The world may have been crashing and burning, and as Bernanke admitted in March 2008, “At some point, of course, either things will stabilize or there will be some kind of massive governmental intervention, but I just don’t have much confidence about the timing of that” (guess which one it was), but at least the Fed ended the catastrophic 2008 yeat on a high note. The chart below shows the number of the time the FOMC committee had an moment of levity as captured by [Laughter] in the FOMC transcripts. Perhaps not surprisingly, the December 2008 meeting, when the market was in free fall, saw the biggest number of laugh lines in the entire year.
So what was so funny? Below is a choice selection from the December 16 meeting transcript:
MR. DUDLEY. It is possible that we could have default rates greater than those of the Great Depression. I’m just saying that these levels discount that kind of outcome. Obviously, the high-yield debt market today is different from general default rates. Yeah, I think that’s a fair point.
MR. BULLARD. Do we know? Was there something like a junk market in the Great Depression that we can compare this with?
MR. DUDLEY. Well, there were certain leveraged utility companies that you could argue were pretty junky.
MR. FISHER. Corporate grade became junk in the Great Depression.
CHAIRMAN BERNANKE. Michael Milken hadn’t been born yet. [Laughter]
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CHAIRMAN BERNANKE: … You are all aware of the lending facilities for banks and dealers, the swaps with foreign central banks, the promised purchases of MBS, the various credit facilities for which even I do not know all the acronyms anymore. [Laughter]
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MR. EVANS. For our policy actions, I think that we should continue to communicate in terms of our objectives. In my opinion, this strategy covers most of the issues asked of us. The fed funds rate will be low for some time under our forecast. I don’t think there is much doubt about that, and our forecast helped with that. Disinflation risks are part of this outlook, and I think that should be well understood. We can communicate that in our speaking. If our inflation target were explicit and we talked about it more—higher future inflation expectations than just, if it were the case, ½ percent or lower—that would be part of the communication calculus. As things stand, our long-term projections may be adequate here, but more explicitness in general would be helpful. It is interesting to me that alternative A encompasses all of these in relatively muted language. Frankly, if we are expecting a big impact from that statement, I think we need to include a bold font typeface, [laughter] because I don’t think it will be picked up necessarily.
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MR. KOHN. Thank you, Mr. Chairman. I want to join the others in thanking the staff for their work. These are very difficult issues, and I think you have brought to bear a lot of what little information we have on these subjects and have kind of kept me out of trouble for the last week. My wife thanks you as well. [Laughter]
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MR. FISHER. Mr. Chairman, my colleague Harvey Rosenblum made an interesting point the other day that we’re at risk of being perceived as migrating from the patron saints of Milton Friedman and John Taylor to a new patron saint—Rube Goldberg. [Laughter]
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MR. FISHER. Finally, on the issue of communications, one of my colleagues often says that, if you’re Elton John, you are expected to sing “Bennie and the Jets” every single time and at every single concert. It seems to me that, once we get and hone our message, we must repeat it incessantly and stay on message in order to have it penetrate. In Austin, you gave what I consider to be a hallmark and—not trying to flatter you—for monetary policy a historic speech. What was Bloomberg’s first reaction? The Fed may cut rates further. The message was lost. We all need to stay on message. But I think it’s very important, whether we have press conferences or whether you give speeches, that we need to hammer the theme of the new regime that we are about to embrace over and over and over again. So I didn’t pick “Bennie and the Jets” just because of your name, Mr. Chairman. [Laughter]
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CHAIRMAN BERNANKE. I’m in awe of a presentation that has Rube Goldberg, the Black Death, “Bennie and the Jets,” and full frontal view all in it. [Laughter]
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MR. KROSZNER. . Of course, I’m from the University of Chicago, and so Milton Friedman is spinning right now, [laughter] but money demand has not proved to be a very stable function over time, particularly now.
