Ben Bernanke Pens First Blog Post, Defends Fed, Says He “Was Concerned About Seniors”

It would appear the $250,000/hour speaking opportunities for Ben Bernanke have ground to a halt, and as such, the former Chairsatan has decided to dispense his wisdom for free to anyone who cares, by becoming a blogger at Brookings. And, not surprisingly, in his first post, the person who less than a decade ago said the following, in exactly those words…

Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

… is out and about defending the Fed and central banks from pushing rates so low, in Europe you are now paid to borrow money, and are charged to save.

So, to those who are too lazy to click on the following link to the Brookings blog where Bernanke is now blogger emeritus, here is the punchline.

In what can only be described as a litany of defensive insecurity, Bernanke launches a full-on assault on all those who accuse the Fed of crushing the economy, which now includes not only tin-foil fringe blogs of the Austrian economics persuasion, but such “very serious people” as Guggenheim’s CIO Scott Minerd who over the weekend said “The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity” and rhetorically asks “Why are interest rates so low? Will they remain low? What are the implications for the economy of low interest rates?”

His response to this rhetorical question, is the following: “If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense.”

Actually, it is true inn every sense. What is Bernanke’s loophole? He introduces the concept of the equilibrium real interest rate. In Bernanke’s words:

Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.

To understand why this is so, it helps to introduce the concept of the equilibrium real interest rate (sometimes called the Wicksellian interest rate, after the late-nineteenth- and early twentieth-century Swedish economist Knut Wicksell). The equilibrium interest rate is the real interest rate consistent with full employment of labor and capital resources, perhaps after some period of adjustment. Many factors affect the equilibrium rate, which can and does change over time. In a rapidly growing, dynamic economy, we would expect the equilibrium interest rate to be high, all else equal, reflecting the high prospective return on capital investments. In a slowly growing or recessionary economy, the equilibrium real rate is likely to be low, since investment opportunities are limited and relatively unprofitable. Government spending and taxation policies also affect the equilibrium real rate: Large deficits will tend to increase the equilibrium real rate (again, all else equal), because government borrowing diverts savings away from private investment.

He is absolutely right. What he just fails to notice is that the entire world is gripped in ZIRP, and increasingly NIRP, is that the current bubble implosion aftermath, now 7 years after the Lehman collapse, is merely the 3rd consecutive bubble burst in the past 15 years. In other words, the Fed may spout whatever mumbo jumbo it wants about why its response to the crisis was required, what it has zero defense against is why its only policy under the Greenspan “Great Moderation” paradigm has been to inflate bubbles, and replace a post-bubble vacuum with another bubble, ultimately leading to a complete and global economic halt, and a world in which central banks now have to monetize all net developed world issuance!

In essence there is no Weimar state any more – the entire world has become Weimar, and the only reason why no currency is hyperinflating in isolation is because absolutely everyone is doing the same cardinal monetary sin at the same time.

Of course, none of this will get much exposure.

What will, however, is the former Chairman’s surprisingly defensive pivot in which it is almost as if he sense what is coming over the horizon when he unexpectedly says it wasn’t his fault the entire nation’s senior population was decimated due to his and Greenspan’s ludicrous policies.

When I was chairman, more than one legislator accused me and my colleagues on the Fed’s policy-setting Federal Open Market Committee of “throwing seniors under the bus” (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings.

And the punchline:

I was concerned about those seniors as well.

Perhaps he is referring to seniors such as Omaha Octagenarians who had tens of billions in investments in a financial system that would have gotten insolvent overnight if he hadn’t bailed it out?

But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do. In the weak (but recovering) economy of the past few years, all indications are that the equilibrium real interest rate has been exceptionally low, probably negative. A premature increase in interest rates engineered by the Fed would therefore have likely led after a short time to an economic slowdown and, consequently, lower returns on capital investments. The slowing economy in turn would have forced the Fed to capitulate and reduce market interest rates again. This is hardly a hypothetical scenario: In recent years, several major central banks have prematurely raised interest rates, only to be forced by a worsening economy to backpedal and retract the increases. Ultimately, the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate), so that the economy could recover and more quickly reach the point of producing healthier investment returns.

Well thank you for the admission that there really is no getting out of a world in which three consecutive and ever larger bubbles has burst, and now with central banks all-in to support the last one, the final outcome will be a global catastrophe with a good global war thrown in for good measure, unlike any seen before.

