Monday, November 30, 2009

Thorstein on Bradford DeLong's Semi-Daily Journal...

The problem is that Obama has listened too much to Larry Summers, who is a deficit hawk, and who was never really a full believer in Keynesian prescriptions... He thought things should be left more to central bankers. And so went w/ a small stimulus. Here's the thing: this might not have been so bad but for a Fed which is perfectly content with 1.4% inflation and 9.7% unemployment. And but for Macroeconomists like Alan Blinder who call this "hitting the bulls-eye".

To which I'll add -- although I think Obama's stimulus was too small, had Thorstein Veblen been President, I might have only proposed a stimulus of $925 billion or $975 billion. Our current Macro situation wouldn't be that much different. But had I been Fed Chairman, I would not have shrunk the balance sheet from January into March. I would have started buying buying long-term Treasuries in November rather than March, and I would have bought $3 trillion rather than $300 billion. I'd have printed money until it obscured the sun. I'd have pumped money into the system until... until we have actual employment growth or inflation. What is the logic of stopping when we have neither? (And for all those who are worried that once the economy does rebound, we'll have to deal with the problem of having all this excess money floating around, I say, once there is a strong recovery, that money can be taken out, and banks' reserve requirements need to be increased anyway, why not do it while there's a trillion sitting around in excess reserves anyway?)

But I digress. The main point is that Ben Bernanke is God, not Larry Summers. Had Summers done more, who can say that the yahoos at the Fed wouldn't have done even less? And when Ben "inflation-fighter-extraordinaire" Bernanke talks to Macroeconomists outside the Fed, such as Alan "Ben,-you're-hitting-nuthin'-but-bulls-eyes" Blinder, what kind of a message is he getting? Is anyone telling him he's messing up, save a few fringe bloggers like Ryan Avent? That's not clear to me.

Thursday, November 26, 2009

The Fed's Economic Projections

Isn't the Fed supposed to have lots of really bright people working for it?

Then why is the Fed's latest unemployment projection (from the minute's released the other day from the meeting on 11/4) for the current quarter: 9.8 to 10.3? The "Central Tendency" which excludes the three highest and lowest projections, was 9.9 to 10.1.

Keep in mind, these are forecasts for the average of the current quarter, but still, whose forecast was 9.8%? We're at 10.2% now. We will likely be at least 10.3% unemployment tomorrow. We would therefore need job growth of at least 250,000 in December to get back to 10.1%, and probably 600,000+ to get to 9.8, or else have lots of people up and leave the labor force (which is more likely).

In other words, the Fed's unemployment projections for the current quarter (made on 11/4) are already a straight-up joke. It doesn't inspire much confidence that the Fed's unemployment projections of a 9.3-9.7% average for Q4 2010 very good either...

Would anybody like to bet, and take the Fed's unemployment number-range for the current quarter? I'll give you 5-to-1 odds...

Just when you thought Macroeconomists could not be any more worthless... They just keep going out of their way to show that they cannot even do simple math yet again. Need another reason to pile on Macroeconomists? The ECB is just as bad as the Fed.

This may be a dramatic conclusion, but to me this just symbolizes the dramatic breakdown of any coherent thought at the Fed, and the majority presence of crazies on the FOMC.

Tuesday, November 24, 2009

Smackdown w/ Steven Landsburg

See it all here.

Landsburg linked Cochrane's "devastating" critique of Krugman. So I asked Landsburg why he backs Cochrane on Cochrane's belief in the discredited "Treasury View".

Landsburg replied: "If you believe this [the Treasury View] is Cochrane’s view, then you cannot possibly have read the piece I linked to (see the section headed “Stimulus”). I suggest that you read it."

To which I replied:

I suggest you read this.

I’ll give the mike to John Cochrane, and let him say what he believes:

“Most fiscal stimulus arguments are based on fallacies, because they ignore three basic facts.

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both1 . This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions. ”

That is the Treasury View. John Cochrane wrote that, presumably because he believes it. You say you back John Cochrane. Krugman and DeLong attacked John Cochrane for re-inventing the Treasury View. Now is your time, defend the Treasury view. I.e., tell your readers why you believe, in Cochrane’s words, that: “Every dollar of increased government spending must correspond to one less dollar of private spending."


