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Minneapolis Fed's Kocherlakota Explains Why He Disagrees With Bernanke's ZIRP4EVA Policy

Tyler Durden's picture




 

Following the historic 3 dissenting votes from this week's FOMC decision announcing a pseudo Operation Twist, here is the first explanation by one of the dissenters, Minneapolis Fed's Narayana Kocherlakota, as to why he thought the Chairsatan's policy to continue to annihilation of all US savers (i.e., retirees) for another 2 years was a horrendous idea. Granted, he is more politically correct: " I dissented from this change in language because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November. I can summarize my reasoning as follows. I believe that in November, the Committee judiciously chose a level of accommodation that was well calibrated for the prevailing economic conditions. Since November, inflation has risen and unemployment has fallen. I do not believe that providing more accommodation—easing monetary policy—is the appropriate response to these changes in the economy."

Full release:

Statement by Narayana Kocherlakota on Dissenting Vote at August 9, 2011, Meeting of the Federal Open Market Committee

Narayana Kocherlakota - President

One of my jobs as president of the Federal Reserve Bank of Minneapolis is to serve on the Federal Open Market Committee. At its last meeting on August 9, the Committee took what I viewed as a significant policy step. I dissented from its decision. I believe that transparency is an essential part of effective policy formation, and so I’m offering this brief explanation of my decision. These views are not necessarily those of others on the Federal Open Market Committee, including presidents Richard Fisher and Charles Plosser.

Entering the meeting, the FOMC was following an unprecedentedly accommodative monetary policy. There were three elements to this policy. First, the Federal Reserve owned over $2.5 trillion of long-term government and government-backed securities. The purchase of the final $600 billion of these assets was announced in November 2010 and completed by the end of June 2011. Second, as it had since December 2008, the Committee was maintaining the fed funds rate at between 0 and 25 basis points. Third, as it had since March 2009, the Committee statement included the forward guidance that it anticipated keeping the fed funds rate at this low level for “an extended period.” The “extended period” is generally interpreted as being between three and six months.

The Committee adopted this three-part policy stance in November 2010. I agreed with this decision and supported it publicly at that time and throughout this year.

In its August 9 meeting, the Committee changed this “extended period” language to say instead that it “currently anticipates economic conditions … are likely to warrant extraordinarily low levels of the federal funds rate through mid-2013.” This statement is designed to let the public know that the fed funds rate is likely to stay between 0 and 25 basis points over the next two years, not just over the next three to six months. Hence, the new language is intended to provide more monetary accommodation than before.

I dissented from this change in language because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November.

I can summarize my reasoning as follows. I believe that in November, the Committee judiciously chose a level of accommodation that was well calibrated for the prevailing economic conditions. Since November, inflation has risen and unemployment has fallen. I do not believe that providing more accommodation—easing monetary policy—is the appropriate response to these changes in the economy.

Going forward, my votes on monetary policy will continue to be based on the evolution of the data on PCE inflation and its components, medium-term PCE inflation expectations, and unemployment.

 

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Fri, 08/12/2011 - 09:19 | 1553855 Everybodys All ...
Everybodys All American's picture

I would love to hear this people speaking off the record about Bernanke. I have a feeling it would be in a helluva lot different tone.

Fri, 08/12/2011 - 09:42 | 1553912 MillionDollarBonus_
MillionDollarBonus_'s picture

With all due respect I disagree with Kocherlakota on this issue. Monetary stimulus is still very much needed to boost this fragile recovery. At the risk of sounding like a doomer crackpot, I think last week's market move was indicative of how much the markets really depend on the wise guidance of our Fed officials.

Fri, 08/12/2011 - 09:44 | 1553919 Snidley Whipsnae
Snidley Whipsnae's picture

I can see you are trolling... but are you catching anything?

Fri, 08/12/2011 - 09:53 | 1553950 SheepDog-One
SheepDog-One's picture

MillionDollarBonus misses it by a country mile...LOL you actually believe theyre trying to FIX 'the fragile recovery'? Im sorry, but youre an IDIOT! You actually believe this is all just firemen running around trying to put out fire the best they can and rebuild? 

EVERY BIT OF THIS 'CRISIS' WAS DESIGNED!!

Fri, 08/12/2011 - 10:22 | 1554061 Manthong
Manthong's picture

Interesting situation we have here... when the firemen stop pumping gasoline onto the fire, all they will have left is smoldering ruins.

The building is gone.

It has been consumed.

All that the firemen have left to manage is the fire.

