Full Ben Bernanke Speech Before Economic Club of New York

Chairman Ben S. Bernanke

At the Economic Club of New York, New York, New York

November 16, 2009

On the Outlook for the Economy and Policy

When I last spoke at the Economic Club of New York a little more
than a year ago, the financial crisis had just taken a much more
virulent turn. In my remarks at that time, I described the
extraordinary actions that policymakers around the globe were taking to
address the crisis, and I expressed optimism that we had the tools
necessary to stabilize the system.

Today, financial conditions are considerably better than
they were then, but significant economic challenges remain. The flow of
credit remains constrained, economic activity weak, and unemployment
much too high. Future setbacks are possible. Nevertheless, I think it
is fair to say that policymakers' forceful actions last fall, and
others that followed, were instrumental in bringing our financial
system and our economy back from the brink. The stabilization of
financial markets and the gradual restoration of confidence are in turn
helping to provide a necessary foundation for economic recovery. We are
seeing early evidence of that recovery: Real gross domestic product
(GDP) in the United States rose an estimated 3-1/2 percent at an annual
rate in the third quarter, following four consecutive quarters of
decline. Most forecasters anticipate another moderate gain in the
fourth quarter.

How the economy will evolve in 2010 and beyond is
less certain. On the one hand, those who see further weakness or even a
relapse into recession next year point out that some of the sources of
the recent pickup--including a reduced pace of inventory liquidation
and limited-time policies such as the "cash for clunkers" program--are
likely to provide only temporary support to the economy. On the other
hand, those who are more optimistic point to indications of more
fundamental improvements, including strengthening consumer spending
outside of autos, a nascent recovery in home construction, continued
stabilization in financial conditions, and stronger growth abroad.

My own view is that the recent pickup reflects more
than purely temporary factors and that continued growth next year is
likely. However, some important headwinds--in particular, constrained
bank lending and a weak job market--likely will prevent the expansion
from being as robust as we would hope. I'll discuss each of these
problem areas in a bit more detail and then end with some further
comments on the outlook for the economy and for policy.

Bank Lending and Credit Availability
I began today by alluding to the unprecedented financial panic that
last fall brought a number of major financial institutions around the
world to failure or the brink of failure. Policymakers in the United
States and abroad deployed a number of tools to stem the panic. The
Federal Reserve sharply increased its provision of short-term liquidity
to financial institutions, the U.S. Treasury injected capital into
banks, and the Federal Deposit Insurance Corporation (FDIC) guaranteed
bank liabilities. The Federal Reserve and the Treasury each took
measures to stop a run on money market mutual funds that began when a
leading fund was unable to pay off its investors at par value.
Throughout the fall and early this year, a range of additional
initiatives were required to stabilize major financial firms and
markets, both here and abroad.¹ 

The ultimate purpose of financial stabilization, of course, was to
restore the normal flow of credit, which had been severely disrupted.
The Federal Reserve did its part by creating new lending programs to
support the functioning of some key credit markets, such as the market
for commercial paper--which is used to finance businesses' day-to-day
operations--and the market for asset-backed securities--which helps
sustain the flow of funding for auto loans, small-business loans,
student loans, and many other forms of credit; and we continued to
ensure that financial institutions had adequate access to liquidity.
Additionally, we supported private credit markets and helped lower
rates on mortgages and other loans through large-scale asset purchases,
including purchases of debt and mortgage-backed securities issued or
backed by government-sponsored enterprises.

Partly as the result of these and other policy
actions, many parts of the financial system have improved
substantially. Interbank and other short-term funding markets are
functioning more normally; interest rate spreads on mortgages,
corporate bonds, and other credit products have narrowed significantly;
stock prices have rebounded; and some securitization markets have
resumed operation. In particular, borrowers with access to public
equity and bond markets, including most large firms, now generally are
able to obtain credit without great difficulty. Other borrowers, such
as state and local governments, have experienced improvement in their
credit access as well.

