Generational Dynamics Forum - New Site

• S&P 500 Price/Earnings Ratio (P/E Ratio) - 150.2 years,
  1/31/1871 - 04/16/2021, monthly data points

Q: Hi, Chair Powell. I'm wondering, are you planning to visit the homeless encampment that's near the Fed in Washington that you drive by? Have you been invited? And if you went, what would you be looking to learn there?

MR. POWELL: You know, frankly, I -- yes, I have not had a chance to do it yet, but -- I've been very busy, but I will visit. I don't want to visit at a time of a lot of media attention because I don't want that to be part of the story, but I will -- I will go visit when it's no longer a new story. And you know, I have -- I've met with homeless people many times -- a number of times, anyway, let's say -- and I think it's always good to talk to people and hear what's going on in their lives. What you find out is they're you. They're just us. I mean, they're -- these are people who in many cases had jobs and, you know, they have lives, and they've just -- they have just found themselves in this place.

It's a -- it's a difficult problem, though, you know. There are many, many facets of it. And I'm well aware that this is not something that the Fed has all the tools for or anything like that. But I will do that when the -- when the need arises and when it's not so much, you know, in the public eye.

Q: And is there anything specifically that you would be looking to learn there?

MR. POWELL: Not really. I mean, I think I know what I'll find there. I think you -- you connect with these people, and what you -- again, what you find is they're like you. That could be you. I mean, that could be your sister. That could be, you know, your kid. You always feel that way in that sort of an encounter, and you know, it just is -- it's an important thing to engage in, I think. And I think, you know, we bring that understanding into our lives and, frankly, into our work -- the work that we do, as well.

Q: Thank you, Mr. Chairman. Since I am last, let me go back to Paul's question, the first question, and ask him -- ask you whether -- not whether you're thinking about thinking of tapering, but why you're not. We're seeing bank lending fall. The markets seem to be operating well. Are you afraid of a taper tantrum? Or is it, as one money manager put it, if you get out of the markets there aren't enough buyers for the treasury debt and so rates would have to go way up? The bottom-line question is: What do we get for $120 billion a month that we couldn't get for less?

MR. POWELL: So, it's not more complicated than this: We articulated the substantial further progress test at our December meeting. And really for the next couple of months we made relatively little progress toward our goals. And there was substantial further progress from December -- from our December meeting. And then vaccination started to get more widespread. The economy reopened. We got a nice job report for March.

It doesn't constitute substantial further progress. It's not close to substantial further progress. We're hopeful we will see along this path a way to that goal. And we believe we will, it just is a question of when. And so when that time -- when the time comes for us to talk about talking about it, we'll do that. But that time is not now. It's -- we're just not -- we're not that far. We've had one great jobs report. It's not enough. You know, we're going to act on actual data, not on our forecast. And we're just going to see more data. It's no more complicated than that.

Q: Well, if you leave rates where they are, doesn't change anything. But does it change anything if you actually tapered a bit? If you spent less would you still get the same effect on the economy?

MR. POWELL: If we bought less -- you're very faint. So if someone has a volume, turn it up. But if we bought less? No, no. I think the effect is proportional to the amount we buy. It's really part of overall accommodative financial conditions. We have tried to create accommodative financial conditions to support activity, and we did that. And we articulated the -- you know, the tests for withdrawing that accommodation.

And we think -- you know, so we're waiting to see those tests to be fulfilled both for asset purchases and for lift off of rates. And, you know, when the tests are fulfilled we'll go ahead. You know, we've done this before. We did it in the last -- after the last crisis. And, you know, we'll do it in maybe -- we'll do it -- as those tests are satisfied, we'll do it. And the only thing that will guide us is, are the tests met? You know, that's what we focus on, is have the macroeconomic conditions that we've articulated, have they been realized? That will be the test for tapering asset purchases and for raising interest rates.

Thank you.

Higgenbotham wrote: Thu Apr 29, 2021 10:48 am > Why $120 billion a month, why not less?

> "But if we bought less? No, no. I think the effect is proportional
> to the amount we buy."

> Why $120 billion a month, why not more?

> Now if I help you, it matters that you see
> These sordid kinda things are coming hard to me.
> It's taken me some time to work out what to do.
> I weighed the whole thing out before I came to you.
> I have no thought at all about my own reward.
> I really didn't come here of my own accord.
> Just don't say I'm ...
> Damned for all time.
>
> I came because I had to; I'm the one who saw.
> Jesus can't control it like he did before.
> And furthermore I know that Jesus thinks so too.
> Jesus wouldn't mind that I was here with you.
> I have no thought at all about my own reward.
> I really didn't come here of my own accord.
> Just don't say I'm ...
> Damned for all time.
>
> Annas, you're a friend, a worldly man and wise.
> Caiaphas, my friend, I know you sympathise.
> Why are we the prophets? Why are we the ones
> Who see the sad solution - know what must be done?
> I have no thought at all about my own reward.
> I really didn't come here of my own accord.
> Just don't say I'm
> Damned for all time.

> Christ, I know you can't hear me,
> But I only did what you wanted me too.
> Christ, I'd sell out the nation,
> For I have been saddled with the murder of you.
> I have been spattered with innocent blood.
> I shall be dragged through the slime and the mud.
> I have been spattered with innocent blood.
> I shall be dragged through the slime and the mud! ...