Fri, 08/12/2011 - 11:16 | 1554306 thewhitelion
thewhitelion's picture

And 40 million senior citizens count on earning 3% more on their life's savings than inflation is taking.  If you weren't joking, you're showing all the wisdom and fairness of the Bernansk.

Fri, 08/12/2011 - 12:53 | 1554597 ManOfBliss
ManOfBliss's picture

LOL "wise guidance of our Fed officials" - Obviously they're joking.

Fri, 08/12/2011 - 09:20 | 1553856 WallStreetClass...
WallStreetClassAction.com's picture

Whaaaaat? Logical and reasonable people on the FED board? He must be a foreigner!

Fri, 08/12/2011 - 09:48 | 1553935 jswede
jswede's picture

adjsuted for the falling Labor Force Participation Rate, Unemployment Rate hit a new HIGH last month.   Using 66% LFPR (the baseline from 2005-2008; previously it was higher), UE is 12%.

Fri, 08/12/2011 - 09:21 | 1553860 SheepDog-One
SheepDog-One's picture

'0% free money printing is bad for savers'? Wow WTF thats what a PHD in economics is all about?

Fri, 08/12/2011 - 09:22 | 1553861 The Count
The Count's picture

Did anybody see that piece on Wolf Blitzer Tonight about gay activists demanding that some Sesame Street character out themselves as gay>>>?

My dear friends... mindfuck like this is a sure sign we are getting close to the end of western society as we know it. Just another piece in the armageddon puzzle.

Fri, 08/12/2011 - 09:26 | 1553871 SheepDog-One
SheepDog-One's picture

Yep, and saw another report on how 'pole dancing' is the hot new rage for jr high girls in america (USAA+) today. Well I guess they got to learn some kind of trade.

Fri, 08/12/2011 - 09:32 | 1553886 The Count
The Count's picture

Its the jewish controlled liberal press making us think this is all normal. 

Fri, 08/12/2011 - 09:36 | 1553893 tarsubil
tarsubil's picture

Racial and partisan divisions help the powers that be.

Fri, 08/12/2011 - 09:41 | 1553905 The Count
The Count's picture

I disagree. Its not the usual divide and conquer thing, its get all the sheeple herded up nicely where they dont attack each other...so they can be easily be buggered. Of course, this does not work forever, see the London riots.

Fri, 08/12/2011 - 15:45 | 1555301 tarsubil
tarsubil's picture

In my humble opinion, the London Riots will help pit the middle class and industrius vs the poor and dependent. When have the powers that be ever paid any price for what they have done?

Fri, 08/12/2011 - 09:41 | 1553910 ReactionToClose...
ReactionToClosedMinds's picture

who here is begining to believe that life is better as a transvestite ...poll please?

 

Now I know what my problem is .... I could not reconcile the sexuality of Bert & Ernie watching Sesame Street when young

Fri, 08/12/2011 - 09:52 | 1553946 The Count
The Count's picture

Exactly, the fact that you had to keep guessing as a child caused you mental anguish.

Fri, 08/12/2011 - 09:23 | 1553864 buzzsaw99
buzzsaw99's picture

He is wrong on every count. Right for the wrong reasons is barely better than chairsatan being wrong for the wrong reasons.

Fri, 08/12/2011 - 09:26 | 1553872 Medea
Medea's picture

Nailed it.

Fri, 08/12/2011 - 09:53 | 1553948 machineh
machineh's picture

Right -- there's no such thing as a smarter, more rational central planner.

Put every one of these PhD morons to work slopping out septic tanks with their bare hands, while snarling pit bulls snap at them for motivation.

Fri, 08/12/2011 - 10:05 | 1553993 Bicycle Repairman
Bicycle Repairman's picture

It's a start.

Fri, 08/12/2011 - 09:24 | 1553867 SheepDog-One
SheepDog-One's picture

Still looking for the dire need for more QE...markets are fine staging 5% rises, certainly any loss is immediately recovered by next day at the latest.

5 alarm fire has been called in, fire trucks with sirens blaring are circling the block, and theres not even any smoke.

Whats going to happen in the next few days, something REALLY big and bad?

Fri, 08/12/2011 - 09:24 | 1553868 pan
pan's picture

It's a sith mind trick.  End the Fed!

Fri, 08/12/2011 - 09:26 | 1553873 Corn1945
Corn1945's picture

The US is going to have ZIRP for as long as the eye can see.

Remember how ZIRP was supposed to end in 2011/2012? Yeah.