Yet the funniest part of Bernanke’s diatribe is when he tacitly shifts away from the Fed as the culprit for all that is wrong, and implicitly blames the government.

A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that! Of course, it’s legitimate to argue about where the equilibrium rate actually is at a given time, a debate that Fed policymakers engage in at their every meeting. But that doesn’t seem to be the source of the criticism.

The state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns. This helps explain why real interest rates are low throughout the industrialized world, not just in the United States. What features of the economic landscape are the ultimate sources of today’s low real rates? I’ll tackle that in later posts.

Let us guess: features such a Congress which is now completely and utterly incapable of passing even one law perhaps because the passage of any real reforms is vastly unpopular for any politician (just look at Greece), and after all why bother: “get to work, Mr. Chairman” has been the operative principle of the US Congress since 2009, a Congress which has had some $4 trillion in deficit funding to keep America going, monetized by Bernanke’s own Fed.

But don’t expect any mention of that in Bernanke’s blog. And likewise, don’t expect your comment to appear on the Brookings blog.

Comments are welcome, but because of the volume, we only post selected comments.

By selected they of course mean only those which praise the man who threw America’s seniors under the bus, er pardon, didn’t.

Zillow: When ListHub agreement ends, we’ll have most listings ever

realtor.com is big loser

It appears that the Zillow Group (Z) is more than ready for the imminent disappearance of listing data provided by ListHub in a little over a week.

When Zillow canceled its agreement with ListHub in January, a Zillow spokesperson told HousingWire that the site expected a “few hundred thousand” out of the 3.6 million listings on Zillow to be affected when the Listhub agreement ends on April 7, but thanks to a set of newly signed direct listing agreements, Zillow and Trulia are now saying that they’re about to host more listings than ever before.

According to Zillow, the sites signed new direct listing agreements with 16 more multiple listings services in the last week. The inclusion of the listing feeds from those MLSs plus the dozens of other recently announced listing providers will push Zillow and Trulia’s listing count to new heights for either site.

“Notwithstanding seasonality and market inventory fluctuations, as a result of the increase in direct feeds, Zillow and Trulia will have a larger percentage of active listings than they would have if the ListHub contracts had not ended,” the Zillow Group said in a release.

More than one-third of America holds no emergency savings

Despite marked improvement in the economy since the end of the housing crisis, millions of Americans are still on the brink of foreclosure due to a lack of savings, a new study from NeighborWorks America found.

According to the second annual financial capability survey from NeighborWorks America, more than 34% of adults – more than 72 million people – say they don’t have any emergency savings, up from 29% reporting no emergency savings one year ago.

Additionally, the survey found that 47% of adults said that their savings would last three months or less, a significant increase from the 41% in last year’s study.

Of the 34% of adults that say they have no emergency savings, 50% of African-American and 42% of Hispanic adults said that they had no emergency savings, up from 43% and 39%, respectively, in 2014.

“These data are sobering, but not that surprising for those of us who have been working on the front-lines to help families rebuild their finances,” said Paul Weech, president and CEO of NeighborWorks America. “The hole that many people found themselves in due to the Great Recession – dug by sharply reduced home equity during the crisis and lagging wages during the recovery — was deep and digging out is going to take more time.”

Report: GSEs’ HAMP Modifications Perform Better Than Non-HAMP Mods

Non-HAMP private loans were designed to benefit banks, not borrowers

The number of delinquent mortgage loans backed by Fannie Mae and Freddie Mac that were modified through the government’s Home Affordable Modification Program (HAMP) is in many cases less than half the delinquency rate of GSE loans not modified through HAMP, according to the Q4 2014 Foreclosure Prevention Report released late last week.

On Fannie Mae’s modified loans completed through HAMP, 5 percent were 60 days or more delinquent just three months after the modification through the end of Q3 2014. The delinquency rate for non-HAMP loans three months after modification as of Q3 was double that rate, 10 percent. Six month after modification, 8 percent of Fannie Mae’s HAMP loans with a modification through Q2 were 60 or more days delinquent, compared to 16 percent for non-HAMP loans. Nine months after modification, 9 percent of Fannie Mae’s HAMP loans at the end of Q1 were 60 or more days delinquent, compared to a delinquency rate of 18 percent on non-HAMP loan mods.

