Timely Remarks On Employment And Bernanke's Refusal To Acknowledge Responsibility For The Housing Bubble

This isn't the post I have promised but that is coming. Probably this weekend or early next week.

First a few timely comments before we get on to the post. Payrolls continue to decline. In December, we can already see what may be a re-acceleration in job losses after the Christmas season/the end of many businesses fiscal year. I know some larger firms which are already planning another round of layoffs. One of the largest commercial real estate investment trusts I am aware of has already laid off people in the first few days of 2010. Those who argue for another round of debt-driven government spending to create jobs, such as Paul Krugman and Bill Gross, are literally clueless as to how to get out of this crisis. Mostly because they have no idea what caused it. And the answer is not to let the chips fall where they may as Peter Schiff, Ron Paul or other mathematically-challenged "free marketers" believe. (I like Schiff and Paul for their honesty, not for their grasp of reality.) That would lead to complete collapse. Nothing really new in these statements.

Additionally, the Bernanke bashers are out in force again. Bernanke caused the housing crisis is again on the table. This is because Bernanke recently remarked that the Fed was not responsible for the housing crisis. Technically, he is correct. We've already talked about this. Blaming the Federal Reserve shows a clear lack of understanding of economics and correspondingly, why credit flows to what sectors of the economy for what specific reasons. I don't care if you are a Nobel Prize-winning economist. If you believe this, you need to go back and understand basic economics and capital theory.

As we have said quite a few times, the Federal Reserve does the same thing cycle after cycle. They raise and lower rates to regulate credit. Why didn't we have a housing bubble ten years ago? Or fifty years ago? Or thirty years ago when the Fed was lowering rates? As we have written the Fed's rate policy simply follows three month Treasuries. Three month Treasuries imploded post 2000 and the Federal Reserve simply followed suit as it always does. ie, The market was telling the Federal Reserve what to do.

Think of credit as gasoline. You can buy a gallon of gasoline to run your car or lawnmower - productive use. Or you can buy a gallon of gasoline and burn your house down or as some nutcases have done, douse people and light them on fire - unproductive uses of gasoline. The Federal Reserve is simply a conduit for credit. You need to understand how and why it is used in particular ways in particular cycles. The answer is very, very, very clear if you understand economics. If you don't, you blame the Federal Reserve. It's noteworthy that every financial blogger, most every media outlet and most economists blame the Federal Reserve. As a contrarian we note this dynamic when it is substantiated by fact. The mob is seldom correct.

Bernanke is surely guilty of substantial failure. But his failure is not for causing the housing crisis but for not understanding what was happening to the American economy. And for standing up to tell Congress that the American economy was collapsing in 2000 and understanding what needed to be done to stop that collapse. Again a rehash of prior posts but a reminder while the howlers again come out in force. The reality is those blaming Bernanke for the housing crisis were often supporters of the economic policy that actually caused the housing crisis. Ironically, that policy had absolutely nothing to do with housing. That would not be Federal Reserve policy. The Fed simply responds to the market by raising and lowering rates. They don't have anything to do with economic policy. That is the domain of the Congress and our President and the idiotic economists they hire to advise them. And the corrupt lobbyists they listen to for policy decisions so that political parties can line their pockets with untold riches.