Yes. Today’s Markets and Money will have to digest the drivel and bunkum dished out by US Federal Reserve Chairman Ben Bernanke. The Fed head spoke in front of the Senate Banking Committee in Washington DC. Mesmerised zombies everywhere hung on his every word for clues about when the next round of free money will be injected into the rotting corpse of the financial markets. Aussie share markets will react to this.
How can anyone possibly take Ben Bernanke seriously? He told the Senate Banking Committee that the Fed’s unconventional policies have been, ‘effective in easing financial conditions and promoting strength in the economy,’ and that, ‘Large-scale asset purchases have also contributed to economic growth.’ He added that the Fed is ‘prepared to take further action as appropriate to promote a stronger economic recovery.’
Bernanke still subscribes to the view that if you make credit cheaper, you’ll boost economic growth. As far as we could tell, he provided absolutely no proof that the Fed’s purchase of US Treasury bonds and mortgage bonds in QE1 and QE2 did anything to promote growth in the real economy. All he’s done is boost stock prices and make it easier for the US government to finance its deficits.
We are at the absolute frontier of monetary policy. The Fed can’t ‘promote growth’ when households are reducing debt. It’s telling that Bernanke said the government needs to get fiscal policy in order (spending), in order for consumers and businesses to be more confident about taking risk.
But it’s as if the Fed and its mainstream lapdogs are completely unable to imagine their set of tools not working on the economy. Bernanke said the Fed has three tools left in the box to promote growth. He can reduce the rate the Fed pays on reserves banks deposit overnight with the Fed. He said the Fed can communicate its intentions differently. And he said further asset purchases could happen.
Does anyone really think the US and world economies aren’t growing because the Federal Reserve isn’t communicating effectively? Maybe it’s because the Fed has destroyed rational decision making by wrecking the system of price discovery through the manipulation of money. The Fed IS the problem, not the solution
In any event, look for more asset purchases. But don’t look for them until after another crash. That crash could come from events in Europe, or it could come from where you least expect it, like Syria. It wouldn’t surprise us if it came soon.
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