This page has been archived and commenting is disabled.
Ben Talks to the FT
Tomorrow is a big ‘at bat’ for our boy Ben Bernanke. He is in front of
the Senate Banking Committee. I don’t underestimate these Senators. They
are well aware of how quickly the economy has slowed in the past sixty
days. They know how bad their home state unemployment and budget picture
is.
Greenspan said we “Hit an invisible wall” on July 1st. The past three
weeks of numbers show that the wall is anything but invisible. A third
and fourth quarter slowdown is now baked in the cake. There is a
legitimate question, “Do we face a “double dip?" Should that rare event
happen, the fiscal picture would become very cloudy. If we don’t grow,
we die.
While the Senators will show the Chairman all due respect I expect some
fireworks. I don’t know if there is an approval rating for the Fed. If
there were it would be at an all time low. Therefore it is in the best
interests our legislators to do a bit of Ben bashing. It makes them look
like they are doing something important for the folks back home.
The question that I think (hope) we will hear from the Senators is:
“Okay, we have
a slowdown staring us in the face. What is the Fed going to do about
that?”
It would be easy for Ben to duck the question by saying:
“The
timing and choices regarding monetary policy will be made in
deliberation with other Fed members and announced publicly at the time a
decision is reached”.
That would be a bullshit answer. Ben has been telling the press for
weeks now what his options are and how his thinking is evolving on QE 2.
Last week it was the Wall Street Journal. Jon Hilsenrath clearly was
speaking to Bernanke and revealing his thinking. Today we have a big
leap across the pond for Ben’s “covert” effort to leak the news of his
plans. The FT had an article by Robin Harding. Fed
Eyes Looser Monetary Policy. To me it was Ben talking
and Robin writing. From the article:
The two
simplest measures will be to (1) stop paying interest on bank
reserves, encouraging banks to lend the money out instead, or to (2)
start reinvesting capital repayments from the Fed’s portfolio of
mortgage-backed securities.
I think the FT has quoted from Bernanke’s ‘short list’ of policy
options. These would be modest initial steps toward a full-blown QE.
These measures will not have a significant economic impact. They will be
market friendly. Or at least that will be the intention.
As of July 15th the Fed had $1.13 trillion of Agency MBS in portfolio.
That is down from the target of $1.25T. Therefore $121 billion of
principal has been paid on the Fed holdings. It is a layup for the Fed
to announce that it will re-enter the MBS market to top off its
portfolio. This would be more a refinement of existing policy. At least
that is how it will be framed. The brokers will love the extra 100b+ in
business. It will not move mortgage spreads 5 tics.
The Fed is now paying ¼% on reserves. The theory is that moving the rate
to zero would stimulate more lending. I guess that if a bank had some
reserves and got zero return it would be forced to buy something like GE
commercial paper. That would get those short date CP yields close to
zero pretty quick. There is a balance sheet consideration to the banks
however. I don’t think this change will make any difference at all.
Goodbye to all small savers.
The FT also mentioned something that was new to me. The idea is to
change the language the Fed uses. The current language is, “ZIRP for
the foreseeable future”. This will be changed to read, “ZIRP until X is
achieved”. “X” could be a number of things:
X= Unemployment less than 7%
X= Three consecutive quarters of GDP greater than 3%
X= Inflation greater than 3% YoY.
X= Dow 20,000
X= Bernanke re-grows hair
My point is that the X can be set such that no reasonable person would
assume that it would happen at anytime over the next two or three years
(or longer). So the real language would be, “ZIRP forever.”
Numbers 1&2 are acts of desperation that will accomplish little. And
Ben knows that. A change in the language that results in a ZIRP forever
policy will be the death of us. It will just take a few more years to
figure that out.
If Bernanke can whisper to the likes of the WSJ and the FT he should be
just as open with the Senators tomorrow. I think the American people
should know what he has in store. They should not get that message
through an interpreter.
»
- advertisements -
The two simplest measures will be to (1) stop paying interest on bank reserves, encouraging banks to lend the money out instead, or to (2) start reinvesting capital repayments from the Fed’s portfolio of mortgage-backed securities.
Anyone have a number for the amounts refered to in (1)?.........and views on what impact eliminating the 0.25% risk free rate for banks may have in the context of that money actually being redeployed from risk free deposits into, ie., access to loans for small business which has so far been mostly shut out from credit.
The following is a view which I do not necessarily subscribe too, especially in the context of the current environment, but it is a view which may reflect or partly reflect the BB gambit to float it at the Senate hearing this afternoon (it may be as simple as bs baffles brains and a last ditch effort to buy time, but with all of the kisses being blown back and forth between BB and the Senators......)
