Paulson, Bernanke, Bush vs. Mervyn King

Let's review transparency and honesty by the Fed, the Treasury, and President Bush vs. Mervyn King and the Bank of England.

Paulson & Bush on the Strong Dollar and the US Economy

Paulson backs strong U.S. dollar, confident on economy

• Paulson repeated on Thursday that a strong dollar was "very much" in America's interest and said the U.S. economy's underlying vigor will eventually show up in the currency's value.
• "We have a strong-dollar policy and it's important for the world to know that," Bush said, speaking on the same day that Paulson left for his five-day tour of Africa.

Strong Dollar Policy in Practice.

• Talk about the strong dollar.
• Talk more about the strong dollar.
• Talk still more about the strong dollar even if that means traveling to Africa to find someone who will listen politely.
• Blow $trillions we do not have and cannot afford in Iraq. Blow $trillions more on all sorts of unwarranted government programs.
  
• Cut interest rates to weaken the dollar and promote exports.
• Demand China float the Renminbi so the Renminbi will rise and the dollar will sink.
• Look the other way and say nothing about the carry trade in the Yen.

Bernanke's Fake Transparency

Bernanke's Embrace of Forecasting Ends Greenspan 'Decoder' Era

• Bernanke said yesterday that Fed officials will add a third year to their forecasts and double the frequency to once a quarter. The reports will give investors and companies more details on why interest rates were adjusted and offer a map for where they are likely to go.
• Bernanke and other Fed officials have repeatedly underscored their confidence the economy will accelerate by mid-2008 after a lull this quarter.
• Bernanke framed transparency as critical to the central bank's "democratic legitimacy" with the public.
• Bernanke praised the "diversity of views" among the 12 district-bank presidents and seven Fed governors, who discuss rate decisions at FOMC meetings. He said the range of opinions "serves to limit the risk that a single viewpoint or analytical framework might become unduly dominant," a frequent criticism of Greenspan's chairmanship.

Bernanke vs. Greenspan

• By trading Greenspan for Bernanke we received someone who can speak understandable but disingenuous English for someone who spoke unintelligible gibberish.
• We also received someone who wants to set inflation targets but doesn't have the faintest idea what inflation is.

Bernanke's recent statements that the economic situation is balanced and the underlying economy solid can easily be refuted by the Fed's recent actions. See What's Really On the Fed's Mind? for more on this topic.

Does anyone ever recall Bernanke, Paulson, Bush, or for that matter any Fed governor actually giving a genuine warning about possible economic malaise? Compare and contrast all of the above with the following.

Mervyn King Bank of England Governor

Bank's grim warning over UK economy

• The governor of the Bank of England issued a stark warning yesterday of a looming economic slowdown as he signalled that the next year will be the toughest for Britain in a decade.
• Mervyn King said the period ahead would be marked by slower growth, rising inflation, a weakening housing market and a falling pound.
• He expressed surprise that global stock markets had so-far shrugged off evidence of the slowdown.
• The governor stressed that even the two quarter-point cuts in interest rates pencilled in to the Bank's forecasts would not spare consumers from a painful period of belt-tightening next year - and that the risk was that the UK economy would be even weaker than Threadneedle Street currently expects.
• King stressed that the period of financial market turmoil that led to the run on Northern Rock was far from over and would be intensified by a tumble in share prices.
• "With house price inflation easing and commercial property prices falling, residential and commercial property investment are likely to moderate, possibly quite sharply.
• King also warned that the pound would need to fall in order to boost exports and to close the UK's £7bn a month trade deficit in goods

Now that's candor and true transparency. In the UK, rate cuts are "penciled in" while the Fed disingenuously calls the risks balanced. In the UK there is talk of falling commercial real estate prices. In the U.S. the Fed knows commercial real estate is staring over the abyss but no one talks about it. While King says financial turmoil is "far from over", the Fed's Poole says "the market is healing".

Bernanke framed transparency as critical to the central bank's "democratic legitimacy" with the public. On that score I hope he is right. Because if he is, the entire world should easily be able to see the Fed has no legitimacy of any kind, democratic or otherwise.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com
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