Frankfurt he had this to say about his (and the rest of the Fed’s)
thinking on inflation:
The Committee remains unwaveringly committed to price stability and does not seek inflation above the level of 2 percent or a bit less that most FOMC participants see as consistent with the Federal Reserve's mandate.
This sentence is open to some fairly wide interpretation. I think Ben
was referring to inflation as something that is evaluated over an
extended period of time and is best measured by the GDP deflator.
But that is not how the market may read it in a few months. A CPI print
of .3 or even a .4 is not at all out of the cards at some point over the
next Q. Multiply .3 X 12 and you get a running rate for inflation at
3.6%. While that is not what our boy Ben may have meant, that is how the
market will read it. Ben has put out to the market that he might call
off QE if inflation starts to get going toward 2%. He was pretty clear
that he was prepared to back off in the speech:
The Committee stated that it would review its asset-purchase program regularly in light of incoming information and would adjust the program as needed to meet its objectives.
For me, it's a sure thing that we are going to see hot inflation prints in
the next few months. There has been too much action in the broad
commodities market for it not to show up. When it does people are going
to be looking to Ben and calling his bluff. I read this comment by Ben
as backing off. I would not be a buyer of long duration.
Some thoughts on the speech:
AAARGGHH! No no no NO NO. This is just playing extend and pretend with an overpriced housing sector fuelled by fraud, meanwhile the policy is creating a situation that will be catastrophic for soundly invested money as funds are forced to chase (and over-inflate) equities, guaranteeing a future crisis for retirees who have now been thrust into an enormous Ponzi scheme. The Fed is still way behind here. Fraud needs to be dealt with or we will be stuck with zombies for decades and an economy full of people who just won’t borrow because they *can’t*. Bad, bad policy.
Good, time to tackle the “QE is money printing” myth.
Yes, good. This fits with what I’ve been saying all along. The Fed has both a monetary and a fiscal angle here, simply increase reserve requirements as a monetary tool and reduce the t-bond roll to trigger implementation of austerity measures (fiscal). *THIS* is the primary reason the Fed should be rolling with QE2, not some silly notion of reducing long-term yields. The Fed *must* stay left on the yield curve, this is important to avoid the catastrophe in fixed income.
Yes. Correct. Good. Except for the part about longer-term structural deficits, that’s just an ass-kiss and won’t really happen.
This is the main story of his speech, probably about 80% of it. The words used are exceptionally careful to avoid causing offense to China but sometimes I wish they’d just cut the crap. China’s currency peg is *the* greatest contributor to the global imbalances we see in the world today and that peg *must* be broken (as Bernanke concludes) or the USA will continue to leak organic economic strength to a China that has already gorged on more than it can possibly swallow.
Sure, I favour pegs for minnows that need an edge to develop, but China? No. That peg needed to go a long, long time ago and its continued presence is, in my opinion, a blatantly provocative act that might as well be a declaration of slow-motion war given the effect on American society, an act that deserves hostile economic responses. OK, so technically it’s not a peg and China has relaxed it a little, but only about 1/10th as much as it needs to be, so it is, in effect, still a peg and needs to go.
All in all, a very impressive speech. The speechwriters demonstrated that they see the real global issue (China’s currency peg) and the need to challenge all this nonsense about QE being inflationary money printing and an even more ludicrous desire to return to the gold standard. I am however disturbed at the Fed’s continued belief that suppressing long yields is a good thing, all this does is create bigger problems.
Wow. Great. Thanks.
Say, can I borrow your brain for a couple of days? I'll bring it back...
:D
Why do I have the feeling that it might come back with a few new dings, a whole lot of unaccounted for clicks on the odometer and a lingering, subtle odour of puke coming from the passenger's door?
*suspicious*
Now would I do that to you?
((blink)) ((blink))
:D
Have a great week-end!
deleted
The Bernank and The Federal Reserve aren't limited by the numbers we see. The cpi numbers can and will be cooked to provide cover. If an occassional high print comes out in the monthly numbers, The Bernank can resort to 'the core long term trend that the board believes to be intact', or some such fabrication to justify whatever they need to continue with QEx.
The debt monetization genie is out of the bottle. It will prove to be impossible to put back in. There will be an endless series of crises for which just a little more printing will be the easy fix. One morning we will wake up with a debased currency that even the most unaware and gullible will no longer be able to ignore.
Get your PM's now.
Bruce I hope you have plan B.
I am glad that Bernanke has had such a good record and has been so wise. His actions prevented the rise of the sub-prime market & then the crash in the sub-prime causing the meltdown in 2008.
Whew we dodge a bullet there.
Too bad he can not say what they are really doing....funding the US government debt.
The rest is all double speak for inflation that comes with it: Price stability (inflation), wealth effect (inflation)...full employment (WTF?)
And to think that I had already conditioned myself through Pavlovian methods to achieve great erectile strength and girth upon hearing "QE".
Response extinction biatchez.
Weird. Just read
Speech by Ben Bernanke to the Conference to Honor Milton Friedman at University of Chicago, November 8 2002 at this link:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
and "China's Great Depression" by Krassimir Petrov, Ph.D, dated October 30, 2004 at this link:
http://www.gold-eagle.com/editorials_04/petrov103004.html
and then this post...
