Juggling Dynamite

Yesterday the Federal Reserve released transcripts of its meetings in 2006, offering a new window into what was on the minds of some of the nation’s top economic and financial thinkers just ahead of the financial crisis and subsequent great recession. The transcripts, customarily released after five years, show that Fed leaders, armed with the best economic data available, had little idea of the glaring risks that were building in the financial system and the economy. Transcripts show meetings started off with embarrassing military salutes and gushing adulation for then Fed Chief Alan Greenspan. Here is the Washington Post:

“Trusted to look toward the future and make decisions to keep the economy strong, they spent some of their time patting their leader on the back and even found time to joke about what turned out to be early-warning signs in the markets. While Fed officials — including several who are in key positions today [like Bernanke] — were aware that the nation’s rapid increase in housing prices was coming to an end, they significantly underestimated how much damage the popping of the real estate bubble would cause in the rest of the economy.

In his first meeting as Fed chairman, in March 2006, Ben S. Bernanke noted the slowdown in the housing market. But he said he shared the view that “strong fundamentals support a relatively soft landing in housing,” adding: “I think we are unlikely to see growth being derailed by the housing market.”

Of course, we already knew how inept the world’s bankers had been in seeing the problems and risks leading into the crisis. What is more disturbing though is how little the mainstream seems to have learned from the past few years of mistakes and suffering. Today as business media clamber to follow politicians and bankers to summit after summit and hang on their every promise and projection, thoughtful people have to turn off the volume, think for themselves, and manage their risk accordingly.

New economic data out of Germany shows even the economic heavyweight is starting to get hit by the slowing economy. Here is the direct link.

Meanwhile the World Economic Forum issued its annual report on the global economy today warning that the “seeds of dystopia” are being sown:

“The growing number of young people with little chance of finding a job, the increasing number of elderly people dependent on states deeply in debt and the expanding gap between rich and poor were all fuelling resentment worldwide, the forum said in its Global Risks 2012 report on Wednesday.

“For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs,” said Lee Howell, the WEF managing director responsible for the report. “This new malaise is particularly acute in the industrialised countries that historically have been a source of great confidence and bold ideas.”

The survey of 469 global experts identified chronic problems with government finances and severe income inequality as the most prevalent risks over the next decade.

“These risks in tandem threaten global growth as they are drivers of nationalism, populism and protectionism at a time when the world remains vulnerable to systemic financial shocks, as well as possible food and water crises,” the report said.”

The longer the status quo tries to pretend and extend and maintain present structures and preferences, loop-holes and unfair advantage, the more painful the next phase of socio-economic transition will be-for all of us.

A good clip to lend further perspective on the debt limit issues facing America and much of the world.  (thanks William).  The way back to health is very simple: cut spending, raise revenue, pay down debt, stop raising debt ceilings, stop stealing funding and growth from the future to squander in the present.  All the stubborn positions from the left on spending that cannot be cut and the from the right on taxes that cannot be increased, are all childish nonsense. The math speaks for itself. Here is the direct link.