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.
Click here for a webcast of the Joint Economic Committee's Q&A with Ben Bernanke live and commercial free. Note - there is no mention of "extended period" in Bernanke's prepared remarks. Watch for a discussion of just that, as well as questions on asset sales, debt levels, GSEs, inflation, and, of course, when interest rates will be raised. Full Bernanke testimony in which he sees a "moderate recovery."
Click here for a webcast of the Joint Economic Committee's Q&A with Ben Bernanke live and commercial free. Note - there is no mention of "extended period" in Bernanke's prepared remarks. Watch for a discussion of just that, as well as questions on asset sales, debt levels, GSEs, inflation, and, of course, when interest rates will be raised. Full Bernanke testimony in which the Chairman sees a "moderate recovery."
Jim Grant Takes On David Rosenberg And The Bond Bulls, Warns The Fed Chairman: "Watch Your Back Ben Bernanke, Cycles Turn"Submitted by Tyler Durden on 04/03/2010 14:25 -0400
In one of the most erudite, intelligent, and insightful conversations on the Bond bull/bear debate, David Rosenberg and Jim Grant go all out at each other, trading blows in this "Great Debate" which is a must see by all. As we pointed out yesterday, Grant is very bearish on bonds, and in a self-made prospectus has decided to downgrade the US, since the rating agencies, which have long been thoroughly incompetent, corrupt and afraid to disturb the status quo, will not do so until it is too late. Jim's point is simple: you can't resolve massive debt with more debt, and says Treasuries, which he calls "certificates of confiscation" are a surefire way to lose one's money. He points to the record supply of US Treasuries, makes fun of the SEC (who doesn't), and in a stunning move, cautions the Fed Chairman, whose ongoing dollar debasement, was once considered treason by the US. His conclusion: "watch your back, Ben Bernanke. Cycles turn" could not have come at a more opportune time. As a contrarian, Rosenberg discusses the McKinsey report looking at sovereign debt, and the Reinhart and Rogoff studies on debt default and highlights that there is a major disconnect between theoretical applications of sovereign default models and practice: in essence the US is still deleveraging as private debt is decreasing and public debt is surging but to a slower degree. In essence, David claims, the second largest monthly debt issuance in March of $333 billion is merely a side effect of ongoing deleveraging, which is a leading and/or coincident indicator of deflation: an environment in which the long bond thrives (Japan is a good reference point).
"In sum, in response to severe threats to our economy, the Federal Reserve created a series of special lending facilities to stabilize the financial system and encourage the resumption of private credit flows to American families and businesses. As market conditions and the economic outlook have improved, these programs have been terminated or are being phased out. The Federal Reserve also promoted economic recovery through sharp reductions in its target for the federal funds rate and through large-scale purchases of securities. The economy continues to require the support of accommodative monetary policies. However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus. We have full confidence that, when the time comes, we will be ready to do so." Ben Bernanke. Too bad the Chairman will not add that time will not come until the US finally implodes.
The latest example of the Federal Reserve not learning from its past errors comes, amusingly enough, from the Federal Reserve. In a June 1938 bulletin (page 456) from the St. Louis Fed, the Fed provided some of the wisest words of caution on how to approach boom-bust cycles, when it was evaluating the lessons learned (and promptly forgotten) from the Great Depression.
The events of 1929 taught us that the absence of any rise in prices did not prove that no crisis was pending. 1937 has taught us that an abundant supply of gold and a cheap money policy do not prevent prices from falling - at least, temporarily and sharply.
This is, in its shortest and most concise form, the lesson that Ben Bernanke is apt to never learn, in his current pursuit of happiness and monetary bliss, based purely on free money and flawed economic assumptions.
New Merrill Lynch Disclosure Shines A Perjurious Light On Ben Bernanke's Sworn Testimony; JP "Fed Lite" Morgan Also Dabbled In Repo 105-type ScamsSubmitted by Tyler Durden on 03/18/2010 21:50 -0400
It seems it was just yesterday that Bernanke was on the edge of committing perjury and lying that the Federal Reserve of New York knew nothing about Lehman's "more peculiar" off balance sheet transactions. Oh wait, it was: as a reminder in his cross by Scott Garrett, the New Jersey representative asked whether the "Fed was aware of the Repo 105 and the accounting irregularities going on?"