Fri, 08/12/2011 - 09:26 | 1553875 Turd Ferguson
Turd Ferguson's picture

Don't make this guy out to be some kind of hero. He's full of shit just like the rest of them.

Hey, KosherDakota, I have a few questions for you:

1) Without "accommodative policy", from where will the U.S. get its next $2.4T?

2) Without "accommodative policy", from where will Italy and Spain get rescue dollars?

3) Without "accommodative policy", from where will BAC get funding to stay afloat?

I could go on and on but what's the point? This guy's a lying sack of shit douchebag just like the rest of them.

Fri, 08/12/2011 - 09:37 | 1553901 tarsubil
tarsubil's picture

+4,000+

Fri, 08/12/2011 - 09:51 | 1553914 SheepDog-One
SheepDog-One's picture

See but still people are missing it, its not about providing more and more trillions forever to 'ensure they stay afloat', its simply about ensuring everyones bankrupt enough to implode it all and come back up in a 1 world govt with 1 world currency. Youre saying the point is to find ways to keep providing 'rescue dollars to stay afloat'....Im sorry that is NOT the plan.

Fri, 08/12/2011 - 10:07 | 1554003 Bicycle Repairman
Bicycle Repairman's picture

"KosherDakota"

You think this guy is a native American.  LOL.

Fri, 08/12/2011 - 09:32 | 1553887 Jim in MN
Jim in MN's picture

The problem is CORRUPTION.

This is a crisis of LEGITIMACY.

Extending monetary policy measures to assist the banks and privileged classes who just don't feel like taking losses on bad real estate is MORE CORRUPTION.

Doing so in the face of macroeconomic data, as Kocherlakota suggests, is PSYCHOPATHIC CRIMINALITY.

Not marking bonds to market is FRAUD.

Are we clear?

Fri, 08/12/2011 - 09:36 | 1553898 fuu
fuu's picture

Thank you!

Fri, 08/12/2011 - 09:35 | 1553891 truont
truont's picture

Wait...so...Kocherlakota actually *believes* that unemployment is falling????
Benny knows better that to trust the BLS massaged figures--that is why he is keeping rates low 4EVA.

Fri, 08/12/2011 - 09:38 | 1553902 Snidley Whipsnae
Snidley Whipsnae's picture

"2) Without "accommodative policy", from where will Italy and Spain get rescue dollars?"

I love 'swap lines'... We send them some our monopoly money, they send us some of theirs... More rearrangement of deck chairs aboard the Titanic...

I also have a swap lines open... I send worthless fiat to PM dealers... They send me PMs...

Fri, 08/12/2011 - 09:46 | 1553926 SheepDog-One
SheepDog-One's picture

People still miss the point because theyve been swallowed up by 'ZIRP4EVA is the end game'....BS....we're far closer to the real endgame than people think, that is when everyone is sufficiently bankrupt, the rug gets pulled from under it all, and of course the only solution to the dire world situation is 1 world govt, 1 world currency. 

Fri, 08/12/2011 - 09:46 | 1553923 11.11
11.11's picture

Manufactured Dissent - This gives the impression that both sides are being considered.

Fri, 08/12/2011 - 09:49 | 1553934 SheepDog-One
SheepDog-One's picture

Controlled opposition, same as in the media and politics. WWE pro wrestling is the model. Everyone fights and scraps and flips each other, after the show they all go out together for beer and chicken wings and jalapeno poppers.

Fri, 08/12/2011 - 10:02 | 1553976 11.11
11.11's picture

You got it, SheepDog.  Why is it so transparent with WWE, but the plebs can't see it when it's the FED or the phony left/right paradigm?  I think CD is right...it's cognitive dissonance.  It's too painful to consider that we have been fooled so easily.  That all of our previous beliefs and our faith in the system or a particular party was equivalent to picking one pro wrestler over another.

Fri, 08/12/2011 - 09:47 | 1553928 trillion_dollar...
trillion_dollar_deficit's picture

Unemployment has fallen since November?

Who knew?

Fri, 08/12/2011 - 10:20 | 1554057 Snidley Whipsnae
Snidley Whipsnae's picture

The unemployed have 'fallen off' the unemployment rolls...

Fri, 08/12/2011 - 09:55 | 1553956 Slap That Taco
Slap That Taco's picture

What the chairman says, goes.

The others are there just for decoration-agree with 11.11, dissent looks good, like this was a hard decision.