However, access to credit remains strained for
borrowers who are particularly dependent on banks, such as households
and small businesses. Bank lending has contracted sharply this year,
and the Federal Reserve's Senior Loan Officers Opinion Survey shows
that banks continue to tighten the terms on which they extend credit
for most kinds of loans--although recently the pace of tightening has
slowed somewhat. Partly as a result of these pressures, household debt
has declined in recent quarters for the first time since 1951. For
their part, many small businesses have seen their bank credit lines
reduced or eliminated, or they have been able to obtain credit only on
significantly more restrictive terms.²
The fraction of small businesses reporting difficulty in obtaining
credit is near a record high, and many of these businesses expect
credit conditions to tighten further.

To be sure, not all of the sharp reductions in bank
lending this year reflect cutbacks in the availability of bank credit.
The demand for credit also has fallen significantly: For example,
households are spending less than they did last year on big-ticket
durable goods typically purchased with credit, and businesses are
reducing investment outlays and thus have less need to borrow. Because
of weakened balance sheets, fewer potential borrowers are creditworthy,
even if they are willing to take on more debt. Also, write-downs of bad
debt show up on bank balance sheets as reductions in credit
outstanding. Nevertheless, it appears that, since the outbreak of the
financial crisis, banks have tightened lending standards by more than
would have been predicted by the decline in economic activity alone.

Several factors help explain the reluctance of
banks to lend, despite general improvement in financial conditions and
increases in bank stock prices and earnings. First, bank funding
markets were badly impaired for a time, and some banks have accordingly
decided (or have been urged by regulators) to hold larger buffers of
liquid assets than before. Second, with loan losses still high and
difficult to predict in the current environment, and with further
uncertainty attending how regulatory capital standards may change,
banks are being especially conservative in taking on more risk. Third,
many securitization markets remain impaired, reducing an important
source of funding for bank loans. In addition, changes to accounting
rules at the beginning of next year will require banks to move a large
volume of securitized assets back onto their balance sheets.
Unfortunately, reduced bank lending may well slow the recovery by
damping consumer spending, especially on durable goods, and by
restricting the ability of some firms to finance their operations.

The Federal Reserve has used its authority as a
bank supervisor to help facilitate the flow of credit through the
banking system. In November 2008, with the other banking agencies, we
issued guidance to banks and bank examiners that emphasized the
importance of continuing to meet the needs of creditworthy borrowers,
while maintaining appropriate prudence in lending decisions.³
This past spring, the Federal Reserve led the Supervisory Capital
Assessment Program, or SCAP--a coordinated, comprehensive examination
designed to ensure that 19 of the country's largest banking
organizations would remain well capitalized and able to lend to
creditworthy borrowers even if economic conditions turned out to be
worse than expected. The release of the assessment results in May
increased investor confidence in the U.S. banking system. A week ago,
the Federal Reserve announced that 9 of 10 firms that were determined
to have required additional capital were able to fully meet their
required capital buffers without any further capital from the U.S.
Treasury, and that aggregate Tier 1 common equity at the 10 firms
increased by more than $77 billion since the conclusion of the
assessment.⁴ 

The Federal Reserve will continue to work with banks to improve the
access of creditworthy borrowers to the credit they need. Lending to
creditworthy borrowers is good for the economy, but it also benefits
banks by maintaining their profitable relationships with good
customers. We continue to encourage banks to raise additional capital
to support their lending. And we continue to facilitate securitization
through our Term Asset-Backed Securities Loan Facility (TALF) and to
support home lending through our purchases of mortgage-backed
securities. Normalizing the flow of bank credit to good borrowers will
continue to be a top priority for policymakers.

While I am on the topic of bank lending, I would
like to add a few words about commercial real estate (CRE). Demand for
commercial property has dropped as the economy has weakened, leading to
significant declines in property values, increased vacancy rates, and
falling rents. These poor fundamentals have caused a sharp
deterioration in the credit quality of CRE loans on banks' books and of
the loans that back commercial mortgage-backed securities (CMBS).
Pressures may be particularly acute at smaller regional and community
banks that entered the crisis with high concentrations of CRE loans. In
response, banks have been reducing their exposure to these loans quite
rapidly in recent months. Meanwhile, the market for securitizations
backed by these loans remains all but closed. With nearly $500 billion
of CRE loans scheduled to mature annually over the next few years, the
performance of this sector depends critically on the ability of
borrowers to refinance many of those loans. Especially if CMBS
financing remains unavailable, banks will face the tough decision of
whether to roll over maturing debt or to foreclose.

