Is Excess Economic Slack No Longer A Factor For Ben Bernanke?

Tyler Durden's picture

Traditionally the primary metric watched by Fed Chairmen when determining changes to monetary policy, especially on the tightening side, has been the observation of a contraction in the "excess slack" component in the economy, defined rather loosely, but primarily in terms of excess unemployment over the dogmatic steady-state unemployment rate in the 5-7% range. Today, in a Q&A at the Woodrow Wilson International Scholars dinner, Ben Bernanke joined Hoenig and other Fed members in stating that the Fed will no longer await a "sizable" drop in the jobless rate before raising interest rates. This is good, because as the San Fran Fed discussed in an analysis from exactly a year ago, the unemployment rate is not going down any time soon. Does this also mean that the Fed is no longer wed to the worst, and most procyclical indicator imaginable, i.e., economic slack? The answer of course, is no. And the only reason Bernanke is pretending to care about tackling the issue of inflation in advance, is due to the sudden and dramatic focus the ECB's policies have gotten in Europe, coupled with the dramatic politicization of Trichet's bank. It is ironic, that in the US the Fed is using the "political" card when demanding free reign in its complete opacity to do precisely the things that in Europe bring about screams of central bank politicization. But then again, they can't print a reserve currency, can they. Thus, the use of a double, and a 180 degree opposite at that, standard is not only welcome but expected.

Market News reports:

Noting that monetary policy takes a long time to work, Bernanke warned, “We can’t wait until unemployment is where we’d like it to be, we can’t wait until inflation gets out of control before we begin the process of normalizing interest rates.”

“We are going to have to make a judgment about when is the appropriate time to begin moving and begin moving towards a more normal policy,” he said, “but doing that in a way that anticipates where  the economy is going to be a year or a year and a half down the road.”

So it will be the case, Bernanke reiterated, that when the Fed starts the process of tightening monetary policy that the economy will not yet be back to full employment.

Regarding his thoughts on how the recovery in the U.S. is progressing, Bernanke noted good  "momentum” in consumer spending and business investment, saying, “There are some signs that the private sector is picking up the baton and moving the economy forward.”

In addition to empty rhetoric about rate hikes, Bernanke also had the following words of caution:

The banking system is also not “completely healthy” Bernanke continued, with credit availability not yet at the point the Fed would like it to be. Banks are being relatively cautious with regards to new loans, he said, focusing on deleveraging and reducing their balance sheet.
On the precarious situation in Europe, Bernanke said the Fed is watching the situation “very closely,” stating his belief that the EU remains committed to preventing defaults by its peripheral countries and that the E440 billion special purpose vehicle will cover the obligations of the struggling nations “for a number of years.”

Noting the continued uncertainty in market, Bernanke assured that, “European leadership is strongly committed to doing whatever is necessary to preserve the euro, preserve the euro zone … and avoid the financial problems that would certainly arise if Greece or another country defaulted.”

This led him to comment on the United States’ own deficit situation, saying it will not be possible for the government to balance its budget this year or the next. “The recession is too deep, the loss of tax revenue is too great, the spending to try and support the economy and the financial system too large.”

And some glowering hypocrisy, regarding the US $13.1 trillion in debt, incurred primarily in connection with bailing out his Wall Street superiors:

Over the next three to six years, however, the U.S. must gain control of its public debt, underlining the need for a medium-term plan to bring the U.S. fiscal house in order, Bernanke said.

All in all, another day in the Chairman's life, full of talk, empty promises and bluster, and nothing but. In the meantime, is it too much for the disgruntled US population to ask just what the outcome of today's discussion on the Discount Rate hike was? Or will the market interpret the mere lack of an announcement as equivalent to ongoing monetary looseness? Now that would be ironic: after all the Chairman spent an entire afternoon claiming he would do the sensible thing at the end of the day. Should we then assume that he was, gasp, lying?

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Heavy's picture

Thank you for that one, I did not have it yet, fucking CNBC.  Fucking keysian puppet slaver.

Turd Ferguson's picture

Bernanke is a douchebag.

Hansel's picture

+1, There is no substance to anything Bernanke said.  He raises rates and US borrowing costs go up, and all the trash he has spent the past 2 years buying goes down in value.  Those 2 things back "his" currency.  He wants to pretend he can make the dollar worth something again after routinely debasing it for an "extended period".  Blah blah blah blah blah blah blah, says Bernanke.

Tapeworm's picture

The only thing that is keeping the whole spectrum of banking institutions from the TBTF to your local cedit union is the spread between bank borrowing and lending rates.  They are for the most part insolvent as they will not take the first step of reverting to the current Basel accords on depository accounting.