Has anybody told China we're in the middle of a big budget remake of the Great Depression, produced by Wall Street Bankstas, LLC and directed by The Bernanke?
Seriously China, you're playing the lead role in this one.
You need to read the script and get your act together.
Ok, now. Lights, camera aannnnnd action!
Good read. Note Bernanke's thinking in the first article, where he is referring to the Fed's abrubt raise in the Discount Rate to keep the dollar from falling precipitously after the Sterling Crisis in 1931:
"Again, the logic is that a monetary policy change related to objectives other than the domestic economy--in this case, defense of the dollar against external attack--were followed by changes in domestic output and prices in the predicted direction."
Ergo, he believes that if the Fed refuses to defend the dollar, or takes steps such as QE II to hasten its decline, it will result in "changes in domestic output and prices in the predicted direction", i.e. UP.
MUST WATCH THE BERNANKE CARTOON.
http://www.youtube.com/watch?v=PTUY16CkS-k
burning man
I agree, Bruce. I would not be a buyer of long duration. Since it is obvious to me that QEII is all about a continuing effort to give the major banks time to achieve solvency once again, I would guess that the major banks are already not buyers of long duration? Is there evidence of that?
QE2 will never die.
Bernanke's masters will never relent until the system collapases.
QE2 is all about burying the Banksters' fraud by moving it onto the un-auditable Fed's balance sheet....so QE2 will proceed apace....secondary benefits are getting China off the peg and monetizing the Fed Gov't Deficit...but burying fraud is job #1......
I think that's a good take.
The Fed has weaponized it's secrecy and autonomy.
It would seem that Bernanke believes that most of the QE2 money will go into excess bank reserves as happened with QE1. However in QE1, the Fed was purchasing securities from banks while in QE2 the Fed is purchasing treasuries on the open market. Some of those might come from banks, but wouldn't some also come from pension funds and other sources? I would be really interested to hear Bernanke's reasoning as to why QE2 is going to go into excess reserves.
And if QE2 is really not going to cause inflation, then why not increase if from $600B to $3600B so that all 2011 federal government spending would be supplied by the Fed? We could have a one year tax holiday. That would certainly stimulate the economy!
And even if Bernanke is correct and all of the QE2 money does go into excess reserves, isn't that just sewing the seeds for future inflation? Of course, in theory the Fed could pull the money back out of the system if inflation starts to develop. But pulling money out of the system is much less fun than pumping it in and I wonder whether the Fed will really have the stomach to do this if the need arises.
It is kind of like telling myself that I can have two pieces of pie for dessert tonight because I can always skip lunch tomorrow. That may be perfectly true, but is it realistic?
Also, Bernanke's speech seems to indicate that he is not really sure about what the effects of QE2 will be. Not a good sign...
The Bernank speaks lies and is oft mistaken.
I'm still waiting for the QE3. If we don't finish the QE2, we will get the QE3. And after the QE3, the QE4 is expected.
Blow Big Ben. Blow harder.
I wouldn't touch long duration before Ben's printing escapade. If inflation picks up and is reflected in long bond yields, Ben will be FUBAR. The Fed would have to start tightening, raising rates, if they actually cared about the dollar's value, and then all the shit Ben has been buying with printed money for the past 2 years will be underwater. He is stuck.
Ben will absolutely be forced to start raising rates at some point.
Do not mess with Mr. Bond market. It makes him... angry.
Yeah, except the tools they have means "the people" are stuck, not the fed. In fact, that's exactly why they're doing this, to move the financial trashware onto the back of "the people".
This trashware you speak of is ultimately disposable. It does not and cannot stay attached to the assigned owner for long, as the unwilling proprietor (denizens of the USSA) has no manufacturing base, honest GDP, or household worth of which to shine these sparkling nuggets of worthlessness.
Correct, which is exactly how they intend to achieve their ultimate goal... which is to make mankind the permanent slaves of the masters of fiat, fake, fraud, fiction, fantasy.
I lean in the direction that Ben will do what he wants in spite of what he says and that QE2 is a means to force China to unpeg so it will continue no matter what the inflation rate is.
inflation.
the only inflation a trader cares about is trading and inflating one's trading account.
twittering as stocktradr
Because maybe your wife buys the groceries?
HFT algos don't eat. Neither do spambots.
Risk off will cause the market to close for a day or two. Ben will make Times Idiot of the year
When Ben talks about inflation, he means core, not headline. Commodity inflation doesn't show up in core inflation, at least not directly.
What I said... But watch what happens when a steamy number comes our way.
Haha, this is the funniest ZH article ever.
The thing is, 0.3% CPI is year over year. It is printed monthly, but the measure itself is yearly. It is measured on an annual basis.
So no, you do not get to multiply it by x12 to get a 'running rate for inflation at 3.6%' ;-)
The worst ever core CPI reading on record (measurement started in 1957) which we got two days ago means exactly what it says: the US is facing a very serious deflation threat - and we will face it for years to come.
Bruce, is elementary math and common-sense logic really that hard?
you are not only incorrect, but a db
I am indeed ...
My apologies to Bruce.