Eliminating the 0.25% interest for bank reserves may increase the the supply of dollars as the banks no longer recieve risk free return. With the increase of supply the dollar price begins to fall.........in other words a repeat of the 2009 illusion; print money, devalue the dollar, spark a commodity and equity rally and hope that the public common denominator contimues to remain it is not important what you are that matters but what people think you are that matters.
For what it is worth my take is that this is not 2009 and the 'fool me once' angle is probably off the table as trust is in the competency of the institution is probably collapasing........or at least in serious question.
Ben has NEVER tipped the Feds policy moves in any public testimony and tomorrow will be no different. The politicos in DC are lined up on either side of the tippy economy, the Reps want to tank it into the elections (having no alternative plan they will lose), while the Demoncrates will spend and print to enslave the remaining sheep into voting for the status quo, hence Bam Bams and Pelosi's confidence on keeping their majorities.
Agree. He will say as little as possible.
The only agenda he may have is to talk down the economy in order to convince congress to allow QEII, III IV, etc.
I'm thinking of the "5 or 6 years" he used for the first time in the last statement. It will be very interesting to hear what he says if that statement comes up.
The rest will probably be vacuous nonsense, as usual. All Bruce's policy suggestions above strike me as tiny adjustments anyway - even if they are introduced over the next months I don't see a big impact.
So, for doing what he is REALLY paid to do, assure that the top 30,000 elite continue to prosper, and do not suffer, he has to endure a 'go stand in the corner' from a bunch of thieves, gypsies, liars and con men.
There isn't a living soul on this planet who wouldn't do that job.
This is nothing but a theater of the absurd.
'"Greenspan said we “Hit an invisible wall”'
proof of the man's imbecility and foolishness. helen keller could have seen that wall....
haha!
He wants asset prices up thats all Ben wants..Houses at 500k and aapl over 250..Once apple goes its over. Its the greatest opiate for the masses. Mindless drones.. Yes Mr. Jobs.. Yes Mr. Jobs..
+1!
"But look at what Apple has done! Look at what it has done!"
I underestamate this Congress. I think they are sleep walking through this. I do not think they have the slightest idea of the implications of QE Dos.
There is no double dip because there was no recovery.
There is no approval rating for the Fed because the Fed is above the law. I am being literal.
I can't stress this enough; the economy has impoded. This is not a question of if or when, it already has. The only thing to do now is duck and cover. This is what the Fed is doing, this is their duck and cover. This is a controlled demolition, and this was the plan all along.
The plan was a CORPORATE TAKEOVER of soveirgn nations.
1859, bastardz.
Mr. LH,
Bingo........folks have called this a Recession since '08, it's a frigging Depression...............w/ a real U E R of 22%, 15+ Million out of work, and another 450k+/- a month losing theirs, there is NO recovery............IMHO we were never in a Recession......we've been in a Depression, and we're headed for the Mother of them all.............and, yes, I agree.......it WAS planned, and it has an agenda.............soon the sheeple will wake up............too late.
Like a bomb.
"I can't stress this enough; the economy has impoded."
The economy has imploded if you are a high school drop out. However, as you work your way up the qualifications scale you find the economy is recovering quite smartly. For those with a bachelors degree or higher, actual numbers employed have grown over 1.2 million jobs yoy while the unemployment rate has gone from 4.9% to 4.4%. This is why in the midst of the implosion AAPL can sell a zillion new gadgets. They ain't selling them to unemployed construction workers.
The biggest thing that this recession is doing is furthering the divide between those with skills in demand and those without. Globalization is crushing those at the bottom of the education ladder via outsourcing and technology. Nothing, not even obama is going to get those sheep back in the barn.
Why does nobody every mention this?
Ummm cause its wrong. According to the 1977 amendment to the federa reserve act:
According to this legislation, the Federal Reserve's mandate is "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
Mandate: Fix prices.
Bingo.
I find it fairly amusing that even amongst the very compitent financial community, the fact that the Federal Reserve's sole purpose is to maintain stable prices and sound money gets completely glazed over and never gets brought to the forefront. (Save the smart remarks, I know they don't do these things).
The Fed is not responsible for unemployment, imports, exports, debt levels or the stock market. Leaving aside the unconstitutionality of the Fed, stable prices and sound money is their supposed role. Why does nobody every mention this? Everything else economic is the responsibility of the Federal Government.
The Fed can't meet its mandate, so.... It needs more POWER doncha know.
They already are usurping the powers of the Congress as it is. NO MORE!
RR<
They ( Congress willingly gave it up,even though it was done on a Xmas recess), had they wanted to, the FRA of '13, could have been rescinded............still could be.
Which group of morons is the worst?............
The NEW Financial Bill that just passed STILL has a quota system in it, for borrowers, and ethnic minorities, to have housing available to them!!!.( again, even if they can't afford it, and an extension of INCENTIVES for NEW buyers..........
