It is April 2015. The cherry blossoms are in full bloom in the nation’s capital, yet the colorful display can’t dispel the cloud hanging over the city and the country.
The skies are gray. The mood is gray. Even President Barack Obama is gray as he looks forward to the end of his second term.
Obama emerges from his portable-solar-panel-powered limousine and is greeted by the chairman of his Bureau of Income Equality. Despite his attempts to cap the difference between the average salary of a company worker and the chief executive officer, the gap between rich and middle class has only gotten wider.
To address the problem, Obama’s Fish and Wildlife Service declared the middle class an endangered species. In order to prevent this entire class of society from becoming extinct, FWS designed thousands of spawning facilities and controlled living environments where, with government assistance, the new middle class would be allowed to thrive and prosper before being reintroduced into society at large.
Following Obama’s victory in the 2012 presidential election, Republican members of the House of Representatives signed Grover Norquist’s pledge to do nothing about anything. Representatives no longer show up in Washington to do the people’s business on Tuesday, Wednesday and Thursday because there is nothing to do. C-SPAN transmits videos of the empty chamber, where occasionally a lawmaker can be found practicing his oratorical skills so that he can find representation with the Washington Speakers Bureau and cash in on the speaking circuit when he retires from Congress.
Meanwhile, the Senate hasn’t passed a budget in more than five years. Continuing resolutions to fund the government are rolled over every few months, leading to the institutionalization of the permanent continuing resolution. The relative ease of voting “yea” or “nay” on existing appropriations has some lawmakers questioning why a budget process was ever necessary in the first place.
The U.S. economy is still limping along, the reasons for which are a point of contention between Democrats and Republicans. Former Obama economic adviser Christina Romer regularly defends the 2009 fiscal stimulus, providing a running tally of “jobs created or saved.” Princeton University economist Paul Krugman reminds us he was right all along when he said the $831 billion package was too small. The Nobel laureate recently relocated to Sweden, where he preaches the Keynesian gospel to an audience more receptive to European-style capitalism.
At the Federal Reserve, Ben Bernanke returned to Princeton when his second term as chairman ended in January 2014. In announcing his decision, Bernanke said he was “excited by the opportunity” to revise his 2001 book on inflation targeting. The working title for the new edition is, “Inflation Targeting: Double the Fun (and Twice the Work) Under a Dual Mandate.” The former Fed chief has embarked on a project to determine why econometric models work so well in the classroom and fail so miserably in the real world.
Obama appointed Fed Governor Janet Yellen to succeed Bernanke, giving him the opportunity to tout “the first woman to lead the U.S. central bank in its 100-year history.” The president said he welcomed the Fed’s efforts to accommodate her request for flextime scheduling.
Yellen, one of the more dovish governors, didn’t change her feathers when she slipped into the chairman’s seat. She continued to expand the Fed’s balance sheet and, in a move that caught financial markets by surprise, altered the forward guidance. At the conclusion of Yellen’s first meeting as chairman in March 2014, the Fed said it expected to hold the funds rate near zero “at least through the end of the decade.”
The change had no discernible effect on the public’s behavior. After months of study, the Fed’s Permanent Committee on Communication determined that the forward guidance was hypnotizing animal spirits instead of awakening them. Housing experts explained that it’s the threat, or reality, of rising mortgage rates that nudges potential homebuyers off the fence.
Armed with new insights, the Fed decided to abandon the time-frame guidance and insert a tangible target in its statement for the first time. (The Permanent Committee was disbanded until further notice.) At the Fed’s March 11, 2015, meeting, the central bank said it “anticipates that exceptionally low levels for the federal funds rate are likely to be warranted until there’s a Republican in the White House.”
Financial markets didn’t know what to make of it, but the shift introduced some volatility -- and wider bid-ask spreads -- for banks struggling to make a profit in a low-interest-rate environment. The ban on proprietary trading, which regulators are still struggling to define, removed a major source of revenue. At the same time, slow growth has kept loan demand in check.
Under pressure to boost earnings, banks found a way to exploit a loophole in the Dodd-Frank law and create a newfangled product: the reverse reverse mortgage with an inverse floater attached. Actor Fred Thompson has been hired to promote the product on TV but is reportedly struggling to simplify his pitch for the octogenarian set.
That was as much of fantasy-land 2015 as I could handle. Eager to move on, I grabbed my Magic 8 Ball and asked about the outcome of the 2016 presidential race.
“Reply hazy. Ask again later.”
Maybe it’s just as well.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist. The opinions expressed are her own.)
Today’s highlights: the editors on how the candidates’ tax plans are converging and on the economics of immigration; Michael Kinsley on Mitt Romney’s way with words; Ezra Klein on the most important issue in the presidential race; Jonathan Mahler on Scott Fujita’s battle against the NFL; Amity Shlaes on why Obama was wrong to trash the 1920s; Richard Thaler on why entrepreneurs aren’t thinking about tax rates.
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