 Even if the FED maggots do a PR move to raise rates to a whole one percent, that will not mean a thing for savers that will still be stuck with 50 bips at best. The banks outside of the TBTF nebula will be hurt the most if they cannot mark to pretend.

Don't fall for the BS, Mark to market!

 Pull your dough if you find that your risk in parking your money in your bank is riskier than the sub 50 bips that you get for your UNSECURED deposit. This crap has to stop somewhere. Do you want to be pre-empted by the new rules that will apply if you can get 70bips?

 Canadian bank re-works on retail deposits are now putting in the fine print that the withdrawal limits are half of previously allowed. I have to find if that is true and what sort of accounts it applies to, but all of "they" are closing the window on cash.

 What's their rush to change now? How much trust do you have as an unsecured creditor of a bank that in my case pays 10 bips for a savings account?

 Also, my company got a 35% increase in health insurance premium. feckem


Tapeworm's picture

Or, perhaps BB is giving the go ahead to use the notional munney to buy up the remnants of the middle class manufacturing economy.

 It is tough to read what these cryptic thieves are signalling.

Muir's picture

Oh, but the bankers, the poor bankers.

The inhumanity!

And, after all, Bernake is one us, as pointed out in 60 minutes. (

Ripped Chunk's picture

Thanks, I really needed to vomit all morning. Good to get it out of the way.

rawsienna's picture

3-6 years is too long.  Americans are sick and scared of deficits.  They will vote out the free spenders in the Fall.  If the politicians wont listen, the markets will force the US hand within 2 years max.  

Ragnar D's picture

I just interpreted that as a convenient time for Barry to promise to tackle the deficit.


A couple trillion in political kickbacks to government unions and Entitled types for the next two years, while swearing up and down to tackle the spending just after his re-election.

rawsienna's picture

You know the old saying - How do you know that Barry is lying, when his lips move. I had high hopes for that guy but some concerns and he has turned out to be an empty suit. I just do not think he is able to make tough decisions

TBT or not TBT's picture

Zero executive experience and no legislative accomplishments either, up to his election.   A lot of people bought the media's delusions (52%), then continued to hope after that. 

We have a campaigner-in-chief who gives good teleprompter.

cbaba's picture

The Goblin in Chief is bluffing, lying, trying to stop the gold, he cant raise the rates, its a suicide for his mortgage holders  Fannie, Freddie brothers. This will push the house prices further down,increase the  strategic defaults,treasury maturity rates will become shorter, its a suicide for him.


Ripped Chunk's picture

He is completely boxed in.  No way out.  But this has been known for a couple of years now.

LeBalance's picture

All one has to see in this article is this oxymoron:

[Woodrow Wilson][International Scholar]

The matrix is all around us,

It's in our newspapers,

and our morning coffee,

On our train ride to work,

It never leaves us alone,

Because it's always saying the same thing:

"Rise and shine, rise and shine."


That oxy was a low blow from the Matrix.

Feel it?

zen0's picture

Bernanke let the BoC do a qualified raise first to see what the reaction was going to be. There wasn't much, so maybe kinda half speed ahead, maybe.

taraxias's picture

He is jawboning, there's no "half-speed ahead" when you have a rock in front and a hard spot behind you. 

ZIRP stays or he destroys the banks and the market he manipulated so hard to save.

And you do know who he protects, right?

ghostfaceinvestah's picture


He will never raise rates as long as he is Fed chairman.

dryam's picture

Real estate prices & equities have to come down no matter how much money dickhead continues to print.  How long until it's clear to everyone this is the case?  I can't see this charade going on for more than 6 more months.  WTF are people missing? 

Unemployment -> awful

Trade deficit -> worsening & the higher USD isn't helping

States/Municipalities -> going bankrupt

Residential real estate -> artificially high prices will ultimately need to deflate greatly

CRE -> who even talks about that monster anymore?

U.S. economy -> 70% GDP based on the consumer

The fictional reserve banking system is clearly moving backwards with *NOTHING* moving it in the forward direction.


Buy gold & be done with it. 

bob_dabolina's picture

TD - You are wrong here,

"And the only reason Bernanke is pretending to care about tackling the issue of inflation in advance, is due to the sudden and dramatic focus the ECB's policies have gotten in Europe, coupled with the dramatic politicization of Trichet's bank."

Wrong. He authorized banks to lend again. Trichet doesn't mean shit.

Banks lending to consumers is the keystone for inflation in a fractional reserve banking system and lending by the banks was just given the green light by Chariman Helicopter.

This is where oil blows it's load.