Bernanke answers "No - they were hidden." Oops. Because a story just released by the Financial Times seems to indicate otherwise, and unless Merrill Lynch is lying out of their derriere, Mr. Bernanke should be immediately investigated for potential perjury before the American people. "Securities and Exchange Commission and Federal Reserve officials were warned by [Merrill Lynch] that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008...In the account given by the Merrill officials, the SEC, the lead
regulator, and the New York Federal Reserve were given warnings about
Lehman’s balance sheet calculations as far back as March 2008." Amusingly, the sole purpose why Merrill would rat out Lehman is to make its own disastrous situation more agreeable, as often happens when the rats realize the sinking of the ship is inevitable. Well, unlike Merrill, whose liquidity situation was equally as disastrous on the weekend of September 14th, which found a pressed suitor in the form of BofA (and its Fed/Goldman-puppet CEO Ken Lewis), Lehman was not quite so lucky (one wonders why). Yet the bigger issue is why does the Fed keep on lying to the American public without any trace of consequence? When will someone finally wake up and sue the Federal Reserve (and we don't mean FOIA), or at least slap a racketeering lawsuit on "those people?" Oh yeah, the market is up, American Idol is on TV, G-Pap has done all that was needed to (not) be bailed out, so all shall be well. This is better known as "if the other Ponzi dude was thrown in jail, you must acquit" defense.
Today will be day 12 of 13 (or something just as silly) that the market has been melting up on no volume: yet another truly ridiculous statistic in the anals of momoism. As David Rosenberg points out: "the market has been able to digest California, Dubai, and Greece" - and this has all been offset by what? Merely promises of ever increasing liquidity and bailouts by the Fed, first domestically, and soon internationally. Have people really forgotten yet again that this is precisely what got us on the verge of a historic collapse in the first place? Yes, the Fed bailed capitalism out last time around (with about 3 hours to spare), but this time it has gone dodecatuple all in, and unless intelligent, and very rich life, on Mars is discovered pretty quickly, this will all end in ruins (certainly those of the Marriner Eccles building).
Many moons ago, July 15, 2009 to be specific, Zero Hedge asked a rather simple question: why does Goldman need a Fed exemption for VaR calculations even though it is a Bank Holding Company. That question, and some others, prompted several members of congress, among which Alan Grayson and Ron Paul, to shortly thereafter pass our query on to Ben Bernanke. Today Ben Bernanke has responded. We present his response. We will share our commentary and views on this response shortly.
Is Ben Bernanke The Second Coming Of Rudolf von Havenstein, The Central Banker Responsible For Germany's Hyperinflationary Collapse (And Ostensibly WWII)?Submitted by Tyler Durden on 02/26/2010 15:18 -0400
SocGen's Dylan Grice provides a gripping account of Germany's hyperinflationary episode, in which he charts the extended parallels between not just the precursor economy that lead to a 16,579,999% inflation in 1923 Weimar Germany, and modern day developed (and highly leveraged) countries, but between Germany's then central banker Rudolf von Havenstein, and the Greenspan-Bernanke duo. And while we know how "der Geld Marschall's" Weimar experiment ended, the future before the U.S., as a result of the Maestro's (both Senior and Junior) almost identical policy response is still open-ended. As the future of America is now exclusively in the hands of insidious economists, the following insight from Grice into the utility of economic models and decision-making should be sufficient to dash the hopes of any optimist for a favorable outcome.
Bernanke's prepared testimony is the same as yesterday. Full commercial free webcast accessible here.
"Yes, Senator, I just want to say first of all we are looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece and this issue as well. As you know credit default swaps are properly used as hedging instruments. The SEC, of course, has been interested in this issue. Obviously using these instruments in a way that potentially destabilizes a company or a country is counterproductive. The SEC will be looking into that. We'll certainly be evaluating what we learn from the activities of the holding companies that we supervise here in the U.S." - Ben Bernanke
Ben Bernanke has got to be laughing it up after being reappointed to another term as Federal Reserve chairman. What else could we expect from the ex-lawyers and lifetime Beltway bandits voting on global monetary policy? As he starts his second term, I’m once again reminded about how supremely unqualified this man is for the job. Prior to becoming Fed chairman, Ben Bernanke basically had zero experience outside academia. His resume only includes three full-time years working for the Federal Reserve and eight months on George W. Bush’s Council of Economic Advisors. The other 23 years of his career were spent teaching college.
Tomorrow's Bernanke testimony will be eagerly watched by all, not so much for anything that may be revealed in the prepared remarks (those will not disclose anything not already known), nor for the Q&A (because unfortunately the people in Congress who understanding the first thing about monetary policy can be counted on two fingers), but because it is not every day that the undisputed and underrepresented ruler of the not so free world gets to sit down in a kabuki theater in which he pretends to be accountable to some 300+ million peasants and a couple million compulsive gamblers and kleptomaniacs. All in all good, wholesome, TiVoable, and, luckily, just biannual fun. Yet for those who hope to get something out of this meeting than merely a popcorn overdose, we recommend the following Testimony Preview from Goldman's Hatzius & McKelvey, which goes through not only the background of the spectacle but focuses on some oddly relevant questions which our Congressmen may be wise enough to ask. We point out the latter, because we know full well that nobody will ever ask the really relevant questions (until it is too late), unless of course Alan "Taz" Grayson is wearing his dollar tie, In which case all bets are off.
The vote was as shoo-in all the way. There was some noise but it did not amount to much. Bernanke has too many friends for a Senate slap down. One of them is Alan Blinder. Let's just say we don't agree.