Jackson Hole post-mortem: A press review
Ben Bernanke and his central banking pals met on Friday for their annual get-together in Jackson, Wyoming. While on the day of the conference, the establishment media stumbled all over the place trying to make sense of Big Ben's inscrutable pronouncements about interest rates, a holiday weekend has allowed for some more careful reportage and reflection about where the economy has been and where it's going.
The headline in the New York Times augured nothing new or interesting: "Few Expect a Panacea in a Rate Cut by the Fed." But there are actually some good nuggets. Such as:
Over the next six weeks, more than $1 trillion worth of commercial debt is set to come due and will need to be refinanced, more than five times as much as came due since the disruption began one month ago.
Fed officials say most of that $1 trillion in maturing debt has nothing to do with subprime loans and any other kind of mortgages. It includes credit card debt, car loans and business loans.
One official compared the load of maturing debt to a pig in a python: a bulge that would be take time to digest, but could eventually be absorbed without huge problems.
Much of the digesting will be by big banks, which provided backup credit lines for their mortgage lenders.
But David Hale, a longtime Fed watcher, noted that at least two German banks needed to be rescued last month because of their exposure to American mortgages. Chances are very high that there will be more, Mr. Hale said.
Now it's at this point of an ordinary blogpost that I might go off on a rant about how the Times buried the lead, and is it not huge freaking news that after a comparatively meager amount of commercial debt sent markets into a tailspin, five times that amount is about to come due. But I'm feeling mellow today, happy just to have the news reported somewhere, even if buried in an article about central bankers debating matters on which they've proven themselves clueless:
But economists are still debating whether the Fed created the housing bubble, and thus set the stage for the current bust, when it slashed interest rates to cushion the shock of a bursting stock market bubble.
John B. Taylor, a former under secretary of the Treasury under President George W. Bush, argued over the weekend that the Fed “would have avoided much of the housing boom” if it had followed a more traditional monetary policy between 2001 and 2006.
But other experts attributed the real estate frenzy to other factors, in particular to an explosion of exotic mortgages that allowed people with low incomes and weak credit to buy houses with no money down and deceptively low initial payments.
“It’s too easy to blame the Fed,” said Robert J. Shiller of Yale, who sounded early alarms about both the stock market and housing bubbles. Mr. Shiller blamed mass psychology for the bubble, an almost ubiquitous conviction that housing prices would simply keep climbing at double-digit rates.
What is Shiller smoking? Here he seems to posit that an easy-money policy and "an explosion of exotic mortgages" are somehow mutually exclusive, when it seems pretty obvious that the former begat the latter.
More sense comes from UCLA's Edward Leamer, quoted in USA Today:
Leamer said the Fed may have laid the groundwork for the housing bust and credit market turmoil by cutting interest rates too low earlier in the decade.
It's "best to remember that the teaser rates for (adjustable-rate) mortgages came from Washington, D.C., not from Wall Street," Leamer said.
Hear, hear! Leamer, by the way, says a recession is not a lead-pipe cinch at this point, even though housing has led the way to previous recessions. The difference this time, he says, is that manufacturing is unlikely to shed as many jobs. (Why, because so many of them have already been wiped out? Alas, the article does not say.)
Ultimately, USA Today's lede captures the pointlessness of the whole exercise:
Two years ago, top economists here at the Federal Reserve's annual conference praised Alan Greenspan as possibly the greatest central banker ever. This year, several suggested his Fed helped spur the current meltdown in credit and mortgage markets by cutting interest rates too much and regulating too little.
Better late than never, I suppose.