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Bernanke out of touch
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During his press conference this week, Ben Bernanke said something any saver would question.

"Over a longer period of time, even if you have money in a CD or some other investment vehicle, the interest rate will compensate you for inflation," the Federal Reserve chairman said. "The two are tied together."

http://www.ustream.tv/recorded/20002247
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How does a taxable CD allow anyone to keep up with inflation. Bernanke has brainwashed himself thinking inflation truly is core CPI
and thinks the average American has the financial flexibility of the top 1% of the country.

Greg Robb of MarketWatch confronted Bernanke with concerns that have been bubbling up during recent Republican presidential primary debates, in which Bernanke has been taking a beating. But this is not just a Republican problem; it is a problem that most affects all current and soon to be retired Americans, the baby boomers. Mr. Robb asked:

"... one of the reasons for this hostility perhaps is that a lot of Republican primary voters are on fixed incomes and have an inability to invest and make money with their funds, so could you talk to them as well?"
------------------------------------------
Ben's response:

“In the case of savers, we think about all these issues and we recognize that the low interest rates that we are using to stimulate investment and expansion of the economy also impose a cost on savers who have a low return ... And we do hear about that, obviously, and we do think about that.

"I guess the response I would make is that ... the savers in our economy are dependent on a healthy economy in order to get adequate returns. In particular, people who own stocks, corporate bonds, and other securities, as well as treasuries, and say, other securities, and if our economy is in really bad shape, and we’re not going to get good returns on those investments.

"So I think what we need to do, as is often the case when the economy goes into ... a very weak situation, then low interest rates are needed to help restore the economy to ... something closer to full employment and to increase growth and that in turn will lead ultimately to higher returns across all assets for savers and investors.

"So I think that’s how we would explain it. But again we recognize that in periods like this ... savers are getting a lower return. One reason that it’s extremely important for us to maintain price stability, of course, is that minimizes any loss due to inflation that savers might suffer.”

No interest on investments as prices go through the roof. Just check out the price of Gas, Food and Utilities. Oh wait they don't include those in Core CPI.

It's a Joke!

Let's see.

1) You think that 0% interest rates are a joke.
2) You think that Manhattan RE is a great investment.

So buy some Manhattan RE already.

What I don’t understand is your strategy. The economy is slowly improving. Employers are hiring, and the jobless rate has fallen to a three-year low. Manufacturing is humming. An oil- and-gas boom is boosting big swaths of the U.S., with spillover effects on non-energy-producing areas that cater to the boom owns popping up everywhere from North Dakota to Pennsylvania to Texas.

Yet you seem to think the emergency policy setting of near- zero interest rates is still warranted. Why?

I’m surprised you haven’t been encouraged by the rebound in bank lending. Bank credit increased for the eighth consecutive month in January following three years of almost monthly declines. Isn’t that a sign that your money printing is starting to bear fruit? Why would you want to do more QE now?

It sure sounds as if you and the majority of your policy committee expect inflation, which increased 2.4 percent last year, to slow because unemployment is still high. That excess- slack argument didn’t work so well in the 1970s. Why would you rely on it now?

And whatever happened to the central-banker mantra that price stability is both an end in itself and a means to an end (full employment)? We haven’t heard that one in a while. I suspect it’s because lawmakers are more interested in creating and saving jobs, especially their own, than in hearing some economic theory about how things will play out in the long run.

And another thing. It seems as if you laid out a path for the funds rate first and then retrofitted the economic forecast to it. Isn’t that backward?

Not that the Fed forecasts have been all that great. Like many private forecasters, the Fed was totally in the dark about the degree of froth in the housing market until the bad loans almost brought down the entire financial system. And as a bank regulator, you had a big advantage over the rest of us.

The Fed has never acknowledged the key role its loose-money policies from 2003 to 2005 played in inflating the housing bubble. Why, I don’t know. The surge in the volume of adjustable-rate mortgages with all kinds of exotic -- and deadly, as it turned out -- properties is pretty convincing evidence that interest rates were a factor. Why would you want to risk this kind of outcome again?