For Freddie Mac, the delinquency rates are 7 percent on HAMP loans three months after modification as of the end of Q3 2014, compared to 14 percent on non-HAMP loans; 11 percent on HAMP loans six months after modification as of the end of Q2, compared to 17 percent on non-HAMP mods; and 11 percent for HAMP mods as of the end of Q1 compared to 18 percent on non-HAMP loans.

“Evidence so far suggests that participating in the HAMP program has a positive influence on the borrower’s performance in a modification,” said Mark McArdle, Chief of the Homeownership Preservation Office at the U.S. Department of Treasury. “The program’s deep payment reduction, standardization, and homeowner protections likely play a role as do the incentives HAMP offers both homeowners and servicers for borrower success.”

China’s Central Bank Cranks Up Printing Press

China’s most recent effort to prop up its softening real estate market is not enough, analysts say, noting that a series of interest rate cuts from the central bank is the best remedy.

“I’m virtually certain we’ll see further interest rate cuts and a lot more easing, probably bank reserve requirement ratio (RRR) cuts, in the coming months,” Macquarie Asset Management’s Senior Portfolio Manager Sam Le Cornu told CNBC. “I think people are underestimating the degree of liquidity that will be put into the market and the number of interest rate cuts.”

Chinese homebuyers were given a break on Monday after authorities lowered the threshold of down payments on mortgages for second homes to 40 percent from 60 percent and waived the business tax on the resale of property after two years.

The measures follow Beijing’s effort to spur the economy by cutting interest rates twice since November and lowering the reserve requirements of major banks. But that isn’t enough for many investors who continue to call for further easing.

“[China still needs] further across-board monetary policy easing,” Nomura’s China economics team said in a note on Monday. It expects “more policy easing, with three more interest rate cuts and three more reserve requirement ratio cuts over the remainder of 2015.”

However, Nomura believes that Mondays’ move will “see the pace of property market correction stabilizing in the second half of the year.”

Crunching real estate

Monday’s move comes amid growing concerns over slowing economic growth.

China set its 2015 growth target “at around 7 percent” in early March – it’s lowest target in 11 years – after posting its slowest annual growth rate in 24 years in 2014.

The housing sector accounts for around 15 percent of China’s economy, and recent housing data suggests that growth continues to slow.

In February, new home prices fell for the sixth consecutive month amid tepid demand, according to Reuters calculations based on National Bureau of Statistics data. Prices fell an annual 5.7 percent, marking the largest drop since the current data series began in 2011.

But the measures introduced on Monday should help slow the trend, analysts said.

“These measures are positive for housing demand in the short term, especially in top-tier cities,” although they may not be enough to boost investment, which is important for gross domestic product growth forecasts, said Nomura in the note.

Paul Krugman is Sworn Enemy of Wealth

Missing Deflation and the Argument for Inflation

Matthew Klein has been going through Fed transcripts from 2009, and notes that the Fed was surprised at the persistence of inflation despite the Great Recession. Oddly, however, he seems to suggest that this episode weakens the case I and others have been making for a higher inflation target. Actually, it strengthens that case.

First of all, the Fed wasn’t alone in being surprised by the failure of actual deflation to emerge; so were many of us, and we treated it as a problem to be solved. And what emerged as at least one likely culprit was downward nominal wage rigidity, which has been overwhelmingly obvious in recent years, with a clear spike in the distribution of wage changes at precisely zero:

What does this have to do with the case for a higher inflation target? That case rests on the problem of the two zeroes: it’s very hard both to cut interest rates below zero (not impossible, we’ve learned, but hard), and it’s also very hard to get cuts in nominal wages. Both problems are much more likely to be serious problems for the economy with, say, 1 percent inflation than with 4 percent inflation.

Now, economists and central bankers were aware of the two-zeroes problem back when they converged on the 2 percent inflation target. That’s why the target was 2, not 0. But they wrongly believed that 2 was enough — that with a 2 percent target neither zero would be binding except in rare cases.

What we’ve learned since then is that the zeroes are a much bigger issue than the consensus had it; that you can spend 6 years and counting at the zero lower bound on interest rates, that you can face many years of grinding, painful adjustment as countries or regions try to achieve “internal devaluation.”

So the failure of inflation to fall as much as predicted in 2009 was part of a series of events that were trying to tell us that the initial inflation target was too low.