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MS. AARONSON. The bottom right panel shows a Beveridge curve calculated using the Help-Wanted Index as the measure of job openings. If there has been a significant increase in structural unemployment, then one would expect that for a given level of the job openings rate, the unemployment rate would be unusually high—that is, to the right of the plotted Beveridge curve. This might occur, for example, if many of the job openings were for nurses but a disproportionate number of the unemployed were bond traders, who are not qualified for the job openings. [Laughter]
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MR. STOCKTON. The point of constructing this optimal control is to say that, gee, if you weren’t constrained, here is how we thought optimal behavior—the sort of optimal outcome— would be, given the shocks. You’re asking me whether or not there are quantitative policies that you could put in place. I was actually hoping that you folks were going to be able to tell me. [Laughter]
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MR. FISHER. Nathan, you would probably have been arrested for treason if you had said that in Latvia—literally. The economist who gives a negative forecast is arrested for treason. Stay here. [Laughter]
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MR. LACKER. In these circumstances with the funds rate around 1/8 percent, it is hard to see a benefit of prolonging any further reduction. I agree with the staff analysis that any potential dislocation in money market institutions is likely to be minor, and I observe that, to the extent that money market institutions provide value to the economy in the form of circumvention of prohibitions on interest and other legal restrictions on financial arrangements, the traditional welfare analysis would count their demise as a benefit rather than a cost. But I have to admit I haven’t tried explaining that to a money market fund manager. [Laughter]
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MR LACKER. … You have to influence expectations about the future course of the base. This to me is the simple intuition for that. All of this is just to suggest that our ability to communicate is going to be crucial.
MR. KOHN. Including over salad. [Laughter]
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MS. YELLEN. I hope that a recovery will begin in the middle of next year, but the risks seem skewed to the downside for several reasons. First, compared with the average recession, we face unusually difficult financial conditions. My contacts complain bitterly that even firms with sterling credit ratings have difficulty securing credit. Some banks appear reluctant to lend because financial markets are skeptical about the quality of their assets and their reported net worth. An accounting joke concerning the balance sheets of many financial institutions is now making the rounds, and it summarizes the situation as follows: On the left-hand side, nothing is right; and on the right-hand side, nothing is left. [Laughter]
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MR. EVANS. Thank you, Mr. Chairman. As gloomy as our last meeting was, conditions have deteriorated substantially further since then. Practically all of my contacts reported that economic events had turned sharply lower once again in the last three to five weeks. This goes well beyond the auto sector and other parts of the District that have been struggling for some time. The most optimistic comment from my directors was this, “At least Iowa is going to hell slower than everywhere else.” [Laughter]
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MR. FISHER. The one ray of sunshine that I was able to find is that one large law firm, Cravath, has announced that it is not increasing its billing rates in 2009, [laughter] and other law firms are actually planning to respond by cutting their billing rates. One woman whom I know summarized it this way: “This is the divorce from hell. My net worth has been cut in half, but I am still stuck with my husband.” [Laughter]
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CHAIRMAN BERNANKE: Let me make just a few additional comments, but I won’t add, I think, a great deal of insight to our discussion. I will just note for the record here that the NBER has finally recognized that a recession began in December 2007. I said in the Christmas tree lighting ceremony that they also recognized that Christmas was on December 25 last year. [Laughter]
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MR. LACKER. Just a thought in response to Governor Kohn’s comments: Would the phrase “add to” do a better job than “increase the size of” in conveying the sense that these programs are going to make the balance sheet bigger than it otherwise would be, rather than lead to an absolute increase in the size of the balance sheet?
MR. KOHN. I am not sure those words help me, actually. “Add to” sounds the same as “increase” to me. I have missed the subtlety here.
MR. LACKER. Other things held constant.
MR. KOHN. Ceteris paribus. We could put that in there.
CHAIRMAN BERNANKE. It is already Greek anyway. [Laughter]
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MR. DUDLEY. It is better than the time I found out I had to discuss a Stiglitz paper in grad school about 12 hours ahead of time. That was harder. I read the Stiglitz paper three times, and then I started to understand it. [Laughter]
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And so on. Their laughter continues to this day.
via Zero Hedge http://ift.tt/OjeAl1 Tyler Durden
