Ali’s blog

Mostly quant stuff with occasional digressions

The three stooges running for supreme office

Posted by alifinmath on March 24, 2008

In the FT:

The separation of presidential politics from the troubles assailing the US economy is now verging on the surreal. With banks collapsing, the dollar reeling, the Federal Reserve making up new rules as it goes and observers discussing a new Great Depression, the presidential candidates are still on scripts they wrote a year ago. The main problem is either the North American Free Trade Agreement (Barack Obama and Hillary Clinton) or high taxes and excessive regulation (John McCain). If delivery from this ordeal depended on any of the contenders saying something intelligent about it, prudence would require that the entire country be written down to a nominal sum.

What makes this even odder is that the Democrats, at least, continue to hammer away at economic anxiety. The squeeze on “middle-class families” gives them an edge against the Republicans in November, they calculate. But they were saying this last year, and the year before – when unemployment was not rising, the economy looked pretty healthy and most Americans still did not know the difference between an SIV and a CDO. The themes are trade and jobs, shuttered factories, stagnant incomes, unlevel playing fields and labour and environmental standards. As for the complete breakdown of the credit system and the danger of a years-long Japanese-style slump – oh, yes, there’s that as well.

All three candidates have expressed satisfaction that the Federal Reserve is on the case, so it fell to Paul Volcker, former Fed chairman, to swift-boat Ben Bernanke and his team. Mr Volcker explained in a television interview that the Fed’s new measures were “extreme” and raised “some real questions”. Bear Stearns was a lightly regulated entity, he said, yet the Fed had assumed some of the risk of its questionable assets: “At some point the government ought to … be taking responsibility for that kind of action, not the Federal Reserve, which is an independent agency designed to provide an ample supply of liquidity to the economy … not to protect particular sectors of the economy from bad loans.” Whether the Fed’s actions were appropriate, Mr Volcker said, depended on how bad things might get – to which Mr Bernanke might reasonably reply that this is something he would rather not find out. At any rate, discussion of the danger now facing the economy, and the appropriate policy response to this risk, is still confined to finance professionals and monetary-policy wonks; it has made as yet little impression on American politics.

These, then, are the three idiots running for supreme office. One couldn’t do worse than having Caligula’s horse in the Oval Office (Caligula tried to have his horse appointed as a Roman consul). All three are on automatic pilot, and are ignorant of what’s going on; and if they weren’t ignorant, would be completely clueless.


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