Posted on 02/04/2011 9:14:22 AM PST by blam
Ben 'Rising Food Prices Aren't My Fault' Bernanke Needs to Live in the Now, Not 1930
by: John M. Mason
February 04, 2011
The headline this morning from London: "Fed Denies Policy is Causing Rising Food Prices." Ben Bernanke, chairman of the Board of Governors of the Federal Reserve System, spoke to the National Press Club yesterday and basically said: "It’s Your Fault!"
The response: "No, it isn’t!"
Bernanke’s come back: "’Tis too!"
And, so we see the basic defense the leader of our central bank relies upon. "The problem is ‘out there,’ it’s not in here!"
Bernanke:
"I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U. S. monetary policy, because emerging markets have all the tools they need to address excess demand in those countries. It’s really up to emerging markets to find appropriate tools to balance their own growth."
Throughout his history at the Fed, Bernanke has always seen our problems as coming upon us from someone else or somewhere else in the world. Our problem in the early 2000s was the fault of the Chinese because they saved too much. Our problem in the housing bubble was that others in the rest of the world purchased the mortgage-backed securities being created to finance residential real estate.
Our problem in the summer of 2007 was that inflation still had to be combated because prices were rising too fast in the rest of the world (see chart in this article on world food prices to confirm this). And, now, other countries are not acting strongly enough to combat rising food prices in the rest of the world.
Here is the problem: Bernanke is so focused on the fact that nothing is our fault that he is constantly behind the curve. Yesterday, I wrote in my post:
"But, why should we expect the Federal Reserve to back off from QE2 any time soon? Chairman Bernanke has been late on every shift in monetary policy since he has been a member of the Board of Governors. Why should we expect anything different this time?"
Bernanke’s thought process might be correct in a world in which the international flow of capital was severely constrained. Bernanke is a first class world academic when it comes to studies of the Great Depression of the 1930s. That world was a world of severely restricted flows of capital between countries.
In fact, the limited international capital movements was a part of the policy prescriptions of the world at that time. John Maynard Keynes was a strong advocate for restricted capital flows in the world.
Keynes, and other participants in the construction of the Bretton Woods international financial system, built constrained international capital flows into the very rules of the post-World War II monetary framework.
The reason for restricting international flows of capital? In such a regime, countries could conduct their economic policies independently of one another. In such an environment, a country could forget about what was happening "out there" and focus solely on what was happening "in here."
The world didn’t cooperate with this desire to limit capital flows and as the barriers to international flows of capital broke down in the 1960s, the Bretton Woods system had to go. The final nail in the coffin was applied by President Richard Nixon on August 15, 1971 as he took the United States "off gold" and floated the value of the United States dollar.
Capital flows freely around the world and so the United States cannot just act as if it is the only player in the world. Yet, this seems to be exactly what Bernanke wants.
Answer this: What three countries or organizations in the world hold the most amount of U. S. Government debt?
In order of magnitude: the United States with $1,138,166 million as of the close of business on February 2, 2011 ($1.138 trillion); China, a little less than $0.9 trillion; and Japan, a little less than China.
What can we take-away from this?
Capital is flowing freely throughout the world.
The contribution made by the United States to these flows is enormous.
The flows of this capital must look like a huge wave coming up on their shores, like a tsunami hitting most of the countries in the world.
But, Mr. Bernanke argues that, " … emerging markets have all the tools they need to address excess demand in those countries. It’s really up to emerging markets to find appropriate tools to balance their own growth."
What he really is saying is, "I want to do my thing ... and I am big enough to do what I want. You just have to live with what I do. I can have an independent economic policy because of my size. Too bad you are not big enough to be able to conduct your own independent economic policy."
Mr. Bernanke has invested too much of his intellect in the study of the 1930s. Mr. Bernanke needs to become a part of the 2010s.
Bernanke’s picture is next to delusional in the dictionary.
“It’s been a resilient economy, it’s responded well and job creation has proceeded apace.”
“I think policy is currently quite accommodative. I think it can remain quite accommodative for a while to come.”
“Quantitatively, outsourcing abroad simply cannot account for much of the recent weakness in the U.S. labor market and does not appear likely to be an important restraint to further recovery in employment.”