Apparently Landsburg did not follow the Stimulus debate...

I'm kind of curious to see what he'll write. I predict he'll go crazy, and write stuff that makes no sense whatsoever... 40-60 he's too yellow to respond at all.

Update: Landsburg replied, suggesting I read Barro's Ricardian Equivalence paper, and other mumblings by Cochrane. I protest that he didn't reply to my question, and that Cochrane's other mumblings are just as crazy -- Cochrane says "the multiplier is likely less than zero". Commenter Gabe then points out that Barro's Ricardian Equivalence gives a positive multiplier in contrast to Cochrane.

Landsburg replied by cutting off the debate and refusing to let me post again. He did not reply why he supports Cochrane's belief that "the multiplier is probably less than zero" and why he told his readers to go read about Ricardian Equivalence to show why Cochrane's right when it shows the opposite.

Y tu, Bradford?

No group of economists are bigger fans of Bradford DeLong than the Economists for Firing Larry Summers (and Ben Bernanke too).

I do not understand his defense of Ben Bernanke, except that he does not want to be responsible for Bernanke's canning by the Congress.

Ben Bernanke has led the US economy to 10.2% unemployment and counting while leaving plenty of arrows in his quiver, ostensibly in case giant lizards come to invade Texas. Then he can do some real QE.

Btw, Ryan Avent has been money recently! Here's the key graf: "The Federal Open Market Committee generally expects ... the unemployment rate holding between 9.3% and 9.7% [in 2010]. ... and the FOMC believes that the unemployment rate might possibly fall as low as 6.8% by the end of 2012... Core inflation is forecast to reach no higher than 1.7%, even into 2012. But the minutes reflect no inclination to do anything more than what has already been put in motion."

At this point, the Fed looks to me like it's actively trying to screw the Democrats in the mid-terms. That's *NOT* what Bernanke's thinking is, but the effect is the same. What reason is there for the Fed to be OK w/ 9.3% unemployment while inflation is just 1.7%??? And, given that Fed has been serially overly-optimistic, a 9.3% forecast for the end of 2010 probably means 10.3%.

I think it's just become really clear that Ben Bernanke does not know which way is up. Hey hey, ho ho, Ben Bernanke has got to go.

Questions for Bernanke...

Here at the "Cunning Realist".

Here's my take on the questions:

#2 is my favorite: "2. On May 5, 2009, in front of the Joint Economic Committee, you said the following about the unemployment rate: "Currently, we don’t think it will get to 10 percent. Our current number is somewhere in the 9s" [source]. In November it hit 10.2%, and many economists predict it will go even higher. This is happening despite enormous fiscal and monetary stimulus that you previously said would help create jobs. What happened after your JEC testimony in May that caused your prediction to miss the mark?"

Bernanke has continually had overly optimistic projections for the US economy. The obvious follow-up to this question is, why, if he forecasted unemployment to be somewhere in the 9s, did he not do more Quantitative Easing? Why did he think 9% unemployment was "OK"? And given that consensus projections are for unemployment to be above 9.75% and inflation to be low at this time next year, why did the Fed just end a program to purchase $300 billion in Treasuries? Why not, instead, bump this program up to $700 billion given that the job market is still bleeding? (And, if that doesn't work, why not bump it up to $1.5 trillion?) Since it is clear the Fed Chairman has continually erred on the side of doing too little, why should the Senate not expect that Bernanke will continue to do too little?

I also liked question (1) -- the Fed did make a mistake in paying back AIG's counterparties 1 for 1. Although this was a clear mistake, at the end of the day this mistake at least did not cause unemployment to go higher or do any broader damage to the system, however, so if I had to ask Bernanke one question, it would not be this one. And most of the rest of the questions are about the past. Yes, most are important, but I would aim my questions around getting the Chairman to explain why his policy, right now, is so cautious. In not so many words, I would make it clear that he needs to start greasing the economy for the mid-terms next fall -- or else.

Paul Krugman is sometimes too good...

Here Krugman is poking fun at this truly inept article which quotes Bill Gross, bond trader, as saying '"What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”' Funny thing is, he's longer on US gov't debt than he's ever been!

Trouble w/ this is that it is winter, the job market is starving, and Ben Bernanke is leaving our stache of nuts for the spring...