Recognizing the importance of this sector for the
economic recovery, the Federal Reserve has extended the TALF programs
for existing CMBS through March 2010 and newly structured CMBS through
June. Moreover, the banking agencies recently encouraged banks to work
with their creditworthy borrowers to restructure troubled CRE loans in
a prudent manner, and reminded examiners that--absent other adverse
factors--a loan should not be classified as impaired based solely on a
decline in collateral value.⁵ 

The Job Market
In addition to constrained bank lending, a second area of great concern
is the job market. Since December 2007, the U.S. economy has lost, on
net, about 8 million private-sector jobs, and the unemployment rate has
risen from less than 5 percent to more than 10 percent.⁶
Both the decline in jobs and the increase in the unemployment rate have
been more severe than in any other recession since World War II.⁷ 

Besides cutting jobs, many employers have reduced hours for the workers
they have retained. For example, the number of part-time workers who
report that they want a full-time job but cannot find one has more than
doubled since the recession began, a much larger increase than in
previous deep recessions. In addition, the average workweek for
production and nonsupervisory workers has fallen to 33 hours, the
lowest level in the postwar period. These data suggest that the excess
supply of labor is even greater than indicated by the unemployment rate
alone.

With the job market so weak, businesses have been
able to find or retain all the workers they need with minimal wage
increases, or even with wage cuts. Indeed, standard measures of wages
show significant slowing in wage gains over the past year. Together
with the reduction in hours worked, slower wage growth has led to
stagnation in labor income. Weak income growth, should it persist, will
restrain household spending.

The best thing we can say about the labor market
right now is that it may be getting worse more slowly. Declines in
payroll employment over the past four months have averaged about
220,000 per month, compared with 560,000 per month over the first half
of this year. The number of initial claims for unemployment insurance
is well off its high of last spring, but claims still have not fallen
to ranges consistent with rising employment.

Although economic pain is widespread across
industries and regions, different groups of workers have been affected
differently. For example, the unemployment rate for men between the
ages of 25 and 54 has risen from less than 4 percent in late 2007 to
10.3 percent in October--nearly double the rise in unemployment among
adult women. This discrepancy likely reflects the high concentration of
job losses in manufacturing, construction, and financial services,
industries in which men make up the majority of workers. From the
perspective of America's economic future, the effect of the recession
on young workers is particularly worrisome: The unemployment rate among
people between the ages of 16 and 24 has risen to 19 percent--and among
African American youths, it is now about 30 percent. When young people
are shut out of the job market, they lose valuable opportunities to
gain work experience and on-the-job training, potentially reducing
their future wages and employment opportunities.⁸ 

Given this weakness in the labor market, a natural question is whether
we might be in for a so-called jobless recovery, in which output is
growing but employment fails to increase.

Productivity is defined as output per hour of work.
Thus, essentially by definition, a jobless recovery--in which output is
growing but hours of work are not--must be a period of productivity
growth. In the jobless recoveries that followed the 1990-91 and 2001
recessions, productivity growth was quite strong. It may seem
paradoxical that productivity growth--which in the longer term is the
most important source of increases in real wages and living
standards--can have adverse consequences for employment in the short
term. But, when the demand for goods and services is growing slowly,
that may be the case.

In fact, productivity growth has recently been
quite high, even when the economy was contracting. Output per hour in
the nonfarm business sector is estimated to have risen at about a 5-1/2
percent annual rate so far this year, well above longer-term averages.
One reason for recent productivity gains likely was the reaction of
employers to the freefall in the economy that began in the second half
of 2008. Normally, employers are slow to cut their workforces when the
economy turns down. The process of finding, hiring, and training new
workers is costly. Thus, if employers expect the downturn will be
neither too severe nor too lengthy, they retain more existing workers
than they need in the short term, rather than laying them off and
replacing them when the recovery begins. However, in the recent
downturn, employers were exceptionally uncertain about the future, some
even fearing a second Great Depression. Moreover, tight credit
conditions left little margin for error. Accordingly, to protect
themselves against the worst possibilities, employers shed workers much
more sharply than usual in recessions. Thus, the productivity gains
this year generally reflected pronounced declines in labor input rather
than greater output.

