Its amazing the people that get elected, but have absolutely no clue.

Once again i'm copying a funny if not so sad blog.  It amazes me the way people think.   This actually had me laughing out loud while reading it.

http://globaleconomicanalysis.blogspot.com
I am considering a new feature: The Economically Illiterate Quote of the Day.
Perhaps it is impossible to keep up with the number of candidates, and perhaps some days do not have an award. However, today's quote is quite a masterpiece.

Here is the background: LA Councilman Jose Huizar wants to balance the books by borrowing more money. Meanwhile, other councilmen are wavering under threats from unions.

The LA Times picks up the story in Some L.A. Council members resist spending cuts, layoffs. That article contains our Economically Illiterate Quote of the Day.Let's take a look.

The drive to slash spending at Los Angeles City Hall is starting to crumble, as a growing number of City Council members waver in the face of angry constituents, disgruntled community groups and powerful union leaders.

With a vote scheduled Wednesday on whether to eliminate 1,000 jobs to help counter the city's $208-million budget shortfall, some members have begun speaking out against the various plans to scale back services and shut the city's smallest departments.

A majority of the council's Budget and Finance Committee has refused to sign off on the job-cutting plan.

Councilman Jose Huizar suggested that the city balance its books by borrowing more money.

My comment: Councilman Jose Huizar represents economic madness at its finest.

Councilman Bill Rosendahl vowed to protect the city's calligraphers, the handful of artists who design ornate proclamations that elected officials hand out to constituents. "Whatever we need to do to preserve it, I want to do," he said.

My Comment: Oh my God, Councilman Bill Rosendahl is correct. It is impossible to do without calligraphers. I am starting a "save our calligraphers" campaign tomorrow. There is no more urgent need anywhere.

If council members try to shield each department that comes out to protest, Councilman Greig Smith said, "then we're going to come out of this right where we were expecting to be on July 1st: We're going to be out of money, out of cash and bankrupt."

My Comment: Greig Smith for mayor.

Labor leaders said they are open to shrinking the workforce as long as each targeted employee is moved safely into another vacant position.

My Comment: In effect, labor unions are saying they are open to a shrinking workforce as long as the labor workforce does not shrink. That makes perfect sense to no one but unions. However, that sentence was implied, not actually stated. Quotes of the day awards must be an actual quote. We have standards to maintain.

The quote of the day goes to LA Councilman Jose Huizar, from the above article (but not highlighted above):

"If I'm facing hard times . . . I'm going to go to my uncles. I'm going to go to my aunt. I'm going to ask them to borrow money. I'm going to tell them: 'You know, I've got this '67 Chevy. I could sell it a year from now and maybe I'll pay you back with that.'"

"Can we do anything like that?" he asked the city's budget advisors.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Ben Bernanke vs Ron Paul who has an economic clue?

Recently Bernanke, Head of the Federal Reserve, was named Time Magazines Person of the Year.  The article goes on to say he saved us from the Great Depression 2.0.  Im wondering if I was able to cause WWIII and pretend to stop it if I could get the same recognition. I dont dispute the theory that Bernanke is a very powerful man.  I think if anything he is more powerful than President Obama.  He controls the worlds financial system.  He is supposed to be responsible, as the the Federal Reserve President, to do the following as the objectives:

1.  Moderate interest rates for the economy.

2.  Maintain Employment for the United States thru monetary policy

3.  Maintain Stable Prices

Moderate interest rates - Well myself and many many economists feel that he was asleep at the wheel when it came to this aspect.  He and the Federal Reserve thru the artificial credit creation and keeping interest rates too low for far too long.  He created the housing bubble which was a main cause of the economic meltdown.  Now he is the "hero" for supposedly saving it by doing the same thing,  lowering interests even farther and pumping trillions of dollars into an already debt ridden economy.  My opinion is that this is just a imaginary blimp of a recovery, which has just just increased debt to the country and has severely increased the possibility of big inflation.

Maintain Full Employment - Obviously this has been proven to be a major mistake as well.  We are above 10% and if you use any of the old ways of determining unemployment it is more in the 20% range.  Many people also believe it will be hard to get many of the old lost jobs back either because they have been lost to other countries or because companies have learned to be more productive with less employees.  Why should companies hire anymore people after they stop laying people off, if they are getting near the same productivity with less?  Whether you can directly blame this on Bernanke because of him dealing with this aspect after the fact is questionable.  But I would say its the Federal Reserves duties to see bubbles ahead of time, though my philosophy states no one can accurately when they manipulate the economy so severely.  You certainly cant argue that they totally missed this bubble that occurred during their watch (Greenspan and Bernanke).  They had no clue of the bubble or its severity.
 
 Maintain Stabile Prices - House Prices and Oil are just a couple of the totally unstable prices thru the past several years.

Here are just a couple of the ridiculous quotes from the most important man in the world. 

On July 1, 2005, Bernanke stated with great confidence that the U.S. was not experiencing a housing bubble, saying: “I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.”

In November of the same year, he talked about derivatives, saying, “With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.” He also said, “The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.”