> When he's cold and dead will he let me be?
> Does he love me too? Does he care for me?

> Oh, Oh!
> My mind is in darkness now.
> My God, I am sick. I've been used,
> And you knew all the time.
> God, I'll never ever ever know why you chose me for your crime.
> Your foul bloody crime.
> God, You have murdered me! You have murdered me, murdered me!
> You have murdered me murdered me murdered me murdered me!

John wrote: Thu Apr 29, 2021 11:28 am ** 29-Apr-2021 World View: Jerome Powell and Judas: Damned for all time

I actually feel sorry for Jerome Powell. He knows that we're on the
edge of a cliff, and he knows that anything he does could be blamed as
the cause of going over the cliff. Powell wants to do the right
thing, but no matter what he does, he's afraid of being "damned for
all time."

Ben S. Bernanke: The man without agony

Bernanke and Greenspan are as different as night and day, despite what the pundits say. (29-Oct-2005)


Summary

Ben S. Bernanke, President Bush's nominee for the new Fed Chairman, is completely different from the man he'll be replacing, Alan Greenspan. Nowhere is the difference so apparent as when you contrast Bernanke's "What me worry?" attitude toward economic bubbles with Greenspan's genuine agony over the fact that his gut is telling him that we're headed for a major financial crisis.

Possibly what bothers me most about Ben S. Bernanke is that I fail to detect in him any of the agony that has characterized Alan Greenspan’s speeches in the last year.

There are many things - race, religion, etc. - that are irrelevant to predicting how a Fed chairman will conduct policy. But the generation into which a man is born is very relevant.

We can see that right away in their policy priorities.


A generation apart

Greenspan was born in 1926, and grew up surrounded by massive starvation and homelessness in the Great Depression, so his priority at the Fed has been to contain the damage from the 1990s bubble.

Bernanke was born in 1953 and grew up during the 1950s, when America had already defeated the Depression and defeated the Nazis, and no goal was out of reach. He was in college in the 1970s when high inflation was the major problem, so naturally inflation is his highest priority policy issue today.

Bernanke doesn’t worry about bubbles, because to him those were all fixed in the 1930s, and now they always take care of themselves.

Through 2005, Greenspan has seemed to me to be increasingly in agony, as he’s seen the stock bubble of 2000 morph into a stock bubble and a housing bubble. This was beginning to look all too familiar to him; things he hadn’t seen since his childhood. It’s not surprising that Greenspan privately told France’s Finance Minister last month that “the United States has lost control of their budget.”

His public remarks were at their starkest in his “swan song” Fed speech at the end of August.

In that speech he commented favorably on the economy’s flexibility because it encourages investor risk, but warned about the stock market and housing bubbles, and added:

"To some extent, those higher [stock and housing] values may be reflecting the increased flexibility and resilience of our economy. But what [investors] perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

History has not dealt kindly ...

When Greenspan says that “history has not dealt kindly,” he’s referring to the 1930s Depression, and he’s telling us that he thinks it’s going to happen again. Just reading his words you can almost hear the agony in his voice, as he realizes that the horrors he suffered as a boy are going to happen again – and that he’ll be blamed for it, and that it will be his legacy.

The stock market today is priced at Dow 10,300, but the underlying book value of the market is Dow 4,500 according to my computations – and according to computations performed using a different method by analyst Adam Barth in an article appearing in the July 11, 2005 issue of Barron’s.

So the market is priced at 228 per cent of book value today, which is about where it was just before the 1929 panic. Bernanke undoubtedly believes that a new panic today wouldn't do any more harm than the 1987 panic that he's old enough to remember, but the market was at 102 per cent of book value at that time, so it's not surprising that the market recovered quickly then. A panic today would be as bad as 1929.

Higgenbotham wrote: Fri Apr 30, 2021 12:44 am

John wrote:Through 2005, Greenspan has seemed to me to be increasingly in agony, as he’s seen the stock bubble of 2000 morph into a stock bubble and a housing bubble. This was beginning to look all too familiar to him; things he hadn’t seen since his childhood. It’s not surprising that Greenspan privately told France’s Finance Minister last month that “the United States has lost control of their budget.”

His public remarks were at their starkest in his “swan song” Fed speech at the end of August.

In that speech he commented favorably on the economy’s flexibility because it encourages investor risk, but warned about the stock market and housing bubbles, and added:

"To some extent, those higher [stock and housing] values may be reflecting the increased flexibility and resilience of our economy. But what [investors] perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

History has not dealt kindly ...

When Greenspan says that “history has not dealt kindly,” he’s referring to the 1930s Depression, and he’s telling us that he thinks it’s going to happen again. Just reading his words you can almost hear the agony in his voice, as he realizes that the horrors he suffered as a boy are going to happen again – and that he’ll be blamed for it, and that it will be his legacy.

The stock market today is priced at Dow 10,300, but the underlying book value of the market is Dow 4,500 according to my computations – and according to computations performed using a different method by analyst Adam Barth in an article appearing in the July 11, 2005 issue of Barron’s.

So the market is priced at 228 per cent of book value today, which is about where it was just before the 1929 panic. Bernanke undoubtedly believes that a new panic today wouldn't do any more harm than the 1987 panic that he's old enough to remember, but the market was at 102 per cent of book value at that time, so it's not surprising that the market recovered quickly then. A panic today would be as bad as 1929.