In Advance Of Bernanke's 10:00 AM "Humphrey Hawkins" Testimony

As oil (read Brent) looks set to take out interim highs following news of a rapid escalation in Bahrain and Saudi Arabia, it will be interesting if Ben Bernanke, in his first of two semi-annual Humphrey Hawkins reports before Congress and the Senate, will actually discuss what is relevant: namely the inflationary surge in every single commodity, and plunge in the dollars, and the Fed's continuing preposterous policy of only caring about the Russell 2000 instead of actually doing anything to improve the economy. Reuters' advance look of today's presentation before the Senate Banking Committee at 10:00 am which will be webcast on Zero Hedge is quite amusing: "Federal Reserve Chairman Ben Bernanke will likely remain skeptical about the strength of the economic recovery in testimony on Tuesday, despite recent data pointing to improvement, signaling the central bank is unlikely to cut short its $600 billion stimulus plan." Why skeptical? Has he not been listening to the endless stream of permabulls on TeeVee every day, not to mention the teleprompter, all of whom have invested their entire reserve of credibility in lying to the public that we are in a V-shaped recovery and what not. Or is the economic recovery only and always merely a function of the Fed's ongoing injection of $100+ billion directly into the banking system (and the Russell 2000)? Because oddly the "pundits" always continue to ignore that one minor point.

From Reuters:

To avoid becoming enmeshed in Washington's heated deficit debate, Bernanke will have to do the usual dodging and weaving. He has repeatedly called for long-term budgetary restraint, with a dose of caution about deep short-run spending cuts.

His testimony comes just days ahead of a possible government shutdown over ongoing budget battles, though inklings of a compromise have emerged from Capitol Hill.

In the past, Bernanke has suggested the U.S. economy might still be too fragile to handle a heavy-handed budget ax. U.S. gross domestic product grew at a 2.8 percent annual rate in the fourth quarter -- not fast enough to put a significant dent in the jobless rate, which closed out the year at 9 percent.

The bond-buying program that the Fed launched in November, which aims to keep down borrowing costs to support the recovery, has proven controversial both at home and abroad.

Emerging economies have accused the Fed of a back door dollar devaluation that amounts to a beggar-thy-neighbor policy. Domestic critics, including many Republican lawmakers, argue the policy sows the seeds of future inflation.

"My fear is that today the chairman is potentially creating a bigger mess for the Fed to mop up," Republican Congressman Jeb Hensarling, a member of the House Financial Services Committee, told a Reuters Summit on Monday.

Jeb, that is everybody's fear, yet nobody appears to have the power or the authority to stop him. Lovely mess you politicians created back in 1913...

And some more views from Bloomberg:

Fed officials have said the asset purchases have helped boost financial markets. The Standard & Poor’s 500 Index has increased 10.8 percent since Nov. 3, when policy makers announced their plan to buy $600 billion in Treasury securities through June to raise too-low inflation, spur growth and reduce unemployment.

The political pressure makes it difficult for Bernanke to consider additional bond buying to reduce the jobless rate, which has stayed at 9 percent or higher since May 2009, said Greg Valliere, chief political strategist at Potomac Research Group in Washington.

“Bernanke has to end QE2 in June,” Valliere said. “If he announced that there was going to be a QE3, he’d get significant political opposition.”

The Fed may delay raising its benchmark interest rate until the middle of 2012 instead of earlier in the year, as traders anticipate, said Bob Michele, who manages $105 billion in fixed- income assets for J.P. Morgan Asset Management in New York.

“I just think he’s wrong” when Bernanke says the Fed has a record of reversing stimulus in time to control inflation, Rokita said in an interview. At the same time, “his repeated call for a long-term, adult-driven plan is a lot of what this freshman class is about,” said Rokita, 41, Indiana’s former secretary of state.

Even Senator Mike Johanns, a Nebraska Republican and former agriculture secretary who has supported Bernanke, said he’s concerned about the effects of QE2. “I see signs of inflation popping up all over,” especially in commodities, said Johanns, who worked with Bernanke when he was chairman of Bush’s Council of Economic Advisers in 2005.

Regardless of the utter theatrics of this presentation, we will bring it to you. With all out war about to break out in Bahrain, we can all do with the comedy.


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