Back in 2002, on the occasion of Milton Friedman’s 90th birthday, you took responsibility for the errors the Fed made during the Great Depression and promised not to repeat them.

I’m no Friedman, but I’d like to hear a promise from you. To the extent that the housing and credit bubbles were the proximate cause of the recession and financial crisis, will you promise not to do it again?

With fondest regards,

Caroline

http://washpost.bloomberg.com/story?docId=1376-LZG8RZ1A74E901-30PU8BGU1LQM5BTB7TRK1899S4

0.2% Interest? You Bet We’ll Complain

That was the message delivered last Thursday to Americans who today make almost nothing on the savings in their bank accounts.

It came from Sarah Bloom Raskin, an insider at the Federal Reserve. Ms. Raskin, one of the governors on the Fed board, made the usual disclaimer that her comments reflected her own thinking. But Fed watchers said her remarks probably mirrored views inside the central bank.

This is one of the more troubling paradoxes of the Fed’s rescue of the financial system. And, according to Ms. Raskin, it is likely to continue for some time.

“Many households are benefiting from the low level of interest rates, and some critics of the Federal Reserve’s accommodative monetary policy seem to minimize this point,” Ms. Raskin said, according to prepared remarks posted on the Fed’s Web site. “Purchases of motor vehicles and other household durables can be financed more cheaply, and in many cases, households have been able to refinance their mortgages into lower-rate loans, freeing up income for other uses.”

In her remarks in Westport, however, Ms. Raskin played down the effects of low rates on investors. She said that less than 7 percent of household assets were held directly in certificates of deposit, savings bonds and the like. “Instead, the bulk of household wealth is held in stocks, retirement accounts, business equity and real estate,” she said. “For these other types of assets, rates of return depend primarily on the strength of the economy and how fast the economy is growing. Thus, these returns should be supported, over time, by the accommodative monetary policy that we have in place.”

But the 7 percent figure cited by Ms. Raskin comes from data collected between 1998 and 2007, before the crisis hit. With housing prices still declining, consumers’ home equity holdings have collapsed. Meanwhile, it’s a good guess that the percentage of household assets in safe-haven accounts has risen.

http://www.nytimes.com/2012/03/04/business/low-rates-for-savers-are-reason-for-complaint-fair-game.html?ref=business

Consumer/Tax Payer still subsidizing banks....

1)Banks are exploiting the gap between the Fed’s target interest rate for overnight loans and Treasury yields to make profits.

2)The Fed’s low-rate policy “has been a plan to buy time for the banks to take free money and invest it, and make some kind of spread, and work their way out of the hole they were in,” said Mark MacQueen, a partner and money manager in Austin, Texas, at Sage Advisory Services Ltd., which oversees $10 billion, in a telephone interview on March 6. “Banks are trying to clean up and improve the appearance of their balance sheets and buying Treasuries accomplishes this.”

3)Lenders have added Treasuries to meet new reserve rules from the Dodd-Frank financial-overhaul law and Basel III regulations set by the Bank for International Settlements in Basel, Switzerland

http://www.bloomberg.com/news/2012-03-12/banks-buying-treasuries-at-seven-times-2011-pace-as-deposits-beat-lending.html

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Deflation is a derangement of debt, a symptom of which is falling prices. In a credit crisis, when inventories become unfinanceable, merchandise is thrown on the market and prices fall. That’s deflation.

What deflation is not is a drop in prices caused by a technology-enhanced decline in the costs of production. That’s called progress. Between 1875 and 1896, according to Milton Friedman and Anna Schwartz, the American price level subsided at the average rate of 1.7% a year. And why not? As technology was advancing, costs were tumbling.

Much the same sentiments, and much the same circumstances, apply today, but with a difference. Digital technology and a globalized labor force have brought down production costs. But, the central bankers declare, prices must not fall. On the contrary, they must rise by 2% a year. To engineer this up-creep, the Bernankes, the Kings, the Draghis—and yes, sadly, even the Dudleys—of the world monetize assets and push down interest rates. They do this to conquer deflation.

http://bionicmosquito.blogspot.com/2012/04/jim-grant-educates-fed.html

The Fed merely need to borrow money with low interest. So, they must also lend money with low interest. America is a free market. If you have the means to gurantee higher returns for your depositors, go ahead and do it. No one has the obligation to pay anyone a higher interest for looking after their money, if they cannot use those money to earn much return.