(Definition of insanity?).
Who was to blame for the FIRST Meltdown(at FM/FM?,,,,Frank & Dodd..........guess who made this part of the NEW bill.........you got it.
'If we don't grow, we die'.
We should call ourselves Cancer.
What you are hoping for is that one of our senior officials will actually stand up and level with the American people. Sadly, theer's not a chance in hell that's going to happen.
Dogs and Ponys..
look throw food at them.. they are so cool.
If the senators are waiting what the Shalom will say means we are already dead and watching our own funeral, it will be an ugly eulogy to listen from him.
X=Nov 2
One wonders when the academic usage of "economic folklore" in government "safe haven" type jobs....will cease before they are proven....
However what is clearly missing here is the simple fact that the building blocks of significant private side business has to come to the fore...
The best solution to date by the current poly crop is counterfeit money and false accounting...along with regulatory capture....
$Trillions gone...no accountability....indeed more of the same by the same....and in order to successfully socialize the big bank losses....is with middle class savers...which creates a new class of US poor....
QE or counterfeiting is not a solution....
The complete elimination of the individual and corporate taxes ....to be replaced by a sole 15% state/fed consumption tax ....which would by default limit the size of total state and fed government to an amount not to exceed 15% of the economy....IS THE ONLY REAL SOLUTION.....
This will create private side valuations many fold....This in conjunction with a REAL TBTF reform.....would be light years ahead of borrowing what one cannot afford to pay back or counterfeiting....
It is hilarious to listen to the Ivy league types trying to explain how the current borrow more and counterfeit policies are truly helpful...and not causing further harm or distortions....
It has become clear that the the IVY Leagers have no ability to run a country....but do have the ability to ruin a country....
Thus proof positive that a democracy will never find its way out of the "mediocre mind" type leadership....as in accordance with the bell curve.....average intelligence at the head is inevitable....the proof being the results before you....
I appreciate your theory, but what makes you think government will limit its size to the receipts generated under the new tax structure? They're certainly not living within their means in the current tax environment.
"A change in the language that results in a ZIRP forever policy will be the death of us."
Why? Do the bond vigilantes finally get up off their collective ass and do something about it? Do the Chinese quit buying? I would have thought so before now. Perhaps that's what you meant by it taking a few years for us to figure it out.
Making money worthless is a bad plan. We have been at it for two years now. It is a massive source of income for the banks. That is achieved on the back of savers. That is the long term plan? It stinks.
The Financial Time’s (whose 2009 Person of the Year is Lloyd Blankfein) should be considered a friendly conduit of Fed spin. Bernanke is using the FT much like a politician uses a willing journalist to break the fall of distasteful policy to come later in more official language.
I absolutely agree with your statement. Massive sources of income for the banks achieved on the back of savers is destroying everything of value in this country--people's achievements, people's hopes, people's futures, the dreams of upcoming generations. A lot of this talk about QE coming is to get people accustomed to it. But I don’t think Bernanke will put the Fed cartel on a time frame tomorrow regarding any change in ZIRP... because he doesn’t have to. He likes to play it fast and loose. He’ll probably say something like, We’re going to keep ZIRP until we see improvements. Essentially, you can depend on Ben to move away from transparency--to make things more general and less specific and less definitive.
The Congress has just passed legislation giving the Fed more authority than ever before. When Bernanke goes before Congress, he’s like a Supreme Court nominee; he provides no answers because he wants to keep all of his options open. And, of course, Congress has no subpoena power over Ben, so he can refuse to answer any questions he wants. If Ben gives the Senate information, it will be the first time in history.
We should have these senators sweeping up the grounds tomorrow, something useful, rather than wasting time talking to Ben.
As for the FT, anyone that picks Blankfein as person of the year is a public prostitute.
Bruce,
Again, nicely done...thank you.
I have two questions though..............
IF the Banks were encouraged to LOAN the money out, rather than sit on it(which serves 2 purposes,making them $$, and not dumping QE 1.0 into the system,with the spectre of raising inflations ugly head).
Also,
TWO, who, in their right mind as Business owners would BORROW with the impending DOOM in Bamster's new Tax & Kill us policies, already in the works?.
People, and business are sitting on piles of cash NOW, afraid to DO business,invest, hire,spend, until they see what these new and Wunnerful new policies are going to do to them.
Zirp forever=perpetual squid bailout
I have to agree with you Diver, as I am completely shocked the bond market has not already started pushing rates much higher with all this debt being thrown around. There just seems no plausible reason for treasury auctions to be so "perfect" every auction right now. Any other time, when there was normalcy, rates would be much much higher right now. Just look back to the 79/80 years.
Ummm...NO. We face IMPLOSION.
aka Depression
No... More... Bullets...