Interesting timing, to say the least. As “Helicopter” Ben Bernanke heads to the Hill for a couple days of grilling, the Wall Street Journal is publishing an op-ed from the Fed Chairman about “exit strategies.” Bernanke tries to lay out the case that the Fed will pull back on all its extraordinary accommodation when and if it makes sense to do so. But as he adds in his conclusion (below), that isn’t going to happen any time soon …
“Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.”
What do you think? Do you think Bernanke will really live up to his word? Or do you think we’ll end up with another disaster like Greenspan’s too little, too late hiking strategy in 2004-2005 (which helped ignite the final leg in the housing bubble)?
{ 6 comments… read them below or add one }
I have no faith in the Fed whatsoever, so whatever they do will be either too little, too late or too much, too soon and will result in a catastrophy. We would be much better off without the Fed. Their regulatory tentacles infiltrating the banks are truly scary, not to mention everything else they are controlling and manipulating. The Fed has way too much power and should be abolished.
They are doing the same thing when the Tech bubble popped by dropping rates so low and creating the housing bubble. There has got to be another bubble somewhere. Since the voter’s balance sheet is now over extended, it seems the gov is over extending the nation’s balance sheet and at some point China and Russia and other nations are not going to buy T-bills anymore.
Without any indicators to to the contrary, I fail to see why we should trust the government, the Fed, or any regulatory body to do better this time around. While they can manipulate the financial markets, they cannot control human actions and decisions. They can neither predict nor control the future. No man or group of men, regardless of how learned can understand the actions and decisions of all the people whose actions and decisions make up the world markets. To claim otherwise is the extreme of arrogance on the part of those who make those claims. All attempts at central planning fail at this foundational problem.
This is not directly related to Ben, but if China uses FX reserves to help buy company assests what will happen to US treasury market? And interest rates? How will Ben handle it?
Following info is from Market Watch.
LOS ANGELES (MarketWatch) — China’s Premier Wen Jiabao renewed his nation’s calls for more acquisition of assets abroad, saying China should mobilize it’s $2.1 billion in foreign reserves to support such expansion, according to a report Tuesday.
“We should hasten the implementation of our ‘Going Out’ strategy and combine the utilisation of foreign exchange reserves with the ‘Going Out’ of our enterprises,” he was quoted as telling Chinese diplomats in a Financial Times report.
Clearly, an accommodation in interest rates must of necessity follow an essentially unacceptable change in interest rates. This cannot be accomplished without over or underestimating the effects of market forces. To counter this inevitability keep your inestments fluid and be prepared to reverse on an intra-day basis. Say good bye to investing and use volatility for profits on a short term basis. Right now commodities are where to be.
In regard to your article published today in Money and Markets, you missed something and it is something big. You listed two things that will most likely happen because of the massive debt being built up by the Federal Government ~ either economic growth to produce more taxes or a raise in income taxes to help pay off the debt. While we are likely to get such a raise and it’s already in the works, something else is also going to happen and that is high inflation. If the debt doesn’t sell, it will have to be monetized and that means printing $20 bills by the billions. That’s the most likely scenario because taxes can’t be raised enough to avoid large deficits, no matter how high the rates. Oh, and by the way the next wave to hit us will be toxic assets in banks credit card debt. According to the American Bankers Association the typical person owes about $8,000 of credit card debt; hard to pay off when employment reaches 10% and it’s already over 9%.