The NYT story also gives more evidence of stupidity at the Fed: "The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March."

It's unfortunate that the Fed has stopped its bond purchases -- although it's clear we can't trust the gray lady. The Fed has recently been ramping up its purchases of MBS in recent weeks, and they actually just extended the MBS purchases until March from December...

Krugman is correct -- this sounds like a Judy Miller column on Iraq...

Elsewhere in the article it says: "Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point."

To the extent we can believe this (mostly b/c it matches my priors and not b/c I trust anything in the NYT), this just confirms the overall picture of a Fed who could be doing more but isn't.

Summers Dead Wrong on Cause of Crisis

This from Vanity Fair:
Summers has plenty of other things figured out as well, including the origins of the current financial crisis, for which he has crafted a cogent explanation worthy of his reputation as a policy wonk and his days as a college debating champion at M.I.T. “I think crises like this get made by multiple cascading misjudgments,” he explains, and then catalogues them: too much government spending, not enough private-sector saving, too much dependence on foreign debt, too much demand for “riskless” financial instruments that weren’t, in fact, riskless …

The first three of these were, at best, only tangentially related. As much as I think the Bush tax cuts were a mistake, Republican inability to balance the budget really did not have anything to do with the crisis. Ditto for Private-sector saving (even though i think saving is good, generally...) Dependence on foreign debt had nothing to do with the crisis.

Then there is this:
There were also charges of betrayal from Iris Mack, a former derivatives specialist at the Harvard Management Company (responsible for investing Harvard’s endowment) and the second black woman to receive a doctorate in applied mathematics at Harvard. Mack claims that soon after she started working at Harvard Management, in early 2002—after a stint at Enron—she became uncomfortable with the lack of understanding she thought her colleagues had with the risky derivatives they were investing in. (She was proved correct in the past fiscal year, when the endowment dropped 27.3 percent.) On May 12, 2002, she wrote an e-mail to Summers, alerting him to her concerns: “As a proud Harvard alum I am deeply troubled and surprised by what I have been exposed to thus far at HMC, and the potential consequences for my alma mater’s endowment. In addition, I strongly believe that if my fellow alum[s] knew how the endowment is being managed and the caliber of some of the portfolio managers, they probably would not give another dime to our endowment.”

She asked Summers for a meeting and that he keep the correspondence between them confidential, “especially due to th[e] fact that several individuals have been terminated from HMC when they raised concerns about such issues.” Nine days later, Mack got an e-mail from Marne Levine, Summers’s chief of staff at Harvard (and now his chief of staff at the National Economic Council), asking Mack to contact her and assuring her that the initial e-mail “remains confidential.”

But not for long. A month later, she was confronted by Jack Meyer, then head of H.M.C., who had copies of her correspondence with Summers and Levine. Meyer fired her the next day. She has since reached a confidential settlement with Harvard that she won’t discuss. But she is unequivocal about one thing. “I would say that there is 99.9999999999999999 percent probability that Summers had a hand in my departure,” she wrote me in an e-mail. (Summers replies he had nothing to do with her firing and could not, because she did not work for or report to him. “[Mack’s] allegations were the subject of thorough internal and external reviews and found to be without merit,” says a Harvard spokesman.)

I'd already heard (and posted) about this, but don't remember posting this part of the story... The rest of the Vanity Fair piece is garbage, as you would expect.

Monday, November 23, 2009

Book Review: Olivier Blanchard's Macroeconomics, 5th Edition

I'm currently the TA for a course using Olivier Blanchard's macro book. Olivier is, of course, the Chief Economist of the IMF and was formerly the head of the department of economics at MIT (Daron Acemoglu's department). While I have not read the entire book at this point in time, I will try to update this review as I read more. Here are my current thoughts about the book (which I shall update):

1) Blanchard should be ashamed at price-gouging students in this manner ($135 new). I think it says a lot about who he is as a person and scholar. To me, ripping off students is a question of character and class. Mssrs. Blanchard apparently has neither. Tells me he's just in it for himself and he doesn't care about broader issues or teaching economics. This is a rent he believes he is entitled to b/c of his department affiliation (MIT) and his role at the IMF. (Of course, this is a society-wide problem and he is not the only one guilty of over-priced textbooks. Doesn't make it right though.)