We're free market, yet the Fed's very mission means the price of money is not set by that same free market?

A Jelly Donut is a yummy mid-afternoon energy boost.
Two Jelly Donuts are an indulgent breakfast.
Three Jelly Donuts may induce a tummy ache.
Six Jelly Donuts -- that's an eating disorder.
Twelve Jelly Donuts is fraternity pledge hazing.

My point is that you can have too much of a good thing and overdoses are destructive. Chairman Bernanke is presently force-feeding us what seems like the 36th Jelly Donut of easy money and wondering why it isn't giving us energy or making us feel better. Instead of a robust recovery, the economy continues to be sluggish. Last year, when asked why his measures weren't working, he suggested it was "bad luck."

http://www.huffingtonpost.com/david-einhorn/fed-interest-rates_b_1472509.html

A New York Times article caught my eye, since it described a subject near and dear to my heart, namely, the lack of omniscience at the Federal Reserve.

Headlined "Days before housing bust, Fed doubted need to act," the Jan. 18 article by Binyamin Appelbaum walked through how the Fed responded to the early part of the housing bust, beginning with what the Fed was thinking in August 2007. It makes it quite clear that the geniuses in charge of our monetary policy were completely unaware of the fact that the housing bubble had been the economy, among other important issues.

What we knew they didn't know then

That is naturally par for the course, since Fed "logic" always starts from a false premise, that being that bad things in the economy just "happen" and it is the Fed's job to fix them, rather than understanding that it is the Fed that keeps precipitating our problems through its money printing.

http://money.msn.com/bill-fleckenstein/post.aspx?post=aff45768-c658-4f29-b930-f7480a85f0e3

http://brucekrasting.com/corker-vs-bernanke/#comment-35007

CORKER JUST CALLED OUT BERNANKE

Leveraged Loans are just one example of where the banks got fat as a result of Bernanke’s ZIRP money policy. The results for consumer loans and other credit extensions are no different. It was always an objective of the Fed to have the banks increase earnings as a way to offset losses on older loans. The Fed DID achieve this objective. The Fed gave the banks a free ticket to dig themselves out of a hole. I don’t think there is any doubt about what was intended; ZIRP was a subsidy for the banks.

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What do you do in a world where the Fed is supporting the price of virtually every security today but will not do so in an indefinite tomorrow? The Fed has bought $2.5tn of Treasuries and mortgage securities in the past 50 months, and now accounts for about 55 per cent of the entire net supply of these bonds, according to JPMorgan research. In 2013, “net of Fed purchases there will be almost no new debt issuance”, notes Michael Cembalest of the bank’s asset management arm.

Some investors and ex-Fed staffers believe the central bank will never be able to exit its asset purchase programme. “We are looking at perpetual QE,” says one former New York Fed official. “The Fed won’t let the adjustment happen.” That is because the moment the Fed ceases to buy bonds (let alone starts selling them), prices will collapse, forcing the Fed back into the market, these people believe.

http://www.ft.com/intl/cms/s/0/f801415e-8255-11e2-843e-00144feabdc0.html#axzz2MHVvV92D

From page 153 of Bernanke's paper:

"Perhaps more salient, it must be admitted that there have been many periods... in which zero inflation or slight deflation coexisted with reasonable prosperity."

If I were his editor, I would put a big line through "coexistde with" and replace it with "correlated directly with". It's like this buffoon can't imagine that regular people *like* stable or falling prices and depend on them for long-term financial security.

I would be ecstatic if the current CPI in Japan (and in every country, for that matter) continued in perpetuity. This will never happen as long as Bernanke (and his compatriots in the Japanese prime minister's office) are in power.

