Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

It is good news that the Senate Banking Committee yesterday approved Ben Bernanke’s nomination for a second term as Chairman of the Federal Reserve. But it is disappointing that the 16 – 7 vote did not include a single Republican. For once, I am happy that Republicans are in the minority in the Senate, which will now require a full 60 votes to confirm Mr. Bernanke. Let’s hope there are at least a few Republican Senators who see the wisdom of keeping Mr. Bernanke.

It is disconcerting to observe how yesterday’s hero can morph into today’s villain. A year ago at this time, Ben Bernanke was truly engaged in saving the world from financial collapse. His comprehensive understanding of the financial markets and his knowledge of the causes and catastrophic decisions leading up to the Depression served the U.S. and the world well.

Because last year’s financial crisis did not culminate in a global financial catastrophe, (thank goodness) the world has forgotten how close we came to the brink of disaster. It is ironic that both Houses of Congress can find no cause to blame themselves for any of the events that led to the financial crisis and the ensuing recession. All they can do is heap blame on Wall Street and the Fed Chairman. Ironically the most outspoken critics of Wall Street and Mr. Bernanke, Senator Christopher Dodd and Congressman Barney Frank, were the most aggressive proponents of the Government policies that led directly to the crisis. It seems a bit like a case of “The lady doth protest too much, methinks.”

Unlike Congress, Mr. Bernanke has admitted to errors. But to be fair, most of the issues that led to the crisis were in place well before he became chairman.

The Federal Reserve has a dual role. It is charged with safeguarding the purchasing power of the dollar, i.e. managing inflation, and promoting full employment. However, it cannot singlehandedly guarantee these two objectives. What the U. S. economy has needed throughout this financial crisis is liquidity and the Fed has and continues to provide that. Today deflation is a far greater risk than inflation. With the economy in a recession, the velocity of money had declined putting little upward pressure on prices. The time will come for rates to rise and money policy to tighten, but now is not the time when unemployment is high and asset prices are low.

If the Senate has the best interests of the U.S. at heart, it will vote to retain Mr. Bernanke for a second term as Chairman of the Federal Reserve.

I woke up in Milwaukee this morning to see Maria Bartiromo on Morning Joe challenging Michael Moore on the subject of capitalism. Go Maria!!

I had to laugh out loud listening to Mr. Moore freaking out about the top 1% of the population owning 99% of the wealth in the country. It’s not that I support a vast skewing in the distribution of wealth in a capitalist society. Rather it was absurdity of the messenger who seemed oblivious to where he fit into the pyramid he decried. As no one else was in my room, I could only talk back to the television, “Well, count yourself in that group, Mr. Moore.”

Then Mr. Moore went on to compare the Dow Jones reaching 10,000 to the tragedy of the current 10% unemployment rate in the country. Maria challenged him, pointing out that the pension and 401K plans of millions of Americans have benefitted from the stock market over the years. He pooh-poohed her intelligent and totally correct response.

Next he lambasted the big banks, begging people to take all their money out of the big banks and to put it into the small, local banks in their communities. What he seemed to fail to understand was that the big banks are the ones that employ all the people at the bottom of the pyramid, so if people follow his absurd advice, the unemployment rate will rise, not fall.

Mr. Moore is a mogul in the entertainment industry. He is a successful capitalist who has benefitted from the deep pockets of capitalism. That is fine and it is a good example of how capitalism works and how it allows people to make big money.

Mr. Moore’s hypocrisy is in neglecting to tell his audiences that he himself is included in the class of people he deplores.

I was flummoxed, bowled over and plain stupefied as I read the article by Eric Dash and Jack Healy on the front page of the business section of the New York Times this past Saturday.   On the surface, the story simply defies belief.

Beleaguered Citigroup has been forced to execute a fire sale of its prize-winning entity, Phibro, because the Federal Government’s ‘pay czar’, Kenneth Feinberg, has ruled that the compensation contract with top level employees at Phibro “promoted excessive risk-taking and ran counter to the public interest”.  (A quote from the article.)

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Remember 1993 and health care? It was doomed because Americans did not want Big Government running one more part of their lives. Why? Because Government doesn’t do things very well – it’s as simple as that.

They – the Government – euphemistically refer to its proposed health care plan as simply one option in the public/private marketplace. But we – the people – know what that plan really is. It is socialized medicine.

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Just two days ago, the New York Times heralded on its front page “Health Care Bill Passes First Test on Capital Hill”, a title that belied the fact that the health care bill as currently structured has almost no likelihood of becoming law. Moderate Democrat Senators have no stomach for it, because their constituencies have no stomach for it.

This morning’s Wall Street Journal’s front page headline signals the more likely path for the bill “Budget Blow for Health Plan”, a story that the New York Times has relegated to page 12 (page 3 of the National news section of the paper). When the Director of the Congressional Budget Office (CBO) contradicts the statements of Congressmen/women and Senators, trouble is brewing, and that is exactly what Douglas Elmendorf has done.

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With Governor Sanford in political Siberia and Governor Palin perhaps following him, Governor Mitt Romney should be smiling. Lots of things are going his way.

With the benefit of hindsight, had Candidate McCain chosen the Governor of Massachusetts and not the governor of Alaska as his running mate, the outcome of the election might have been different, but who knew in July of 2008 that in only three months, so much economic havoc would be wreaked.

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President Obama promised CHANGE in his campaign for President, and after 100 days in office, it is easy to give him a grade of A++ on keeping that promise. I must leave it to historians to gauge whether or not his first 100 days will take the top prize in terms of changes instituted in this country, but for sure he will get honorable mention.

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Thank you, Mr. President, for doing what should have been done long ago, by moving forward to open up diplomatic and trade relations with Cuba.Not only is it the right thing to do from a human rights point of view, it will enhance the economies of both the United States and Cuba at a time when any stimulus to economic activity is an answer to prayer.

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For probably close to thirty years, I have been a registered Republican and have voted Republican in most – but not all – elections. Rush Limbaugh does not represent me as a Republican, and I don’t know too many Republicans who would say he speaks for them either. And for sure he is not the leader of the Republican Party. As one of my most intelligent Republican friends said to me the other day, “Rush Limbaugh is no leader. He is just a provocateur.”

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Lowering taxes in the midst of a recession is considered, in the science of economics, to be an expansionary move, i.e. one that will help to stimulate economic growth and end the recession.

The obvious corollary is that raising taxes during the midst of a recession is an economically contractionary move, one that will act to remove a stimulus to economic recovery and which will impede growth. So purely from an economic and mathematical point of view, it seems that the tax increases proposed in the current budget plan will only serve to lengthen this already seriously deep recession.

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