The Agenda

The Agenda is a great book on the early days of the Clinton administration by Washington Post/Watergate reporter Bob Woodward. The tone is set early on as numerous promised programs are shot down by Sec. Rubin under threat of bond market collapse. Still on the inner circle after delivering the election, James Carville angrily questions the ease with which Clinton will compromise his platform and opines, "When I die I want to be reincarnated as the fucking bond market."

The Greenspan Fed (i.e. Greenspan) was increasingly injecting itself in the political waters of the budget. Greenspan (how I don't know since his forecasting track record was so weak) had broad bi-partisan support of his economic prognostications. Ample evidence exists that a quid pro quo was arranged with Clinton/Rubin. Make real movement on the budget and the Fed would keep the money flowing on the other side. Greenspan was convinced that a shift toward foreign goods production and technologies subjected to Moore's Law would cap traditional inflationary measures. The great credit super cycle housing bubble was conceived in the euphoric good intentions of balanced budgets, monetary accommodation and the American Dream. Fannie and Freddie would never have been able to blow up their balance sheets if Uncle Sam wasn't paying down Bills, pulling back refundings and nixing the 30 year bond.

Fast forward to today and the Jackson Hole confab competing for air time with Romney/Ryan. The fiscal cliff is showing significant pullback in the Fed's economic models. The debt/deficit (still inanely viewed as the same by politicos) is at the top of the Romney agenda. Bernanke, however cannot promise  Greenspan-like support. The real yield buffer is long gone and negative. The Chairman is faced with declining efficacy and a dramatically shifted demand curve for credit (liquidity trap). Jackson Hole should highlight the limitations of extreme accommodation policies, the seriousness of the challenges ahead and the importance of  incrementally turning the direction of the deficit trend.

One thought on “The Agenda

  1. Ivan

    Did someone say Grand Bargain? Coming next year to a White House near you, irrespective of the primary occupant.

    Reply

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