Beware those who think the worst is past - By Carmen Reinhart and Vincent Reinhart
The landscape of Jackson Hole, Wyoming, where central bankers gathered at their annual conference last week, is spectacular and forbidding. Jagged peaks and vast empty spaces stretch across the horizon. For the attendees, however, it was both a vista and a metaphor. Having lived through a precipitous global economic drop, they now must forecast how steep or flat will be the incline of recovery.
Ben Bernanke, chairman of the Federal Reserve, painted a sober but reassuring picture of US prospects. The basis for sustained recovery is in place, and canny Fed officials are now alive to the dangers of both deflation and inflation. Similarly Jean Claude Trichet, head of the European Central Bank, spoke about how the dust had begun to settle on the crisis. Policymakers and financial markets seem to be looking at what comes next.
Such optimism, however, may be premature. We have analysed data on numerous severe economic dislocations over the past three-quarters of a century; a record of misfortune including 15 severe post-second world war crises, the Great Depression and the 1973-74 oil shock. The result is a bracing warning that the future is likely to bring only hard choices.
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A prudent post-crisis policy, therefore, must be alert to threats both to supply and demand, not demand alone. But the bigger worry remains the assumption that dust has begun to settle; that the shock from the crisis is temporary, when it is likely to be deep and persistent. Today, as in the past, over-optimistic fiscal authorities are over-estimating tax revenues. Financial supervisors want to believe that troubled banks are temporarily illiquid, not permanently insolvent. And central bankers like Mr Bernanke may soon attempt to restore employment to unattainably high levels. If they do so, the road to recovery will be long, and the lessons of history will have been ignored once more.
- 2008 Fomc Meeting Excerpt
I’ve only read a little of the transcripts so far, but it is pretty interest to read what was going on inside the Fed in real time during the financial crisis. Here’s one example, which is a little speech Bernanke gave during an October 2008 FOMC...
- The Fed Chairman Is Not Always The Key Speaker At Jackson Hole - By Frank Martin
Found via Santangel’s Review. If you hung on the words of Ben Bernanke at the August 31, 2012 Jackson Hole Symposium, you may have listened to the wrong speaker – or perhaps chosen the wrong time – if you were looking for clues about whether the...
- The Villain – By Roger Lowenstein
Found via ValueWalk. THE U.S. FEDERAL RESERVE was founded 99 years ago, as a bulwark to the banking system and an antidote to its frequent runs and panics. Strictly speaking, it was America’s third attempt at a central bank. The first, organized by...
- Hussman Weekly Market Comment: Credit Crises Generally Require Multi-year Adjustments
There are some good graphs and quotes from Ken Rogoff and Carmen Reinhart’s book in the latest Hussman piece linked below. Some things in this piece reminded me of something Howard Marks wrote in his memo entitled The Long View: “In my opinion, there...
- Hussman Weekly Market Comment: We're Speaking Japanese Without Knowing It
If one seeks analysis about the recent financial crisis, and what most probably lies ahead, it would be wise to place particular weight on the views of economists who saw it coming (and ideally those who provided careful analysis rather than hyperbole)....