as in 1992.” (Page 1) This reduces the private net worth, or the wealth of the nation, from $63 trillion to $52 trillion, in rough numbers. The collapse follows a very rapid asset price bubble resulting from financial corporations’ extremely toxic innovations. Treasury Secretary Paulson and Chairman Bernanke eventually called them “negative frozen assets” --- meaning essentially unsaleable worthless junk. Mean net worth returns to 2002 levels, median returns to 1992 levels which is not much greater than 1983 levels. These two reports differ in markedly, Wolff states 17.3 percent decline, Bosworth and Smart say 26 percent decline.
I suppose what should be noted, and underlined, is that most American families now have 36% less savings than they had two years ago.
The Federal Reserve is charged with two missions, price stability and maximum employment. Bernanke played a failing role in both the charges.
Between 1997 and 2007 the median house sales price increased by 84% above the growth of inflation. And the sales volume of mortgages, 1994 to 2005, increased by 6 times, from $200 billion to over $1,200 billion. (See The Looting of America, Les Leopold, page 116, quoting the Case-Shiller Index and the Flow of Funds Account of the U.S.) Bernanke never warned us, and that’s a major bad mark for him.
This coincided with the spectacular ascendency of CDOs (collateralized debt obligations) and their off-spring CDSs (credit default swaps). The amount of CDSs is unknown but estimates run from $40 trillion to $600 trillion worldwide.
AIG insurance company was said to have insured about $48 trillion of CDSs. How could AIG make good on $48 trillion of bad debts when the entire private net worth of the nation stood at about $50 trillion -- is a question Senators should ask Mr. Bernanke. Greenspan and Bernanke advised against regulating these unregulated insurance “credit default swaps.”
The debt of financial corporations grew astronomically since 2000, by $18 trillion. The composite debt for the nation, including consumer, government and corporate debt grew by $22 billion, from $27 trillion to $49 trillion. This rapid growth in financial “assets” was matched by their rapid decline. (See Professor Jack Rasmus’ essay The Obama Stimulus vs. an Alternative Plan, page 4, at www.kyklosproductions.com, and also in The Great Financial Crisis, Foster and Magdoff, page 121)
Bernanke was at the heart of the Federal Reserve, his record shows bad judgment and regulatory mismanagement is clear. Who else would have and should have known of these unusual anomalous growth figures but the heads of the Federal Reserve? Greenspan gave his “irrational exuberance” speech in 1996, but he failed to act on it. He suppressed interest rates long after the recession of 2001 and asset values went crazy, and look at the result. For one thing today it’s reported that California has 22.5% under- and unemployment. That’s misery for nearly a quarter of the workforce in California, and U6 Unemployment is at 17.5% in the nation. I do not think the worst news has happened yet, we still are hanging by a thread. You know, a record like this does not merit reappointment.
You should run these skeptical facts past some of your economic aids. You should read Les Leopold’s book The Looting of America. It reads like a fascinating dectective novel.
There are economists who saw it all coming. Notably economists who are called neo-Keynsians were sending out reports. The Levy Institute of Bard College, the PERI (Political Economic Research Institute) of University of Massachusetts, Amherst. In California Jack Rasmus, professor of economics at St. Mary’s College in Moraga. At U.C. Berkeley you can find Harvey Shaiken and others. Emmanuel Saez at U.C.B. has reported that the top one percent of households received 23.5% of the national income in 2007, just below the 23.9% they got in 1928. He also reports that the top one percent received 65% of the economic gains 2000-2007. Read that again, and take a deep breath --- 65% went to just one percent of households, the bottom 99% received 35%. (See “Striking It Richer, August, 2009, Update.”) Bernanke’s view of the cause of this recession amounts to a rebuttal to the Keynsian explanation. And he was and is wrong.
Now the Economic Policy Institute in Washington D.C. is advocating for a federal jobs program. The National Jobs for All Coalition has a larger plan to create full employment and eventually a guaranteed job for all. These pro-jobs-program economists are credentialed academics. See http://fullemployment.blogspot.com,
I’ll end with a quote from Richard Duncan’s book The Dollar Crisis, 2005. In 2002 the Bank of Japan had been following Bernanke’s advise to expand the monetary supply. “Interest rates are zero and the monetary base is growing at 30% a year. It is a situation that goes far beyond a monetarist’s wildest fantasy. The question is IS IT WORKING? and the answer is: CLEARLY NOT! In his speech, Mr. Hayami [Governor of the Bank of Japan] acknowledged that the Japanese economy remains weak and clearly stated the “it is extremely difficult to revitalize Japan’s economy solely by monetary easing when it faces various structural problems.” In light of the Bank of Japan’s “decisive monetry easing . . . unprecendented in the history of central banking,” that statement should be engraved in all future economic history books as the final nail in the coffin of monetarism. . . . But central banks cannot cure deflation in a post-bubble economy regadless of how decisive their monetary easing. Pushing on a string is a waste of time.”
The problem in the U.S. is a wage cut of 11% combined with a 90% rise in productivity over a 34 year period. “Given the immediate calamity, it is easy to neglect that the crisis for U.S. workers began long before the recession. As of 2007 --- prior to the recession --- the average nonsupervisory worker in the U.S. earned $17.42 an hour. This figure is 11 percent below the 1972 peak of $19.34 per hour (in 2007 dollars). And that is only half the story.
The other half is that average labor productivityy in the United States rose by more than 90 percent over this 34-year period of declining wages. . . . The workers’ reward for producing 90 percent more goods and services in 2007 than 1973 is an 11 percent pay cut.”
(See Robert Pollin, professor of economics at University of Massachusetts, “Standard of Living Must Be Raised, published in Roll Call, May 18, 2009.)
I’m going to include a short essay by Steven Roach, a banker for Morgan Stanley, who heads their Asia office. He advises against Bernanke.
(Readers can google this article titled “The Case Against Bernanke” by Stephen Roach, Chairman of Morgan Stanley Asia, Financial Times, August 25, 2009)
That’s all for today. Thank you. I hope you send this on to economic advisors you rely on, and have them weigh some of these arguments.
see my blog, http://benL8.blogspot.com