Will the increases in productivity persist? It is
likely that, in some cases, firms achieved their productivity gains by
asking their remaining workers to provide extra effort. The additional
gains that can be achieved in this way are limited and probably
temporary. Although continuing uncertainty and financial constraints
might make such firms hesitant to hire, if demand, production, and
confidence pick up, they will find their labor forces stretched thin
and will begin to add workers. However, other firms, facing difficult
financial conditions and intense pressures to cut costs, seem to have
found longer-lasting, efficiency-enhancing changes that allowed them to
reduce their workforces; and some less-efficient firms, no longer able
to compete, closed their doors. Again, improved efficiency confers
great benefits in the longer term. However, to the extent that firms
are able to find further cost-cutting measures as output expands, they
may delay hiring.

Other factors will affect near-term employment
growth as well. Business confidence in the durability of the expansion,
for example, will help determine employers' willingness to hire. The
current prevalence of part-time work and short workweeks may slow job
creation early in the recovery period, as employers may prefer to
convert workers from part-time to full-time status and to add overtime
work before turning to new hires. In addition, difficulties in
obtaining credit could hinder the expansion of small and medium-sized
businesses and prevent the formation of new businesses. Because smaller
businesses account for a significant portion of net employment gains
during recoveries, limited credit could hinder job growth. Overall, a
number of factors suggest that employment gains may be modest during
the early stages of the expansion.

The Outlook for the Economy and Policy
I return now to the outlook for the economy and policy. As I noted, I
expect moderate economic growth to continue next year. Final demand
shows signs of strengthening, supported by the broad improvement in
financial conditions. Additionally, the beneficial influence of the
inventory cycle on production should continue for somewhat longer.
Housing faces important problems, including continuing high foreclosure
rates, but residential investment should become a small positive for
growth next year rather than a significant drag, as has been the case
for the past several years. Prospects for nonresidential construction
are poor, however, given weak fundamentals and tight financing
conditions.

In the business sector, manufacturing activity has
been expanding and should be helped by the continuing strength of the
recovery in the emerging market economies, especially in Asia. As the
recovery takes hold, enhanced business confidence, together with the
low cost of capital for firms with access to public capital markets,
should lead to a pickup in business spending on equipment and software,
which has already shown signs of stabilizing.

I have discussed two of the principal factors that
may constrain the pace of the recovery, namely, restrictive bank
lending and the weak job market. Banks' reluctance to lend will limit
the ability of some businesses to expand and hire. I expect this
situation to normalize gradually, as improving economic conditions
strengthen bank balance sheets and reduce uncertainty; the fallout for
banks from commercial real estate could slow that progress, however.
Jobs are likely to remain scarce for some time, keeping households
cautious about spending. As the recovery becomes established, however,
payrolls should begin to grow again, at a pace that increases over
time. Nevertheless, as net gains of roughly 100,000 jobs per month are
needed just to absorb new entrants to the labor force, the unemployment
rate likely will decline only slowly if economic growth remains
moderate, as I expect.

The outlook for inflation is also subject to a
number of crosscurrents. Many factors affect inflation, including slack
in resource utilization, inflation expectations, exchange rates, and
the prices of oil and other commodities. Although resource slack cannot
be measured precisely, it certainly is high, and it is showing through
to underlying wage and price trends. Longer-run inflation expectations
are stable, having responded relatively little either to downward or
upward pressures on inflation; expectations can be early warnings of
actual inflation, however, and must be monitored carefully. Commodities
prices have risen lately, likely reflecting the pickup in global
economic activity, especially in resource-intensive emerging market
economies, and the recent depreciation of the dollar. On net,
notwithstanding significant crosscurrents, inflation seems likely to
remain subdued for some time.

The foreign exchange value of the dollar has moved
over a wide range during the past year or so. When financial stresses
were most pronounced, a flight to the deepest and most liquid capital
markets resulted in a marked increase in the dollar. More recently, as
financial market functioning has improved and global economic activity
has stabilized, these safe haven flows have abated, and the dollar has
accordingly retraced its gains. The Federal Reserve will continue to
monitor these developments closely. We are attentive to the
implications of changes in the value of the dollar and will continue to
formulate policy to guard against risks to our dual mandate to foster
both maximum employment and price stability. Our commitment to our dual
objectives, together with the underlying strengths of the U.S. economy,
will help ensure that the dollar is strong and a source of global
financial stability.