And a couple months after that, back on housing again, he said, “Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
And in February of 2008, he said, “I expect there will be some failures of smaller banks.” Bear Stearns collapsed just a couple weeks later…

As well as saying Freddie and Fannie were in fine shape and had very little chance of failing.


This from the Time Magazine Person of the Year.   Asleep at the wheel? or Incompetent?  You decide.  I would actually argue that really he and the Federal Reserve have no chance of doing well at their objectives because they cant accurately predict what the market is going to do when they manipulate it thru cheap credit and un"real" interest rates.


Lets compare those with some other and see who predicted this collapse and the carnage that ensued.

And in one of the speeches that George Bush made before he left office, I talk about a lot. He said that it´s Wall St.´s fault, Wall St. got drunk. Well what everybody forgets is, sure, yeah, Wall St. was drunk, they were stinking drunk on Wall St.. Everybody on Main St. was drunk, the whole country was drunk.The question is, WHY? How did they all get drunk? Where did they get the alcohol? Well it all came from the FED. The FED liquored everybody up. And now they are surprised at the way we acted and the decisions that were made, about the risks that were taken? The Federal Reserve was behind all of it!  Peter Schiff

The U.S. housing market, long considered vulnerable by many economists, is now on the verge of suffering a serious collapse in many regions. Commodities guru and hedge fund manager Jim Rogers warns that real estate in expensive bubble areas will drop 40 or 50%. Mainstream media outlets like the New York Times are reporting breathlessly about the possibility of widespread defaults on subprime mortgages.
When the bubble finally bursts completely, millions of Americans will be looking for someone to blame. Look for Congress to hold hearings into subprime lending practices and “predatory” mortgages. We’ll hear a lot of grandstanding about how unscrupulous lenders took advantage of poor people, and how rampant speculation caused real estate markets around the country to overheat. It will be reminiscent of the Enron hearings, and the message will be explicitly or implicitly the same: free-market capitalism, left unchecked, leads to greed, fraud, and unethical if not illegal business practices.
But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy – through the manipulation of interest rates and the creation of money – caused the artificial boom in mortgage lending.
The Fed has roughly tripled the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed literally created demand by making the cost of borrowing money artificially cheap. When credit is cheap, individuals tend to borrow too much and spend recklessly.
This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed’s easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.
The actions of lenders are directly attributable to the policies of the Fed: when credit is cheap, why not loan money more recklessly to individuals who normally would not qualify? Even with higher default rates, lenders could make huge profits simply through volume. Subprime lending is a symptom of the housing bubble, not the cause of it.
Fed credit also distorts mortgage lending through Fannie Mae and Freddie Mac, two government schemes created by Congress supposedly to help poor people. Fannie and Freddie enjoy an implicit guarantee of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby fueling the housing boom.
The Federal Reserve provides the mother’s milk for the booms and busts wrongly associated with a mythical “business cycle.” Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you’ll have a pretty good analogy for Fed policies over the last two decades. Unless and until we get the Federal Reserve out of the business of creating money at will and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Alan Greenspan and Ben Bernanke.
RON PAUL March 2007

He also predicted the collapse of both Freddie and Fannie in 2002, but no one listens.   



The one of the people in charge of the collapse gets to be Time Magazines Person of the Year the other, who predicted the collapse in time to prevent it, is mocked by the mainstreet media.

Freaking people still have no idea what causes bubbles and busts.

Sigh it is so frustrating to see articles like this.

Dec. 31 (Bloomberg) -- Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.
“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.
The U.S. seized the two mortgage financiers in 2008 as the government struggled to prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index.
The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on too many risky loans, Wallison said.

“It turns out it was impossible to regulate them,” he said. “They were too powerful.” He said no one knows how much will be needed to keep the companies solvent.
The continued government support of Fannie Mae and Freddie Mac makes buying their debt a good investment, Wallison said.
“It was always safe to buy these notes,” he said. The U.S. government was always going to stand behind them. They’re as good as Treasury notes.” 

Not one mention that the FEDERAL RESERVE kept interest rates far too low for far too long artificially creating cheap credit? Would we have had a bubble if mortgage rates were at 10% instead of 5%?   Dont you think that also the governmental interference in the "market" of pushing Freddie and Fannie to make loans that in a free market they would not have made is to be blamed?

The continued government support of Fannie Mae and Freddie Mac makes buying their debt a good investment, Wallison said.
“It was always safe to buy these notes,” he said. The U.S. government was always going to stand behind them. They’re as good as Treasury notes.”

Boy sounds like Freddie and Fannie would be good stocks picks since the risk of total loss to stockholders is zero, but when you compare that to the governments history of running practically everything into bankruptcy (postal service, amtrak, social security, medicare,...)  its probably still a horrible investment.

Now instead of reining in Freddie and Fannie, we (the taxpayers) are guaranteeing any amount of losses.  Hmmmm Does that give them even more reason to risk my (taxpayer) capital? Or am I to believe that somehow the government will find enough regulations to keep them honest, even though they couldnt find enough regulations to stop the Tech bubble, Enron, Housing bubble, derivatives debt swaps crisis.

I wonder if they will ever figure out that a real "free market" actually contains irrational decisions, and at least when it doesnt the people who created the risk and made the poor decisions are penalized not innocent people and taxpayers.