Meanwhile, the Federal Reserve has expanded the monetary base to more than 18% of GDP (18 cents per dollar of nominal GDP), where a century of U.S. economic history indicates that a normalization to Treasury bill yields of just 2% could not tolerate more than 9 cents of monetary base per dollar of GDP without inflation.

To offer a visual picture of where monetary policy stands at present, the chart below depicts the current situation, as well as data points since 1929. As of last week, the U.S. monetary base stands at a record 18 cents per dollar of nominal GDP. The last time the monetary base reached even 17 cents per dollar of nominal GDP was in the early 1940’s. The Fed did not reverse this with subsequent restraint. Instead, consumer prices nearly doubled by 1952. At present, a normalization of short-term interest rates to even 2% could not be achieved without cutting the Fed’s balance sheet by more than half.

http://www.hussmanfunds.com/wmc/wmc130304.htm

http://www.marketwatch.com/story/what-we-need-in-a-leader-fed-ceo-or-pope-2013-03-13?pagenumber=1

Seems like just yesterday his mentor Alan Greenspan admitted to Congress that he “found a flaw” in the “free market ideology” that drove America’s monetary policy for his tenure as Fed chairman. Yes, “flawed;” it took him and America to figure out that self-regulated free markets did “not work.”

Unfortunately, nothing’s changed: Greenspan handed off to Bernanke. And that same flawed ideology is still misleading America’s central bank and the world’s 192 central banks headlong into another disaster bigger than 2008. And the chain of command over the evidence is clear: Greenspan starting with Reagan. Then Bernanke with George W. Bush, adding another eight years of failed monetary and fiscal policies.

Bernanke had become “America’s (and the world’s) most dangerous man, acting like the supreme dictator of that larger conspiracy Jack Bogle called the Happy Conspiracy in “The Battle for the Soul of Capitalism.”

Here we are four years later: And Bernanke’s ego has morphed into a messiah complex. Read between the lines of IIF’s releases and there’s a man with the self-image as savior of the world economy, overcompensating for political gridlock.

One of Wall Street’s biggest money managers has called on the Federal Reserve to rein in its programme of quantitative easing, saying its bond-buying tactics are a “large and dull hammer” that have distorted markets and risk stoking inflation

“Fed policy has had a distorting effect on capital allocation decisions of all kinds at virtually every level of the economy,” he told the Financial Times. “It is a very large and dull hammer for markets.”

http://www.ft.com/intl/cms/s/0/4b4ca080-9d61-11e2-88e9-00144feabdc0.html#axzz2Puqd17Tq

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Bernanke-"Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much. However, careful economic analysis does have one important benefit, which is that it can help kill ideas that are completely logically inconsistent or wildly at variance with the data."

http://www.federalreserve.gov/newsevents/speech/bernanke20130602a.htm

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Greensdale, very impressive. 2926 posts since sept 2012 averages to around 10.7 per day.

so now that interest rates are creeping back up what's next. QE3??? Yes the new QE program that will increase bond buybacks to drive down the interest rates once again.Looks like we are at a point that 85 billion per month turns out to be not enough.

So the bottom line is that Interest rates will continue to go higher if we don't print more than 85 billion a month.

With the 30 year and 10 year higher, there are some who see this as a buying opportunity. I don't believe the rise in rates over the past 3 months increases by the same number of bps over the next three. Yields could level off or come back down slightly in the near term. Things don't usually move in a straight line.

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http://brucekrasting.com/tip-this/

The TIPS market has told an interesting story the past month. The implied inflation rate has collapsed. As of this morning, the market is pricing inflation at 1.94%%. A few month ago it was 2.5%

The market is saying that when QE is in full force, with no end in sight, inflation expectations are high. When there is even a scent of QE being cut back, inflation expectations fall. The markets are therefore acting ‘rationally’.

That the market is repricing inflation lower must be killing Bernanke. It’s the worst possible outcome for him. In a Zero Bound world the only thing that Ben can do is juice up inflation expectations. It’s remarkable that Bernanke can whisper about ending QE (with absolutely no clarity on the timing and pace) and he kills the chance that the economy will actually improve.

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