The Federal Open Market Committee continues to
anticipate that economic conditions, including low rates of resource
utilization, subdued inflation trends, and stable inflation
expectations, are likely to warrant exceptionally low levels of the
federal funds rate for an extended period. Of course, significant
changes in economic conditions or the economic outlook would change the
outlook for policy as well. We have a wide range of tools for removing
monetary policy accommodation when the economic outlook requires us to
do so, and we will calibrate the timing and pace of any future
tightening to best foster maximum employment and price stability.

---

Footnotes

1. For an overview of the crisis from an international perspective, see Ben S. Bernanke (2009), "Reflections on a Year of Crisis,"
speech delivered at "Financial Stability and Macroeconomic Policy," a
symposium sponsored by the Federal Reserve Bank of Kansas City, held at
Jackson Hole, Wyoming, August 20-22. Return to text

2. According to the October Senior Loan Officers Opinion Survey,
moderate fractions of banks continued to tighten standards and terms
for loans to small firms, though the net fractions doing so generally
continued to decline from the peaks last fall. The Survey of Terms of
Business Lending indicates that spreads on small loans and loans
extended by small banks (both proxies for loans to small firms) have
increased significantly during the first three quarters of 2009. Return to text

3. See
Board of Governors of the Federal Reserve System, FDIC, Office of the
Comptroller of the Currency, and Office of Thrift Supervision (2008), "Interagency Statement on Meeting the Needs of Creditworthy Borrowers," joint press release, November 12. Return to text

4. See Board of Governors of the Federal Reserve System (2009), "Federal Reserve Board Makes Announcement Regarding the Supervisory Capital Assessment Program (SCAP)," press release, November 9. Return to text

5. See Board of Governors of the Federal Reserve System (2009), "Federal Reserve Adopts Policy Statement Supporting Prudent Commercial Real Estate (CRE) Loan Workouts," press release, October 30. Return to text

6. This
job loss figure includes an adjustment to reflect the preliminary
estimate of the benchmark revision to payroll employment recently
announced by the Bureau of Labor Statistics (BLS). According to the
BLS, when the published data on payroll employment are benchmarked this
coming February to comprehensive counts of employment from unemployment
insurance tax records, the level of private payroll employment in March
2009 is expected to be revised down by 855,000. Return to text

7. This statement remains true when job loss is measured as a percentage of total initial payrolls rather than in absolute terms. Return to text

8. Labor
economists have documented these points. See, for example, David T.
Ellwood (1982), "Teenage Unemployment: Permanent Scars or Temporary
Blemishes?" in Richard B. Freeman and David A. Wise, eds., The Youth Labor Market Problem: Its Nature, Causes, and Consequences (Chicago:
National Bureau of Economic Research and University of Chicago Press),
pp. 349-90; and Thomas A. Mroz and Timothy H. Savage (2006), "The Long-Term Effects of Youth Unemployment," Journal of Human Resources, vol. 41 (Spring), pp. 259-93. Return to text

Comments

[koaj]

liesman makes me sick. i see no mention that devaluing the dollar is Fed policy. blood will be on bernanke's hands

[lookma]

Commodities prices have risen lately, likely reflecting the pickup in global economic activity, especially in resource-intensive emerging market economies, and the recent depreciation of the dollar. On net, notwithstanding significant crosscurrents, inflation seems likely to remain subdued for some time.

The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

-----------------

Fear not, the FED is keeping an eye on evil market forces that might otherwise destroy the dollar.

[Daedal]

Summary: The economy sucks. As always, I'm optimistic, though admittedly the prospects remain bleak. Oh, btw, Stock market is up.

[TraderMark]

Just once I'd like him to use the words punch bowl in a speech.

Or... I've got the keg, whose with me?

Everyone? Even better!

[Unscarred]

This guy has more tells than a first-time poker player sitting at the final table of the WSOP.  I just wonder if he even tries to believe the bullshit he slings around.

[lizzy36]

As I watch Bernanke speak and i am reminded of a quote:

"how long does it go on.....you know what is good about the truth, everyone knows what it is, how ever long they have lived without it no one forgets the truth, they just get better at lying."

[Unscarred]

That's a great quote!  Of whom did you first hear it?

