I’m a member of the National Press Club, and last Thursday, Mr. Ben Bernanke rolled into the room and addressed the cuts to us over lunch.
Let me set the room for you:
The room holds about 150 people I’d say, give or take. There was a noticeable difference since Mr. Bernanke was our guest – there were about 20 cameras in the room. All of the national media was there, both foreign and domestic. It was a lot like it was a few years ago when we had Richmond Federal Reserve Bank President Jeffrey Lacker at our economic symposium at Frederick Community College. Of course the chairman draws a serious crowd because he is the top-dog, so not only were the cameras there, but also many of the talking heads you see on t.v. Along with the Chairman, there were about 10 other people at the head table. They were from the government and the private sector.
Before I get into what happened at the luncheon and where I think the Chairman is making a big mistake, let me first say that he has a great success story. Mr. Bernanke was born and raised in Dillon, South Carolina. One of few Jewish families in the area, his father was a pharmacist and his mother was an elementary school teacher. He worked in his father and uncle’s drug store, as well as waiting tables the famous South of the Border landmark. From South Carolina he journeyed to Harvard where he received his B.A. in economics and then received his PhD from M.I.T. He was a professor at Stanford, NYU, and Princeton. President George W. Bush named him as a member of the Federal Reserve Board of Governors, and he was subsequently named Chairman of President Bush’s Council of Economic Advisers. After Alan Greenspan’s departure in 2006, Mr. Bernanke was chosen to take the helm at the Federal Reserve.
Mr. Bernanke was well received at our luncheon. What I did appreciate was that at the very beginning of his talk, he emphasized the importance of the media delivering accurate economic information to the American public, and citizens around the world for that matter, who don’t have the time to truly understand what is going on in the world of finance. In my opinion, in a way he took a shot at the talking heads who sensationalize the news to get ratings and sell advertising. It was a good start to his speech.
Mr. Bernanke then started into his prepared remarks and touched on the recent improvements in the health of the economy. He also qualified those statements by saying that “Even though the data has improved, the recovery has not fully taken hold”. So he was basically doing two things. He was letting us know that the U.S. and global economies are still fragile and vulnerable…and that the Federal Reserve doesn’t have any near-term plans to halt the $600 billion asset purchase program to try and stabilize and unfreeze the credit markets. This, of course, comes after the Fed ballooned its balance sheet by $1.7 trillion prior to the current $600 billion campaign.
He was also forthright about the jobs market. The Chairman addressed the weakness with employment. He said that it will take several years for the labor market to return to good health. This will weigh on the economy as the unemployment remains “stubbornly” above full employment. One thing that I really enjoyed hearing from Chairman Bernanke was when he started in on the subject of the bloated federal budget. He took a swing at the administration and Congress about the fact that there is not way that we can avoid a disaster for the country if we sustain the current spending path we’re on.
He also touched on the issue of entitlements having to be addressed; Social Security costs due to our rising population age, rising health-care cost, etc. These subjects must continue to be pressed or we’re going to end up looking like a bunch of idiots rioting in the streets like Europe because our “nanny” state type plan didn’t work out. Chairman Bernanke touched on the Middle East and what is going on in Egypt. He reminded everyone that food inflation is part of the reason that some societies are rebelling. As countries transition into more middle class scenarios, one of the first things they change are their diets. The whole supply and demand thing comes into play, and hence you get the food inflation problem. This is something that will continue to pop up as emerging markets deal with food and other lifestyle issues.
So far, everything I was hearing at the luncheon was on target and I agreed with.
However, there was one thing that almost made me levitate up from my table. Mr. Bernanke said that since the asset purchase program the Fed initiated, the S&P 500 stock index had risen from around 600 to its current 1,300. Now this is the second time in less than a month that he has referenced the stock markets. A few weeks ago, I told you that he was out of the Federal Reserve’s element. Here’s why I say that:
The Federal Reserve’s mandate is “To promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates”. So, in any of that did you hear me say the Federal Reserve should interfer or incluence the stock markets…or even comment on the equity markets?!? No – that’s because the Fed has NO business doing so!
If the Federal Reserve, and Chairman Bernanke or any of the Fed Governors or bank presidents are going to pat themselves on the back and take credit for the markets going up based on their actions, they better be ready to take the blame for the markets falling. This is not a game they want to play. The stock market should not be a main concern for the Fed – which is why I titled this blog what I did.
In summary, I felt that Chairman Bernanke’s talk was pretty accurate and on target…with the strong exception of his stock market comments.