“The economy is much more energy efficient today than it was in the 1970s when energy shocks contributed to share slowdowns,”
“If I am confirmed, I am confident that my colleagues on the Federal Open Market Committee and I will maintain the focus on long-term price stability as monetary policy’s greatest contribution to general economic prosperity and maximum employment,”
“I assure this committee that, if I am confirmed, I will be strictly independent of all political influences, ... essential to that institution’s ability to function effectively and achieve its mandated objectives.”
“I believe that the Federal Reserve’s success in reducing and stabilizing inflation and inflation expectations is a major reason for this improved economic performance.”
“Our mission, as set forth by the Congress is a critical one: to preserve price stability, to foster maximum sustainable growth in output and employment, and to promote a stable and efficient financial system that serves all Americans well and fairly.”
“The most recent evidence ... suggests that the economic expansion remains on track.”
“At this point, a leveling out or a modest softening of housing activity seems more likely than a sharp contraction, although significant uncertainty attends the outlook for home prices and construction.”
“I don’t think that Chinese ownership of U.S. assets is so large as to put our country at risk economically.”
Economic Policy Journal
Friday, February 4, 2011
Richard Fisher President of the Federal Reserve Bank of Dallas, and an FOMC voting member, will not vote for any additional quantitative easing measures after June, reports DC Tripwire.
Bernanke still controls the FOMC board, so this isn't likely to have any real impact on the outcome, but it will put additional critical focus on Bernanke's mad bombing ways, especially as price inflation is likely to kick up a notch by June/July.
What all this should put into focus is the question of what will happen once Bernanke does stop, or slow, printing and his manipulated boom starts to crash. The answer: It will not be pretty
Bernanke is a Progressive Marxist enabler. His monetization of our debt not only devalues our dollar but it allows the socialist spending to continue. He had no problems giving money to the foreign banks through Tarp but suddenly if it’s food inflation it’s not his problem.
Another federal G that needs closing..
We need control, if we get out of debt we will not need the fed to control the money, we can take care of it ourselves..Bernanke is just another idiot tool we have allowed to intervene in our lives..
Henry Blodget
Feb. 4, 2011, 12:30 PM
In case you had any doubt about whether Ben Bernanke's quantitative easing is pumping up the stock market, take a look at this chart from Asha Bangalore at Northern Trust. The shaded areas are QE1 and QE2. The red line is the S&P 500.
Image: Northern Trust
Of course, this does beg the question what will happen to stocks when QE2 ends. Pray hard for QE3?
“What all this should put into focus is the question of what will happen once Bernanke does stop, or slow, printing and his manipulated boom starts to crash. The answer: It will not be pretty”
Ben Loses The Long End
http://www.zerohedge.com/article/ben-loses-long-end
“Dear Ben,
You can either save the bond market or the stock market, but not both.
Your choice, mate.
Love,
The Market”
When the manufactured boom starts to collapse, darned right it won’t be pretty. I guess the plan was for that to happen in 2013 or maybe December of 2012 like all the hype about the Mayan calendar... hmmm.... is Soros noted for a sick sense of humor?
And “experts” say Mubarak was out of touch?
Thanks for that chart.
I was told by someone who would know that roughly 6 months after QE2 hits that the market will downswing. It looks like that fits perfectly in this chart. Come early to mid April there will probably be a big sell off.
Bernanke:
"I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U. S. monetary policy, because emerging markets have all the tools they need to address excess demand in those countries. It’s really up to emerging markets to find appropriate tools to balance their own growth."
Recall last summer there were extensive articles and discussions about the mercantilist Chinese etal and that they needed to de-peg to allow their currencies to float in order to for the global economies to re-balance. The bottom line was the US was no longer going to see its labor markets destroyed by this tactic.
This is the result and those countries who did not heed Bennies warning are in for a bad time. The Chinese risk major social unrest and possible political destabilization if they continue down this mercantilist path.
Now I do not approve of this approach, far from it. But what exactly does one expect?
sschu
What is “excess demand” in Bernanke Speak?
Well, who knows what the esteemed Chairman means by this. My opinion, reading between the lines, is he is telling the Chinese to float the yuan (increase its value) so they can get more for their money. Of course this has the net effect of hurting the Chinese export market, and theoretically helping the USA export market.
They have been saying this for a long time. This is serious geo-politcal hardball using the weapon of the dollar reserve currency to hurt the Chinese. Mercantilism has been around a long time and in many cases results in unhappy people and war.
Bad news for many.
sschu
Sorry, But Bernanke Is Not The Reason The Stock Market Is Higher
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