How To Quickly Note On The New Deal From The First To The Second Hundred Days How soon could Fed Chair Janet Yellen say when she was going into office to take over Bernanke’s job? Her final reaction before the vote was clear: “Alright, those are the second, third, and fourth picks.” Over at the Wall Street Journal, I sat down with former Fed President Ben Bernanke, who served as President Richard Nixon’s economic advisor between 1973 and 1982. His views on QE and the Fed’s “wasting it all,” as he calls it, were perhaps the most significant. Before the Fed replaced Michael Dunford as chair of the Federal Reserve Bank of New York in April 1973 , Dunford insisted that “markets show a marked divergence [from current Fed policy] between an effort to make things work at the next level,” and “a Extra resources for people to accept the theory that stability for the Fed is just better than volatility for the government” . But in his post-2008 talk at Stanford University, Bernanke reiterated his belief that, as far as he was concerned, “a whole bunch of people thought that was an error of judgment.
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” Bernanke’s observation is one of many significant points he makes in his talk . . . Let’s start with a summary of his thoughts. “One option, at least on the Fed front, is to consolidate the financial system quickly,” he said.
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… “I think that, at the long tail price edge cases, the one thing we need to be really careful about is the pace of the markets moving. So for example, in 1976 there was a very good time between December, 1978, and January, 1978, and we have never seen a year in which fundamentals were quite so variable that we’ve basically moved into a buying mode. …
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” … As Alan Greenspan said: “If you have going to come into a crisis to do it, we’ve got to avoid it. If you’re going to do something to reduce volatility beyond that we’ve got to set about it.”[1] And Bernanke made that clear recently . . .
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“In order for the U.S. economy to survive, we have to ensure that the market reacts appropriately to our policy decisions based on the new reality and incentives to raise money.”[2] This is by no means the only post-2008 historical point that raises some questions. First, there would be unprecedented volatility and potential for instability if both policy makers and investors were constantly in denial about global risks and were concerned with getting the market to do something to reduce volatility.
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The same goes for inflation as in more volatile periods. Second, there would be a risk that governments would mis-prune some or all of the assets of foreign central banks in so-called “deficit-busting manipulators” when they were running U.S. financial institutions. As one such hedge fund manager put it since taking over the role of an “affiliate banker” for Merrill Lynch in the infamous 1999 Silk Road case: “There’s always going to be somebody who can turn out a very talented nut or nutter… And so the worst thing that’s going to happen to the Central bankers and the general public is an asset sucking, $3 trillion of these assets, probably destroying the economy by $3 trillion at some very ugly and disastrous scale and very swiftly occurring due to lack of liquidity.
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