Posted on 12/09/2010 6:08:33 AM PST by IbJensen
Fed Chairman Ben Bernanke’s recent 60 Minutes interview raised more questions than it answered. Some even questioned the questions. Gary North explained that the Fed chair was being pushed to defend his decision to purchase more government securities in order to stimulate the economy. Interviewer Scott Pelley was at an admitted disadvantage, and failed to ask Bernanke exactly why he thought additional stimulating would work when past stimulations haven’t.
As North suggested, Pelley should have asked Bernanke “Why?”
Why do you think that a reduction of the 10-year T-bond rate, if it even happens, will be sufficient to get banks lending again and businesses hiring again?
Instead, Pelley asked this:
The major banks are racking up profits in the billions. Wall Street bonuses are climbing back up to where they were. And yet, lending to small businesses actually declined in the third quarter. Why is that?
And Bernanke punted:
A lot of small businesses are not seeking credit, because, you know, because their business is not doing well, because the economy is slow. Others are not qualifying for credit, maybe because the value of their property has gone down. But some also can’t meet the terms and conditions that banks are setting.
And so Pelley let Bernanke off the hook, leaving unanswered why banks aren’t lending even though they are holding enormous reserves, and especially why if those reserves were increased through the increased purchases of government debt that banks would be more inclined to loan them out.
The answer that Bernanke should have provided in the interest of transparency is that he really doesn’t have any idea. At the moment, banks are very happy investing their reserves at two or three percent by buying government securities, while borrowing them from the Fed at close to zero. That’s called “milking the spread,” and explains how the banks continue to profit despite not making loans to small businesses.
The other answer as to why Bernanke thinks continued purchases of government debt will work is because the Fed has nothing else it can do and it certainly must not give the appearance of doing nothing, or admitting that it is out of options.
Pelley then asked Bernanke about the risk of inflation as a result of the increase in the money supply because of these Fed purchases. Bernanke makes two mistakes here. He claims that there isn’t any inflation. And then he claims that if there were any inflation, he knows what to do about it. The interchange is remarkable:
Pelley: Many people believe that [the $600 billion program] could be highly inflationary. That it’s a dangerous thing to try.
Bernanke: Well, this fear of inflation. I think it is way overstated. We’ve looked at it very carefully. We’ve analyzed it every which way. One myth that’s out there is that what we’re doing is printing the money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.
First of all, the inflation has already taken place. A quick review of the Fed’s own graph of the M1 money supply over the past five years reveals that money supply has grown by nearly a third, while the one-year chart is equally un-nerving. So the inflation of the monetary base of the economy has already taken place, and Bernanke wants to add to it.
When Bernanke says that the fear of inflation is way over-stated, he is talking, in Fed-speak, about the eventual, inevitable rise in prices that will take place over time. This is measured by another Fed chart with which Bernanke is well-acquainted, the velocity of money which has declined sharply since the onset of the Great Recession, and is just now beginning to stir upwards. This sharp decline in velocity has masked, for the present, the massive monetary increases just waiting to enter the economy.
Bernanke says that although there is no inflation (price increases) that he can see right now, he’s ready to handle it when it shows up:
The trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re gonna do.
Pelley had the good sense then to ask Bernanke “Can you act quickly enough to prevent inflation from getting out of control.”
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.
This comes from the man who didn’t see the Great Recession coming. In fact, Bernanke laments the fact: “I wish I’d been omniscient and seen the crisis coming…I didn’t…it was a very difficult situation…”
It is helpful to remember that Bernanke is the most powerful man in the world. And yet, in March, 2007, he said:
At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.
in May, 2007, he said this:
The rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. Moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets. All that said … we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.
Even as late as June, 2008, he said:
The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
This litany of false analyses and conclusions by the “best and the brightest” at the Fed leaves one with two regrets: It’s too bad that Pelley didn’t pursue Bernanke more aggressively about why he thought he could determine future policy with such an awful track record, and that the machinery of the central bank is in the hands of someone who knows that his policies will continue to be destructive to the economy and yet is persuaded, and tries to persuade others, like Pelley, that everything will work out just fine.
Remember Bernanke’s chilling assurance:
The trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re gonna do
Change the legal tender laws and allow competing currencies. The free market will respond with sound money!!! The Fed will end through natural selection by the free market; probably in about 15 minutes.
Repeal legal tender laws: That’s Hayek’s solution, and I agree.
Did you notice Iceland refused to be blackmailed threw out their government and are now on the road to recovery? We should end the fed. Bernanke helps the banks and enables the socialists spending. Now instead we are seeing inflation on everything we need daily like food, gas as a result of his printing while the banks park the money and earn interest.
I think this comment was very good...
Because he’s a Progressive. He believes that centralized bureaucracies can manage and control the outcomes of trillions of individual economic decisions.
He also believes the creation myths of the New Deal, that wise academics came out of their ivory towers and saved capitalism by empowering a wise and benevolent government to oversee the many failings of capitalism.
Like Obama, he believes that the ideas and policies that have failed 100% of the time in the past, will succeed THIS time, because HE is calling the shots.
It’s called Hubris.
Bernanke Told America 2 Massive Lies On 60 Minutes
Morning Polls: Obama And The Fed
http://market-ticker.org/akcs-www?post=174471
snippet...
Decision to force bondholders to pay for banking system’s collapse appears to pay off as economy grows 1.2% in third quarter
Iceland’s decision two years ago to force bondholders to pay for the banking system’s collapse appeared to pay off after official figures showed the country exited recession in the third quarter.
The Icelandic economy, which contracted for seven consecutive quarters until the summer, grew by 1.2% in the three months to the end of September.
Iceland famously agreed in a referendum to reject a scheme to repay most of its debts that were once worth 11 times its total national income.
In contrast to Ireland, Iceland’s taxpayers refused to foot the bill for the debts accumulated by the banking sector. Bondholders were told to accept dramatic reductions in the value of repayments on bank debt after the sector borrowed beyond its means to fund ambitious investments abroad.
The return to growth is likely to put pressure on Irish politicians to explain why Dublin rejected a more radical restructuring of its debts and a departure from the eurozone.
Iceland’s currency has fallen by around a quarter, helping its exports.
http://www.guardian.co.uk/business/2010/dec/07/iceland-exits-recession-third-quarter
1) They don't know what they are doing but blind hubris prevents them from seeing or acknowledging it; or
2) The interests they are really serving are not those of the American people.
Pelley “should have had the good sense to ask” the Bernak how it feels to preside over the biggest criminal enterprise in the history of planet Earth.
Pelley “should have had the good sense to ask” where the Bernak got the authority to distribute $3 trillion of our money around the world.
Under current policies of effectively printing money, would not the best investment that banks can make to be to invest in commodities (eg silver) and more stable foreign currencies (eg the canadian and australian dollars and the mainland chinese rmb) instead of small businesses? Thus, is printing money in the manner that the fed is doing actually counterproductive to its intended goal?
Wait until ‘thinking’ Americans see the agreement that was inked in frigid Cancun for the UN to take 1.5% of our GDP annually. This is to fund the gorebal warming nonsense.
Let’s literally throw out our government!
These leftist rats have worked overtime wiping their arses on our Constitution and proving that they can twist it around the flagpole.
Overturn this marxist fiasco!
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