[lizzy36]

Richard Yates, in his book Revolutionary Road. 

I paraphrased the quote. 

[Unscarred]

Thanks Lizzy!

[Anonymous]

I think there is a bubble in the faith of the intellectual ability of the current set of leaders to lead us out of this economic hell hole.

[Marley]

And absolute knowledge of the last set of leaders that got us here.  So what's your point?

[chet]

Anyone know why the dollar just spiked?

[Ivanovich]

Spike reversed as fast as it occured.  HAL9000 error, probably.

[buzzsaw99]

Long winded bastard.

[Marvin the Mind...]

Our nation would be well served if Ben would go back to his old gig as a waiter at South of the Border.

Pedro sez: "Short the dollar!"

[orca]

Timmy made his strong dollar speech in Beijing @ 142 against the EUR.
Ben just did it today @ 149.
No reaction at all, apart from a little spike for about 2 minutes.
I am waiting for Britney Spears to commit to a strong dollar policy @ 160, to be followed @ 180 by Stevie Wonder.

[DaveyJones]

and don't forget the still living cast of Different Strokes at 190

[Anonymous]

And Elvis at 200
Seriously your being lead to a slaughter. The rest of the World can come and buy you up for beer money.

[AnonymousMonetarist]

Piacere. It is a deep and moving honor to discuss the waste mangement business with all of youze.

The shylock business continues.

These are trying times for this thing of ours. Credit markets were saying 'va fa napole'. The Borgata was approaching a stage of crisis.

The necessary themes musciata are expressed by us. The cafones and poveretts, for whom the books are always closed have been told 'col tempo la foglia digelso diventa seta'.

This is not the time to eat alone.

[Anonymous]

Gold is going rouge...

[DaveyJones]

"We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability"

what the...?

[ghostfaceinvestah]

That is his fall back position anytime anyone asks him about the dollar - "our mandate is to foster maximum employment and price stability."  He literally passes the buck.

What he won't admit publicly is that his policies are intentionally killing the dollar, in order to save his constituents, the banks, but conventional wisdom is that lower interest rates help spur economic growth so no one questions him.

In reality, ZIRP kills economic growth.  But it helps the banks repair their balance sheet.  And Bernanke knows it.

[Assetman]

Bernanke must be thinking "how long can we get away with this?", as it pertains to monetizing everything in sight.

Conversely, Uncle Ben knows he's playing a high stakes game of chicken concerning a controlled dollar devaluation process. He's not going to be able to use the excuse of "the current dollar declines are a reversal of the flight the quality to the deepest most liquid markets in 2008" much longer.

We are nearing a point where the dollar approaching important levels of support and into new territory. Once broken, the Fed may well attempt to intervene in the currency markets to stabilize the dollar, but they risk moving up the long end of the Treasury curve. This at a time when our own Treasury is trying their damndest to buy as much 10 and 30 year notes as possible. Little wonder PIMPCO and others are basically purchasing covered calls against higher rates.

Until that time (it could be months), we are in perpetual Groundhog Day of higher highs in gold and equities and gold, as well as continued pressure on the DXY. I still see the 71-72 level as the major battle ground on the DXY.

Uncle Ben did make me laugh about something though-- in his Q&A he stumbled on the question of asset bubbles and tried to explain how hard to tell if the equity markets were currently overvalued. If domestic economic growth is predicated upon transient factors and can't gain traction-- it's highly likely your equity markets are overvalued.

Oh... and nice comment about the government need to control its deficit spending. That's about as unsustainable as... say, quantitative easing.

[Mark Beck]

Its time to play, all you FED boys and girls,

BEN-R-US, a game where you fill in the blank.

It fun and exciting!

In your own words try and translate what the chairman is saying. 

Now don't be discouraged, put on your economic thinking caps, take the appropriate mind altering drug,

and lets play,

BEN-R-US.

Brought to you by the folks at: Stay-Cation and Ain't my Mortgage :)

Lets take a closer look at what Ben is saying, or not saying or damn who knows. I will not purposely take BEN out of context here, because I am not really sure, for a lot of the things he prevaricates on, what his context is.  

----------

#1

"Additionally, we supported private credit markets and helped lower rates on mortgages and other loans through large-scale asset purchases, including purchases of debt and mortgage-backed securities issued or backed by government-sponsored enterprises."