Lever up fuckers, risk is on.

Ripped Chunk's picture

Step 2:  Add accelerant to the small flame.........

RockyRacoon's picture

What?  Somebody expected him to say, "We're screwed, we are already in the hand basket, and it's getting hot in here."   Come on, it's the guy's job fer crissake.  You'd be lying' your ass off, too.  Not that he deserves a break, that's not the point.  The point is that he is doing his job and that should surprise none of us.   Actual news would be his telling the truth.

Monkey Craig's picture

+1. Rocky great comment. What people are forgetting is that Ben S. Bernanke and Obama are just confidence men. They are up on the podium each night to make sure that the proles do not panic. They're speeches are meant to instill confidence in ZIRP, wars, corporate welfare and the elections. Don't worry, Big Brother is there for you!


Freedom is slavery, war is peace, and the fundamentals of the economy are strong!

buzzsaw99's picture

Ben Bernanke joined Hoenig and other Fed members in stating that the Fed will no longer await a "sizable" drop in the jobless rate before raising interest rates...


Bernanke doesn't give a rat's ass about employment, except at the banks. The only way he's raising the short end is if the long end comes up, that would afford the nazi banks the same spread off the taxpayer teat.

trillion_dollar_deficit's picture

We all know the answer. Its simple.


Mr Lennon Hendrix's picture

The Fed will be PROVED insolvent by 2013.  ZIRP 'till it dies.

Quinvarius's picture

All the money we need for hyper inflation has already been created.  The only rate that matters is the interest rate Ben is paying the banks to keep their loot on deposit at the Fed and out of circulation.  But the market knows that money is all there...waiting.  It knows.  Ben can either let the money flow now, or he can let it flow after the market has already adjusted prices up and everyone is starving as well as cash strapped.

Tapeworm's picture

The maggot banks are insolvent and are going to cherish every dime of the TARP/goo credit that they can list on their balance sheet. Maybe the fed told them that they can steal as much as they want for bonuses, but lay off of buying what's left of the real economy.

glenlloyd's picture

Prices are going up, grocery stores where I live reprice weekly now and employees are complaining about having to do it. I ordered some auto parts online and before I made it through the checkout the system repriced half the items...upward by at least 10 percent. It could have been a ploy I suppose but I see the effects already. I don't believe the CPI and no one should, it's a tool used by the Fed to keep TIPS adjustments lower than they ought to be and suppress social security payment increases in a program that I will likely never see for myself.

killben's picture

Why listen to this bumbling idiot who never saw the oncoming train wreck and in fact has made so many statements that are out of whack with reality that only "re-confirm or else" kind of gun held to the head has enabled him to hold on to his chair.

Anyways Europe appears to be moving away from his foolish policies and have just showed the middle finger to geithner .. hoepfully this idiot will be isolated soon ..

He is a menace to the world..... "The Economic Hitler"




lewy14's picture

oops. wrong thread.

Assetman's picture

Simply put, we all should NOT assume that Chairman Bernanke is a dumbass.  He's far from it.  But I do think he is terribly misguided, and ultimately serves the wrong constituencies.

Okay, no surprise there... DUH!

More seriously, I do think Bennie and the Fed see the endgame developing.  In the near term, the Fed and the US government will get a windfall from a very weak and uncertain Europe (at the margin, China helps too).  With global fears high and interest rates low, global capital will meet with massive US sovereign funding needs.  In my estimation, the Treasury will go absolutely nuts on new issues at or above 7 year maturities.

Sure it's kicking the can... buying time.  The deficits will be there anyway, pretty much guranteed in 2010 and 2011.  Good short term strategy, but it's terrible long term policy.

Europe, on the other hand, may get it right by doing austerity measures.  The sooner, more meaningful, and the quicker -- sooner the EU can get their economies back on track and resume growth policies.

Once the EU is well on that path, the US better have filled its capital needs.  While having banks "loan again" may certainly be hyper-inflationary, banks are making pretty decent low risk money right now on the duration spread.  The contraction in private credit is real, and is not expected to stop anytime soon.

What the Fed WILL be eventually battling is a loss in confidence of the USD-- once the other major currencies (esp the Euro) can gain some  respect by taking the bitter medicine earlier.  The Fed won't be battling inflation, per se, but the potential collapse of the currency-- if the Fed, indeed, doesn't move on higher rates soon enough.  But the key will be progress and eventual recovery in Europe... and possibly China.  Bernanke will need to move on higher rates to maintain reserve currency status-- move too late, and it's gone.