 

 

Fri, 08/12/2011 - 10:10 | 1554024 jonny47264
jonny47264's picture

75% of the rotating members voted against Bernake

Fri, 08/12/2011 - 09:56 | 1553958 SheepDog-One
SheepDog-One's picture

Come on, I cant have the last bastion of sense lose it now...ALL of this was by design, theyre not trying to 'FIX' anything! The collapse was designed, the economic implosion was designed, the bank bankruptcies were designed, all to collapse it all and bring it back under central bankster total control under 1 govt and 1 currency. Wake up!

Fri, 08/12/2011 - 10:05 | 1553990 11.11
11.11's picture

"Things do not happen.  Things are made to happen." - JFK

Fri, 08/12/2011 - 10:02 | 1553973 Kina
Kina's picture

So markets are now shooting up because the extreme volatility means everything is just fine and it is risk on. OR just blatant fabrication by TPTB.

 

Stay away from this roller coaster, the wheels are rattling and running out of track real soon.

Fri, 08/12/2011 - 10:08 | 1554011 Oh regional Indian
Oh regional Indian's picture

 

"Since November, inflation has risen and unemployment has fallen"

 Enough said.

Liars all.

And this Indian guy's name reads like Kosher Lakota. Maybe he is a different kind of "Indian". Reddish that is. ;-)

ORI

http://aadivaahan.wordpress.com/2011/08/04/many-drafts/

 


Fri, 08/12/2011 - 10:22 | 1554062 jimijon
jimijon's picture

LOL... Kosher Lakota!

Though I do have some nice Lakota Silver Rounds for sale. They aren't listed on my site but if you ask in an email I do have still around 25 to sell.

http://www.mundogold.com

Hey... if you know a business that accepts Gold and/or Silver have them register on my new site!

http://www.bartercalcpro.com

Cheers

Fri, 08/12/2011 - 10:09 | 1554017 jonny47264
jonny47264's picture

The three dissenters leave the FOMC at the end of the year and dont come back until 2014.  Low rates to stay then.

 

Interestingly 75% of the rotating members voted against Bernake

Fri, 08/12/2011 - 10:14 | 1554035 snowball777
snowball777's picture

To sum up: QE2 didn't work, caused inflation, and wasn't anywhere near as batshit crazy as what the Bernank thrown on the table this time around.

Bennie B should never play poker...the mofo can't bluff to save his life.

Fri, 08/12/2011 - 10:16 | 1554046 jonny47264
jonny47264's picture

How do you know is bluffing?  How do you know he isnt stupid?

Believe me a lot of economists still belive in more prininting.

Its just a shame that the 3 members who are starting to realise QE is counter productive are leaving the FOMC.

Fri, 08/12/2011 - 10:25 | 1554075 Bam_Man
Bam_Man's picture

It's not really "ZIRP4EVA".

It's ZIRP 'til currency or economic collapse, which is no more than a couple of years away - at most.

Fri, 08/12/2011 - 10:28 | 1554085 stoverny
stoverny's picture

I don't even understand what's newsworthy about the Fed announcement.  "extended period" vs. "till 2013" - who cares? 

We all knew that they had no intention of raising rates because they are still trying to recapitalize the banks and force poor granny into stocks in order to be able to afford her cat food for dinner.

Fri, 08/12/2011 - 11:13 | 1554292 mr.5280
mr.5280's picture

Unless I am misunderstanding this, he says the

"unemployment rate has fallen since November"...

As most of us know, the only way that is true is in the official U-3 number that doesn't include the under employed, the long term unemployed, or those who have left the workforce or not officially entered it (mostly due to their inability to find work).

I'm sorry to say to the Fed that they are sorely mistakenand foolish if they only pay attention to the U-3, which is frankly a bullshit figure to not scare the shit out of the public.

I hate the bullshit spin these assholes in "leadership" put on everything.

Fri, 08/12/2011 - 12:14 | 1554487 Jack Napier
Jack Napier's picture

@mr.5280

This must be in line with the logic that because there were only 395,000 new unemployment claims last month instead of 400,000 things are improving, because we're only hurtling toward the abyss at termnial velocity instead of the speed of sound.

Who actually believes these windbags?

Fri, 08/12/2011 - 12:38 | 1554557 dcb
dcb's picture

hoenig does a mucu better job of explaining why it's a bad idea

Fri, 08/12/2011 - 14:06 | 1554891 PulauHantu29
PulauHantu29's picture

Kalishnikoff there needs to understand that we The Bernank NEEDS to print another $400 Trillion to get us out of this mess. We need to bring back the $1,000 bills and start printing $5,000 and $10,000 Bills.

GL!

Sat, 08/13/2011 - 02:40 | 1556577 yang46
yang46's picture


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