The classic economic question is; OK Ben in the context of our current macroeconomic environment, what in your opinion, and please show us some of the real-time data you have access to, is the linkage between price and credit in both the residential and commercial real estate markets? Please show me there is some theory or plan to your massive investments.

Is Ben saying he is establishing credit rates, or the availability of credit, or credit will wipe out bad debt, and this is somehow offset by buying overpriced assets (future losses) from the GSEs? Is credit now a catch-all term for Ben? Your guess is as good as mine. Anyway, here is my version of this same quote:

Additionally, in an effort to stabilize and inflate real estate prices, we have embarked upon large-scale asset purchases, including purchases of deleveraging real estate debt and under performing mortgage-backed securities issued or backed by government-sponsored enterprises as a conduit to offload bad bank debt. We will set the price no matter how much we waste on bad debt. 

-----------

#2

"We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability."

Translation:

We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, unfortunately our old tool box is inadequate at restricting the money supply for the majority of assets on our balance sheet, and we will most certainly be late and ineffective for any future tightening to best foster a jobless recovery and price instability.

----------

#3

"Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their creditworthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that--absent other adverse factors--a loan should not be classified as impaired based solely on a decline in collateral value."

Translation:

Initially we did not envision TALF for CMBS, but the FED will need to also buy these bad debts off of the banks at PAR, because many are insolvent. Also, TALF has to be extended to curb upcoming RMBS 2010 losses. Not to confuse you, but really an impaired borrower will never be creditworthy, so I am hoping the regulators will allow you to extend, by using the book value and not market value of the defaulting loans. 

----------

#4

"The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability."

Translation:

We are attentive to the implications of changes in the value of the dollar, but it is really not our job to protect the dollar, our real job is to foster both maximum employment and price stability, which we can never really accomplish or skew prices in a vain attempt. Our commitment to squander wealth and not deleverage through default, together with the temporary irresponsible QE to prop up the U.S. economy, will help ensure that the dollar is unable to maintain real worth, and why should I concentrate on global financial stability when the Executive branch can't even balance a budget. 

Hope you had as much fun as I did, 

Mark Beck

[Anonymous]

I gave up and stopped listening to him when he started contradicting himself.

DavidC

[Anonymous]

Bernanke's simply finishing the job. The raping has been going on since 1913. The solution, in hindsight, is to not trust in paper money, stay the hell out of debt and own as little as possible. Instead, get high, live for the now and party on.

Damn, the hippies had it right.

[Marley]

Anyone else note the strong backing for re-writting CRE loans to better terms as they go bad? 

[Anonymous]

This was my favorite:

"Moreover, the banking agencies recently encouraged banks to work with their creditworthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that--absent other adverse factors--a loan should not be classified as impaired based solely on a decline in collateral value.

So a decline in collateral should not affect loans? Extend and pretend at it's finest.

[Anonymous]

#2

"We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability."

Translation:

We haven't got a clue, but because I have studied the great depression, as preeminent expert, a World War seems to be the best possible sledgehammer in the box to destroy whats still working.

----------

[THE DORK OF CORK]

The Fed is bankrupt if its sole "Assets" are those worthless shitty paper it used to fool the American people with.

IF on the other hand it still has control of the peoples gold ,and that is a big if. It can still survive by inflating the money supply until the dollar supply matches the 8000 tons of shiny stuff - its only real assets.

This of course will destroy whats left of the American middle class - but hey we got to save those bankers.

[Anonymous]

How can Bernnake state that inflation is subdued when the current PCE (personal consumption expenditures) index which he states is "the single most comprehensive and theoretically compelling measure of consumer prices.", at 2.78% since its bottom in December 2008 is HIGHER than its 10 year average of 2.48%? The truth is that Bernanke wants to anchor inflation expectations at a low (1.7%-2.0%) range despite all evidence to the contray because he rightly believes that inflation expectations influence actualized inflation. He's willing to spin the number to get the effect he wants. If Inflation is 2.7% and he anticipates NOTHING in policy changes to control it (because he states it is already under control) why should he expect it to be lower in the future than it is today? If Bernanke understands so little about current inflation and inflation expectations he doesn't deserve to be the Fed Chairman.