79 percent of the American public is in favor of auditing the Fed, according to a new poll by Rassumussen. Because another 14% are not sure, that leaves only 7% opposed to an audit. And as Rassumussen, the support for auditing the Fed is nonpartisan and very widespread:
Unlike many issues tracked by Rasmussen Reports, there is virtually no partisan disagreement on the issue of auditing the Fed.
Similarly, investors and non-investors are equally supportive of the idea. Generally speaking, there is overwhelming support for such auditing across all demographic categories.
Another poll by Rassumussen shows that only 21 percent of Americans favor confirming Bernanke for another term as Fed chairman.
Rasumussen also points out:
Americans continue to be critical of another key player on the economic front, Treasury Secretary Timothy Geithner. Forty-two percent (42%) of Americans say Geithner has done a poor job handling the credit crisis and federal bailout programs. Twenty percent (20%) rate Geithner’s performance in these areas as good or excellent.
Consumer confidence as measured by the Rasmussen Consumer Index has fallen to a four-month low.
Small Businesses Have Lost Confidence Also
You might assume that – despite the public’s lack of confidence in Bernanke, Geithner and the economy – at least businesses are confident.
However, as Rassumussen notes:
After three months of gains, the Rasmussen Employment Index dropped more than four points in November to its lowest level since July. Just 14% of workers now say their employers are hiring, the lowest total since February.
Economic confidence among America’s small business owners in the Discover (R) Small Business Watch(SM) index plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse.
Specifically, Discover reports:
Economic confidence among America’s small business owners plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse. The Discover Small Business Watch index fell 12 points in November to 76.5 from 88.5 in October…
- The mood of small business owners generally has soured in November for three straight years, as economic confidence dropped from October to November in 2007 and 2008. The November 2008 index of 67.5 is the low point for the Watch since it started in August 2006.
- 52 percent of owners say they have experienced cash flow issues in the past 90 days, up from 44 percent in October. Forty-one percent of owners say they have not experienced cash flow issues, which is the lowest response in this category since the Watch began. The remaining 6 percent said they weren’t sure.
- 53 percent of small business owners see conditions getting worse in the next six months, up from 43 percent in October; while 19 percent report that conditions are improving, a sharp decline from 29 percent in October; 23 percent see conditions as the same, and 5 percent weren’t sure.
- 62 percent of small business owners rate the economy as poor, an increase from 55 percent in October; 30 percent rate it as fair, and 8 percent say it is good or excellent.
- 53 percent of small business owners think the overall economy is getting worse, up from 44 percent in October but still significantly lower than the 69 percent of owners who felt that way in February 2009, the last time the Watch index was this low. For November; 28 percent say the economy is getting better, down from 35 percent in October; 16 percent see it staying the same, and 3 percent are not sure.
Wall Street might believe that everything is grand, but small businesses are the engines which create job growth in America, and if they are pessimistic, they won’t hire.
The Economy Cannot Recover Until Bernanke and Geithner are replaced
As I have repeatedly written, the economy cannot fundamentally stabilize until trust is restored.
Former Secretary of Labor Robert Reich wrote that Wall Street’s biggest problem right now is the collapse of trust:
The problem is, government bailouts, subsidies, and insurance aren’t really helping Wall Street. The Street’s fundamental problem isn’t lack of capital. It’s lack of trust. And without trust, Wall Street might as well fold up its fancy tents.
A 2005 letter in premier scientific journal Nature reviews the research on trust and economics:
Trust … plays a key role in economic exchange and politics. In the absence of trust among trading partners, market transactions break down. In the absence of trust in a country’s institutions and leaders, political legitimacy breaks down. Much recent evidence indicates that trust contributes to economic, political and social success.
Forbes wrote an article in 2006 entitled “The Economics of Trust”. The article summarizes the importance of trust in creating a healthy economy:
Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you’ve persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust–now imagine trying to arrange a mortgage.
Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.
“If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia,” ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country’s income. ***
Above all, trust enables people to do business with each other. Doing business is what creates wealth. ***
Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet.
Similarly, market psychologists Richard L. Peterson M.D. and Frank Murtha, Ph.D. wrote in 2008:
Trust is the oil in the engine of capitalism, without it, the engine seizes up.
Confidence is like the gasoline, without it the machine won’t move.
Trust is gone: there is no longer trust between counterparties in the financial system. Furthermore, confidence is at a low. Investors have lost their confidence in the ability of shares to provide decent returns (since they haven’t).
And two professors of finance write:
The drop in trust, we believe, is a major factor behind the deteriorating economic conditions. To demonstrate its importance, we launched the Chicago Booth/Kellogg School Financial Trust Index. Our first set of data—based on interviews conducted at the end of December 2008—shows that between September and December, 52 percent of Americans lost trust in the banks. Similarly, 65 percent lost trust in the stock market. A BBB/Gallup poll that surveyed a similar sample of Americans last April confirms this dramatic drop. At that time, 42 percent of Americans trusted financial institutions, versus 34 percent in our survey today, while 53 percent said they trusted U.S. companies, versus just 12 percent today.
As trust declines, so does Americans’ willingness to invest their money in the financial system. Our data show that trust in the stock market affects people’s intention to buy stocks, even after accounting for expectations of future stock-market performance. Similarly, a person’s trust in banks predicts the likelihood that he will make a run on his bank in a moment of crisis: 25 percent of those who don’t trust banks withdrew their deposits and stored them as cash last fall, compared with only 3 percent of those who said they still trusted the banks. Thus, trust in financial institutions is a key factor for the smooth functioning of capital markets and, by extension, the economy. Changes in trust matter.
They quote a Nobel laureate economist on the subject:
“Virtually every commercial transaction has within itself an element of trust,” writes economist Kenneth Arrow, a Nobel laureate. When we deposit money in a bank, we trust that it’s safe. When a company orders goods, it trusts its counterpart to deliver them in good faith. Trust facilitates transactions because it saves the costs of monitoring and screening; it is an essential lubricant that greases the wheels of the economic system.
Although it is easy to demonstrate that Bernanke and Geithner’s actions have harmed the economy, it is not even necessary to show what a poor job they have done economically.
America knows that Bernanke and Geithner have acted in the interests of the largest banks, and have done too little to help Main street and the American people.
Trust will not be restored until Bernanke and Geithner are replaced with people whose loyalty is to the American public and small businesses, rather than the Wall Street giants, and whose track record demonstrates that they will put the American people and entire economy as a whole – rather than the big boys – first.