2) The book is filled to the brim with typos. This tells us he didn't think carefully about the book or its contents. For example, check out the blue box on p. 102: "Instead, the tax cuts were permanent..." two sentences later begins again "Instead, the tax cuts were permanent..." OK, Olivier, we got it the first time. I've noticed several other obvious typos of this sort even though I'll confess I have not read that much of the book yet.

3) In Chapter 5 on the IS-LM, I think it was a questionable idea to detach the IS-LM model from the entire historical discussion of the Great Depression which led to the theory. He should have shown that, during the Great Depression, when the US found itself with close to zero nominal rates, Hoover decided to increase taxes in order to balance the budget, shifting the IS curve left and worsening the depression for no good reason. (Instead, Blanchard just leaves students with the one example that increasing taxes leads to lower income... In normal times, increasing taxes is counteracted by the Fed cutting rates, having no impact on income but reducing the long-term budget... This leaves students with the wrong impression.) Hoover later recanted of course, saying he should never have raised taxes nor let the economy burn. So the lesson is clear, and it is a lesson every student of economics should know -- why skip it? Given that 95% of Republicans recently voted for a balanced budget in a liquidity trap, skipping this history lesson is not inconsequential...

4) Yes, yes, I know he does go on to discuss the Great Depression and liquidity traps generally later in the book. I think it is really worth noting that he does an exceedingly poor job both with the Great Depression and in dealing with Japan. My problems with this section are:

i) the statement on p. 477 that "There is clearly nothing monetary policy can do in this case [i.e., a liquidity trap] to raise output..." This is wrong -- printing money to retire debt can at least reduce the price of a currency, increasing net exports. In addition, there is more than one interest rate in an economy -- the Fed can always buy long-term bonds. These are fairly fundamental, enormous mistakes which happen to be consequential at present. That this guy is in a leading role at the IMF is not a good thing for the world economy...

ii) His explanation of why deflation stopped during the Great Depression is not quite satisfactory. He lists three things: a) the NIRA, b) output growth, and c) perception of "regime change". To his credit, in (c) he goes on to mention Roosevelt's decision to leave the gold standard, but he did not mention that this gave room for the Fed to cut interest rates w/out having to worry about defending an over-valued peg. Hence, it was really Hoover's policy to stay on the gold standard which led to high interest rates... He also should have at least mentioned how misguided the economic ideology which ruled during the Great Depression, of how Hoover had foolishly thought that the budget must be balanced, and the when Roosevelt came into office, he at least ran some deficits and did increase spending. (Yes, these spending increases were only a small part of the recovery, but they were part of the story.) He needs to add that even Roosevelt's Treasury secretary believed in the preposterous idea that budgets should be balanced in a recession... As far as I know, Blanchard nowhere mentions the role of ideology. Lastly, he needs to talk about Roosevelt's bank holiday and the FDIC's role in restoring confidence. Stopping the bank runs was a big factor in stopping deflation -- I don't know how Blanchard doesn't know this. Lastly, the NIRA, by itself, likely would have done nothing, and b) was likely caused by ending deflation as much as it was the other way around. And I have yet to see Blanchard mention that, in the end, it was large increases in Government spending which ended the GD once and for all -- WWII. All in all, Blanchard's discussion of the Great Depression leaves much to be desired.

iii) As bad as his history-telling on the GD is, his section on japan may be worse. His general conclusion was that Quantitative Easing does nothing, but that having an inflation target is what helped Japan in the early 2000s. So, basically, imagine you've got a fat, lazy friend who wants to be thin. If your friend declares to you that he's going to lose 50 pounds, but doesn't do anything to change his eating habits or start working out, why should you believe him? Or, in other words, when the Japanese Central bank announced that it was "committed" to creating inflation, without actually, you know, doing anything to create inflation, why would anyone believe it? If they were rational agents, of course, they wouldn't -- Japan has had deflation every year since 1994, and still has deflation. Blanchard wrote, excitedly, that since the BoJ's announcement in 2003 "Although the current inflation rate is still negative, inflation is now expected to become positive in the future, and the long-term interest rate has fallen." (p. 489) Wow was Olivier Blanchard wrong about inflation in Japan!!! (It's hard to imagine how anyone could be more wrong about anything, no?) At the same time, he was apparently ignorant of two other events in the 2000s -- Japan's flirtation with Quantitative easing -- it bought $300 billion of it's own debt, and then, after exports increased, ending its recession briefly, it was afraid of "hyperinflation" so it sold its debt back, resulting in more deflation and recession.

