Saturday, November 8, 2008

Who is Anna Schwartz?

Who is Anna Schwartz?
She is a revered economist at the National Bureau of Economic Research in New York City, and is about to turn 93! Yes, she was born in 1915!!!
She worked with Milton Friedman on ''A Monetary History of the United States, 1867-1960'' and is the one person who has really been around long enough, to make sense of the current state of chaos.

She expresses disappointment at the ad hoc program announcements by the authorities, which have only undermined faith in the US Financial system.
She also disagrees with the Fed’s idea that the only solution to our current problems is to flood the system with liquidity.

Anna Schwartz -

  • On Policymaking: It’s like there’s a bunch of guys that are making it up as they go along.
  • On the FED: The new group at the Fed is not equal to the problem that faces it.
  • On Monetary policy: It is clear that monetary policy was too accommodative. Rates of 1 per cent (2003- June 2004) were bound to encourage all kinds of risky behavior.
  • On Disclosure: They talk about transparency and what they present is opacity. This only increases the already high levels of uncertainty and anxiety.
  • On Inflation: She is worried that policy makers are not even considering inflation, after the massive increase in the monetary base.
  • On Recapitalizing banks: Recapitalizing institutions on the questionable premise that the accounting of potentially bad assets on the bank balance sheets is correct and accurate. She says the treasury has shifted from trying to save the banking system to trying to save banks.
  • On Derivatives: A bewildering array of instruments with uncertain prices. The problem comes from a lack of ability to price the instruments, and not a lack of liquidity. We don’t know who’s solvent and who’s not.
  • On the current crisis: This is not due to a lack of money available to lend, but due to a lack of faith in the ability of borrowers to repay their debts. She says the Fed meanwhile has gone about as if there is a shortage of liquidity!!!

I think she makes some really valid points.
The President elect is in for a baptism by fire. I don’t think he has a solution, but I hope new actions don’t worsen the current chaotic pandemonium. As the unemployment rate rises and underfunded pension funds face market stress and healthcare costs escalate, 2009 is going to be a terrible year for Barack Obama. Good luck to him, and lets hope that he takes note of Anna Schwartz’s words of wisdom!

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