That's not happening now, but it will.  Right now, though, all is good so long as Europe remains a clu$t3rfu#k.  But they are (slowly) moving in the right direction to fix things.


mephisto's picture

Nice post, I agree the US debt distribution is key and needs to be shifted out along the curve while demand is there. Is it really an endgame though? If it was then the UK would be feeling pretty good right now, as the debt maturity for the UK is much longer than most. Surely the absolute debt level, or Debt/GDP, comes into play too?

What I dont understand is why did they embark on this huge issuance of short term debt in the first place, that then has to be shifted out along the curve? Did they have to avoid freaking out the Chinese?

Assetman's picture

Thanks.  I think the real endgame here is the eventual battle with the loss of confidence with the USD, and how the Fed positions themselves in that battle.  The Europeans have essentially told Geithner "f*ck it, were going to swallow the austerity medicine right now... we're not going into greater hock to pursue growth agendas".

That will leave the Fed in a pretty lonely position... at ZIRP and possibly ready for more QE.

But you hit on the central issue... to what extent does the world say "we aren't going to finance this crap"?  Because right now, the world is fleeing to AAA reserve currency paper, assuming that the US is the best safe haven available.  It WON'T BE, if Europe & China gets its act together.  If that happens 2-3 years down the road, the USD will risk collapse, and hyperinflation will be the major battle in the US.  The extend of futher QE will make it more of a potential problem.

As for the ST debt issue, I think the TBTB in the US see the maximum flight to quality just after the November elections.  They may not have control over that, if Europe comes unglued in deflation.  The Treasury still has huge upcoming financing needs and rollovers-- and I think we see an exended duration campaign sometime in the near future.  To me, that will be the strongest sign the deflation train is a'comin.

Arkadaba's picture

What the Fed WILL be eventually battling is a loss in confidence of the USD

I agree to some extent and that is where it will get interesting. But I'm not sure how long it might take and where the tipping point might be. And if a black swan flies into the room, all bets are off. There are just so many variables .....


Miss Expectations's picture

I've seen the Bilderberg conference menu.  Black Swan Paella.  They think it's funny.

Assetman's picture


Here's a big "what if"...

What if... the investing public expected the next QE... and the Fed says, "Nope.  We're going have banks absorb their losses with their so-called padded balance sheets.  Congress can decide the next move with fiscal stimulus.  Or not".

Think that won't move markets?

MarketTruth's picture

Yup, they will mop up liquidity and raise interest rates, thus forcing many into bankruptcy or selling their assets for pennies. The members who own the Federal Reserve will buy these physical assets for dirt cheap while crushing the economy and everyday person.

The Federal Reserve members have done this before. In fact the Rothschilds got their main fortune at the beginning by lying to the market, the market crashed, they bought big at the bottom... and when the truth came out the Rothschilds were incredibly wealthy.

Wash, rinse, repeat. (also knows as SSDD)

Apostate's picture

At this point, it's more about culture than the balance sheets. Austerity conditions the population to prepare for the transition.

The elite aren't really ideological. They're nihilistic vampires that seek to create an optimal environment for controlling the population.

The cost of advertising for new government initiatives must be considered. The now-deregulated global media system makes it nearly impossible to conduct an airtight propaganda campaign.

At this point, they have to either destroy the internet or relinquish power. I bet they'll pick the latter. The network is too resilient to take down.

reckoning's picture

ben speaking about randomly and needlessly raising interest rates at the woodrow wilson international scholar's dinner!?!... now that's ironic... since he's the f$%^ that sold us out to ben's bosses in 1913!


keep up the great work ben!.... you're doing an awesome job of maximizing those dividend payments to the descendents of rockerfeller, loeb, warburg, lehman, khun, etc.... at our expense!

tmftdoyle's picture

“We are going to have to make a judgment about when is the appropriate time to begin moving and begin moving towards a more normal policy,” he said, “but doing that in a way that anticipates where  the economy is going to be a year or a year and a half down the road.”

Ripped Chunk's picture

At this point I would have to think Ben's primary concern is if the bunker at his ranch in Uruguay has been completely provisioned.


Ripped Chunk's picture

Dr. Krugman,

I’ve read few papers by Dr. Bernanke on the Japanese problem and I disticnlty remember that at least in one of his papers he has argued that a country which can print paper money CANNOT fall into liquidity trap. I can email you the paper or if I find a weblink I’ll post it on this forum.


Looks Like Ben is about to find out the hard way that he is completely wrong.

No More Bubbles's picture

In the grand scheme of where we are, the guy is totally irrelevant anymore........

Pay no attention to the fool...........

palmereldritch's picture

Last thing I heard, Ben was on vacation in Spain