I just find it really inexcusable that a tenured Macroeconomist, anywhere, much less at MIT can get both Japan and the Great Depression so wrong. It's as if Blanchard literally can't be bothered to provide the minimal amount of facts for students to form any meaningful lessons. And it's hard not to come to the conclusion that the reason is that Blanchard himself has taken no meaningful lessons from either Japan or the Great Depression. And you know what they say about societies who don't know their history...

In conclusion, this book is not careful enough to assign to undergraduates, and it is certainly not insightful enough to justify the price. It is the latest chapter on the Dark Ages of Macro...

UPDATE: I just took a look at the section on economic growth, and it is just horrible. Awful. This guy has no business writing a textbook. First, on page 213, he writes: "From about 1500 to 1700, growth of output per person ... was ... around .1% per year." But he must have gotten this from the data Maddison made up, b/c, due to the Black Death, there was a dramatic drop in living standards in Europe over this time period. 1500 was a plague-induced golden age. On page 214 he writes "For much of the first millennium, and until the fifteenth century, China probably had the world's highest level of output per person." No, no, no, no, no. During those centuries, China was likely the most technologically advanced. In a malthusian world, this says nothing about income per person. The highest incomes per person would certainly have been hunters-n-gatherers. This is just entirely wrong-headed. Blanchard simply does not know anything about economic history.

Also, in the section on wage inequality, he basically just floats two theories: Increases in international trade, and skill-biased technological change. Unfortunately, not all rich countries which have traded more have registered increases in inequality since 1980, so neither of these theories match the bare minimum a real scholar might require for a theory to be successful. For example, Japan and Europe other than the UK also have experienced much more trade since 1980, but no change in inequality. Thus the theories Blanchard suggests can be safely discarded.

Sunday, November 22, 2009

Newsflash: Posner Gets Japan Wrong

This post was off-base, in a number of respects.

First, Posner wrote: "Japan spent the 1990s unsuccessfully trying to recover from a collapse of the Japanese banking industry... despite aggressive monetary and fiscal policies."

Except the Japanese central bank has done little more than twiddle its thumbs for the last two decades... Yes, they did a grand total of $300 billion in Quantitative easing, then when things got slightly better, they rolled it all back. More deflation and recession promptly ensued. This is what Posner termed "aggressive monetary policy" -- which renders the term meaningless. (And, despite the large deficits, "aggressive fiscal policy" is also quite contentious.)

Posner gets into trouble again on sentence #2 when he writes: "As a result of those policies, Japanese national debt soared..." But, of course, with true QE, the BoJ would have just retired massive amounts of debt for good.

The obvious way out for Japan is simply to monetize large swaths of its debt. This isn't just killing two birds w/ one stone, it'd be more like killing a whole flock of geese with one stone. Let's think about it, printing money would 1) increase inflation expectations, thus reducing the real interest rate, 2) weaken the yen, 3) improve financial companies balance sheets, who hold assets in $ but liabilities in yen, 4) improve japan's net exports, 5) reduce the amount of future debt which Japan needs to repay.

Why it does not is that peculiar madness, and not reason, that rules the minds of conservative men.

The Dark Ages of Macro Engulf Princeton and Harvard

I respect Alan Blinder a lot less after this: Key graph is "But the Fed deserves extremely high marks for its work since then. It has hit the bull's-eye regularly under very trying circumstances."

This recession continues b/c the Fed has been doing little more than twiddling its thumbs since 12/31/2008, shrinking its balance sheet over that time. As Free Exchange points out, 10% unemployment and counting is not "hitting the bulls-eye", it's more like not hitting the broad-side of a barn. Blinder doesn't like the legislation. Fine. But to argue against it by saying that the Fed is making the right calls when the Fed clearly is not making the right calls is probably not going to convince a whole lot of people.

Robert Waldman writes that the Fed has been "pedal to the metal". But how is the Fed's contraction of the money supply over the past year "pedal to the metal?" This is a Fed that is habitually taking its foot off the gas (and tapping on the breaks), and has continually erred, over the past 20 months, on the side of doing too little.

