Just what we don’t need: Turmoil at the Federal Reserve.
On March 1 Federal Reserve vice-chairman Donald Kohn announced that he would be stepping down in June.
Kohn has been a key No. 2 to Fed chairman Ben Bernanke throughout the financial crisis. He led the stress test of big banks and efforts to coordinate the Fed’s actions with those of its global partners through the Bank of International Settlements.
Most importantly though he’s been head wrangler helping Bernanke keep the members of the Federal Open Market Committee, the Fed’s interest-rate setting body, relatively united on policy.
With the Federal Reserve facing a huge test of discipline—Can the central bank manage to gradually withdraw the stimulus it added to the economy during the crisis quickly enough to avoid a spike in inflation or in interest rates but not so quickly that it tips the economy back into recession?—Kohn the consensus builder will be missed.
Whatever you think of the policies he helped engineer, his departure makes the Fed just a little more unpredictable, a little more vulnerable to members leaving the reservation, a little more likely to spook markets with an ill-considered word at a time when the financial markets are already worried about the Fed’s ability to find the right course.
Kohn’s departure is likely to lead to even more truculence from inflation hawks such as Thomas Hoenig, president of the Kansas City Fed.
On the morning of Kohn’s announcement, Hoenig was on CNBC pushing his view that the crisis is over and that the Fed should remove its promise to keep its benchmark interest rate near zero for “an extended period.” (For more on the role of interest-rate hawks at the Fed see my post https://jubakpicks.com/2010/02/23/are-interest-rate-hawks-pushing-policy-at-the-federal-reserve/)
Kohn’s departure adds another empty seat to the two existing vacancies on the Fed’s seven-member board of governors. The combination gives President Barack Obama a chance to shape the Fed but it also guarantees a contentious confirmation battle in the Senate over any Obama candidate.
Remember how heated the Bernanke confirmation hearings were? Expect the same when President Obama sends a nominee to fill Kohn’s chair to the Senate.
And of course, the longer all these chairs stay empty at the Fed, the harder it will be for Bernanke to build consensus and the louder the dissenting voices will sound.
Just one more thing to add to a long list of things to worry about in 2010. (For more on that list see my post https://jubakpicks.com/2010/02/16/how-to-worry-and-when-in-2010/ )
specialcraig,
Just speaking for myself, I only blame Obama for taking a bad situation and making it worse. When you’re in the car about to go off the cliff, it’s a bad idea to put the pedal to the metal…
Wow, I can’t believe Bunning said that. I agree that we need to “pay as you go”, but I find it so hypocritical that they did nothing during the Bush years, and NOW they are strict conservatives. How do you blame the whole deficit on Obie, when he inherited one of the worst economic collapses in history? I hate politics…..
LOL! That is classic, and rather typical of the Washington mindset.
Ed, did you catch Bunning’s USA Today piece? It’s classic, and why I won’t vote for any incumbant on any level this year:
“I’ve been in congress for 24 years, and I’m SHOCKED to find there’s been deficit spending going on all this time. Why, the debt’s grown to more than $12 trillion.”
Ya think?
Good riddance to every one of the clowns.
bsdgv,
The gold standard was only one piece of the Great Depression. I will admit one of the problems in the Great Depression was the economic gurus of the time trying to have their cake and eat it too. If you’re going to have a fiat currency, it needs to be completely disconnected to gold. Unfortunately, when you do that, unless you put in strict rules governing monetary expansion, you end up with recurring recessions like we’ve had since Nixon took us off the gold standard.
Basically, I’m saying choose your economic poison. If you go with a gold standard, you can’t have a central bank playing with your currency like Monopoly money. On the other hand, if you go central bank/fiat currency, do NOT tether your currency to a fixed asset like gold.
EdMcGon,
>You can point to a lot of things that caused the Great Depression, but the gold standard is NOT one of them.
I did not say (or mean) the Gold Standard CAUSED the Great Depression. The Gold Standard was the main reason the Great Depression was so deep and lasted so long. Virtually all economists (of course, except the Libertarian ones) agree that the same thing would happen if we acted the same way in the current financial crisis.
I know you will object by pointing to the inflation that we will go through in the future. Again, all those economists agree that the inflation (10%?) will pale in comparison to what would happen if the economy came to a complete stop as in the Great Depression.
STL,
It’s funny you should ask me about Vanguard, because that’s where I have my brokerage account. All in all, I’ve enjoyed their service. They have a solid reputation too.
That said, I’m not a fan of mutual funds. If you like a specific mutual fund, it’s easy enough to find it’s top holdings. Then go buy them.
As for the ones you listed, I wouldn’t go for an “all world” approach to stocks. You can do better with individual stocks.
EdMcGon…
You won’t hear me say…”well, that’s just you”, but I will say that you are definitely in the minority as a man of genuine integrity!
The whole unemployment benefit thing is a bloomin’ crutch! There is NO incentive to survive or bother to get a job if a check is coming in the mail each and every week! It’s too easy for those folks to sit on their “tush” having their basic needs met. chuckling…okay, I promise to step down off my soapbox now!
Changing the subject…what are your thoughts on VTWSX?? VTI or VEU?? Maybe, I should have just asked about Vanguard in general…
STL,
I agreed with Bunning’s position about funding. It is irresponsible for legislators to spend money without agreeing on the simple topic of how to fund it. The American people are not some money tree that is here to endlessly fund whatever Congress decides to buy.
As for unemployment benefits, for exactly the reason you pointed out. I’ve had friends over the years who lost their jobs and milked the unemployment benefits until they nearly ran out, and THEN went looking for jobs. What they forget is that money came out of their own pocket.
Just speaking for myself, last year my company furloughed me for a month. I could have gotten unemployment benefits for that period, but I chose not to. Instead, I tapped my IRA brokerage account for that time. Sure, I had to pay a tax penalty on it, but I didn’t cost the government a dime. And I made back what I pulled out in last year’s market run, so in actuality I lost nothing from my retirement, I cost the government nothing (and actually paid a little extra to it), and still made it through the furlough.
You can say, “well, that’s just you”, but I say that if you force people to find a way to survive through unemployment, they will. THAT is why I’m against unemployment benefits.
specialcraig,
I apologize for jumping down your throat on this topic. I am just tired of having this discussion over and over again for the past year. The talking points never change, regardless of which side of the debate we’re on.
We’ll just agree to disagree on this issue and move on.
EdMcGon..
I respectfully agree with your last post 100%!!
Don’t know how you feel about Bunning but I wonder how many current unemployed folks have been milking the unemployment benefits?? Personally, I know of one who collected for months and finally got a job last week because the benefits were going to run out! Is this insane or what?!!
EdMcGon,
I respectfully disagree.
specialcraig,
Polls overwhelmingly show the American people are AGAINST Obama’s health care proposals. That should be the end of the discussion right there. Right or left makes no difference. Yet Obama and the Democrats are intent on ramming this monstrosity of a program down our throats.
I say go ahead Democrats: vote for this monstrosity. By the end of the 2012 elections, you’ll be on the outside of Washington looking in, when we override this power grab that you attempted.
bsdgv,
Please tell me you don’t think the entire Great Depression was caused by the gold standard? Do I even need to remind you the Federal Reserve was firmly in place at the time? Shall I mention Smoot-Hawley? Heavy income taxation in excess of anything we have today?
You can point to a lot of things that caused the Great Depression, but the gold standard is NOT one of them.