Fed up with Ben Bernanke?

The chairman of the Federal Reserve says inflation is under control, but on Main Street, the cost of living is on the rise.

By TheStreet Staff May 31, 2013 1:43PM

thestreet logoFederal Reserve Building copyright Hisham Ibrahim, CorbisBy Richard Suttmeier  


When I was the U.S. Treasury bond trader at Prudential Bache from 1978 into 1981, Paul Volcker was the Federal Reserve chairman and he certainly performed as a great CEO of the U.S. economy. He saved the country from inflation and set the tone for the huge stock market rally that began under his watch.


Following Volcker as Fed chief and CEO of the U.S. economy was Alan Greenspan. Since then the economy has had to deal with a monetary policy that was conducive to forming bubbles, then having bubbles pop. Under CEO Greenspan, we experienced the stock market crash of 1987 and the hype of Y2K, which proved to be Y2 hoax. This policy provided the stimulus that inflated the tech bubble, which popped in March 2000.


A CEO should have the savvy to realize when his policies are causing financial bubbles. Under Greenspan the seeds were planted for the oil bubble, the gold bubble, the real estate bubble and associated debt bubble.


The succession plan from CEO Greenspan to CEO Ben Bernanke was the decision of President George W. Bush on Feb. 1, 2006. This transition proved to be a status quo as Bernanke continued to raise the federal funds rate the next three FOMC meetings to a peak of 5.25% on June 29, 2006, which is when the housing bubble reached its peak.


As CEO of the U.S. economy, Bernanke thought the subprime mortgage problems would be contained and not hurt the real economy. Even though this proved to be drastically wrong, President Barack Obama, who promised change, reappointed Bernanke on Jan. 28, 2010.


While Wall Street has thrived though the financial stress of bubbles inflating and popping, Bernanke's zero rate monetary policy and quantitative easing parts 3 and 4 have inflated the major equity averages into an overvalued and overbought bubbles. None of these policies have helped Main Street. 


Here's what I see happening on Main Street:


I live in Tampa Bay, Fla., where home prices were up 2.6% sequentially in March and up 11.8% year-over-year. We bought the Standard & Pacific (SPF) model home in mid-2009. I thought we were buying at the low in a completed community of 960 homes. The current appraised value of our home puts me underwater. Many homes in my community were purchased between 2004 and 2007, and the majority of these owners remain underwater on their mortgages.


A planned community called Connerton just north of us is trying to come back to life after being dormant since the crunch began. By this time 6,300 homes would have been built; fewer than 300 were completed when the project stalled. Four builders have built model homes and four to six homes on spec. The builders are West BayTaylor Morrison (TMHC), Ryland Homes (RYL) and M/I Homes (MHO).


While this is promising, the models seem to be priced above what Tampa Bay families can afford. Tampa Bay has been gaining jobs, but these jobs are lower-paying than the ones lost during the recession. In addition, real home buyers are being outbid at the last minute by investors building pools of homes for renters. A real estate agent told me about one family going to contract that was outbid three times by investors at the last minute. This family gave up and rented a home instead of buying.


Small businesses, particularly eateries, are having difficulties staying in business. One local restaurant had three different owners since we moved to the area in June 2009. This one is closed again.


I received an email from one of our favorite seafood restaurants on Tuesday, saying it is closed for business. This restaurant has been a flourishing small business for 12 years and has been voted Tampa Bay's best seafood restaurant several times over the years. The owner blamed constantly increasing costs and wages as the reason for closing. This week 40 people are looking for new jobs.


The policies of CEO Bernanke has reduced incomes for savers, forced folks to settle for lower-paying jobs, or fewer hours worked, and is making the purchase of a home more difficult on the Main Streets I am familiar with in Tampa Bay. Bernanke says that inflation is under control, but on Main Street, the cost of living is on the rise.


I can only hope that the next Fed chief and CEO for the U.S. economy agrees with former CEO Paul Volcker, who explained in a speech this week the effect of the various forms of quantitative easing has been "limited and diminishing."


At the time of publication the author had no position in any of the stocks mentioned.



More from TheStreet.com

May 31, 2013 2:11PM

Ya can't rob Peter to pay Paul, as my grandma always said. Reducing interest rates to zero in order to make bankers whole has done nothing except take 160 billion annually out of the income of retired people, and at least that much from the rest of the population.


That is spendable income that could have created upwards of 2 million jobs. But it was thought that keeping bankers from going under was more important than the incomes of savers.


More food for thought: If YOU were going to run up a massive debt, would you not want to crash interest rates in order to finance that debt? Just sayin' maybe there's a relationship there....

May 31, 2013 4:13PM

Get rid of the FED and all the bloosucking FED chairmen who have run it!

May 31, 2013 6:00PM
I'm fed up with the overall corruption and manipulation of the market by those who control it.  Wall Street needs to be revamped with stringent control and accountability and no intervention from our government
Jun 2, 2013 10:24PM
It's high time we realized the Federal Reserve Banking System is broken beyond repair. The Fed and the IRS were created in 1913 with goal to keep these bubbles from happening to begin with.  In the old days they were called "panics" and when that was too scary to say anymore they were called "business depressions". After the disastrous crash of 1929 that created Americas longest "depression" the word depression was never used again and business downturns were simply called "recessions".  Anyway you slice it--the current economic situation in the USA is a full blown "depression" and to call it anything else is simply laughable.  The Federal Reserve Charter is due to be renew this year at some secretly held date--but you will read about it's renewal as it is now--some morning without notice.  Americans deserve more information on this tragedy that is forthcoming --but no politician will talk about it.  Unless greatly modified expect more of the same booms and busts.  No one has benefited from Fed policy in a decade --and that was minor at that.
May 31, 2013 8:02PM
Ya can't rob Peter to pay Paul?  Baloney, that's exactly what the US government and the progressive tax system is designed to do.  The FED has been taking money from savers and giving it back to bankers because the banks lost all of their money on worthless MBS paper that became worthless. The progressive tax system take money from the overstuffed and gives it to the understuffed so the understuffed do not riot and start a revolution. It's quite amusing that the US got this privilege because we saved the world from Nazi Germany. Now the US has paper the world with our US Treasuries which we are in the process of devaluing with the FED printing presses. Guess who's the currency manipulators?
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