Brad DeLong, Robert Waldman, and others are of the opinion that "the Fed can do nothing" given a Fed Funds rate near zero. Yet, there is surprisingly little logic or evidence that the Fed is now powerless. Yes, the Fed doesn't have as much power as it normally does, but if the Fed prints money, and buys long-term bonds, why wouldn't this: (a) increase the price, and lower the yield of long-term bonds, lowering borrowing costs generally, and (b) with more dollars in the economy (or perhaps just in Excess Reserves), reduce the value of the US Dollar, boosting net exports, or (c) when the Fed drops $80 billion plus of cash into the MBS market, as it did the week before last, this seems to buoy asset prices generally... For the life of me I can't imagine how at least (a) can't be true, and (b) and (c) must be true given enough billions are pumped into the market...

The picture we are left with is a Fed Chairman who is simply incompetent, and deserves to be audited. When it messes up, it's going to take some heat from the Congress. This isn't a 1982 style recession, when Volcker was doing the right thing...

Friday, November 20, 2009

Ben Bernanke Should Be Drawn and Quartered. And then hanged...

I awoke this morning with a pounding headache... And resolved it's time to start blogging again.

Here we are, in the 20-something odd month of labor market bleeding, and still the Fed's mighty printing presses are largely sitting idle. And despite the fact that textbook theory says you can print your way out of a liquidity trap, and that, in the situation we are in, the Fed should be rapidly expanding its balance sheet, the Fed has moved slowly and cautiously, consistently erring on the side of doing too little. Yes, the Fed's Balance sheet is now the biggest since last December -- but, wait, why did the Fed's Balance sheet ever shrink exactly? Why didn't the Fed continuously ramp up the balance sheet until we had sustained employment increases? (Or at least until we stopped the bleeding?) That's b/c Ben Bernanke patted himself on the back last February, and started shrinking the Fed's assets. This set off another sell-off on Wall Street, causing Bernanke to reverse course. Things got a touch better, so Bernanke, having not learned any lessons from Feb-March, took his foot off the pedal again, triggering more bad news on Wall Street and in the labor market in June. Since then, he's slowly increased the Fed's Balance Sheet, but here we are, 21 months into the recession, and the economy coughed up 200,000 jobs last month and the Fed has, on net, tightened in the past year. This is really incredible.

A thought: The Dow has continued to track what's going on with the Fed's balance sheet. When the WSJ first wrote an article back in May/June pointing this out, I thought it was a fluke/anomaly, and, after all, correlation isn't causality. But the fluke has continued... It still sounds nuts to me, and I'd like to think it *must* be wrong that when the Fed buys assets, the stock market rises generally, but the correlation seems too good to just dismiss this... On the other hand, the Fed now has $847 billion in MBS (up $80 billion in one week!), so I guess it's not so crazy to think this much buying would effect asset prices generally...

Another random thought: What do our nation's economists do? It's been clear for at least six months now that the Fed has been foolishly bullish on the economy, and foolishly cautious in pumping money into the economy. How many voices within the profession are pointing this out? Very few. (Tim Duy and Scott Sumner deserve credit...) Part of this is that some economists do not think it is helpful to get the Congress riled up over monetary policy (perhaps this is Krugman & DeLong's view), but I think the Fed needs to feel some heat from the profession. I very much doubt it is hearing nearly enough, if any -- even behind the scenes -- and certainly not the type of pointed criticism it needs. Bernanke needs, in short, a good smack across the face to be jolted out of his inaction. It could take a generation for unemployment to get back down to 4% (where it was in 2007), all because Ben Bernanke has been too cautious, worried about some nonexistent hyperinflation around the corner. A generation of higher joblessness is a stiff price for society to pay for one man's shortcomings.

In any case, all indications are that this is a serially incompetent Fed. Despite the good the Fed did last week, we can expect Bernanke to take his foot off of the pedal again next week (or next month), needlessly prolonging a recession which should have ended half a year ago.

Cheers for Chris Dodd : "It's not necessarily a foregone conclusion that Ben Bernanke will be confirmed."

In the immortal words of JMK, I say cut this "blind and deaf Don Quijote" loose. Let him join the millions unemployed whose fate he sealed...