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Entries in Fed (21)

Wednesday
Apr272011

Bernanke Press Conference is NOT Glasnost

To read some of the business and mainstream papers, you'd think Fed Chairman, Ben Bernanke was going to descend from his dark, ivy-overgrown castle, trudge through the surrounding moat, hike barefoot through a hundred mile field of thorns, come to a rushing river and walk across its surface. All to impart upon the people a rare glimpse at the thought process of the shadowy one. The Wall Street Journal referred to this as the Fed embarking on an Era of Glasnost. 

Those of us less - well, awestruck, know that Bernanke isn't embracing the notion of sharing mysterious secrets of the loosest monetary policy in American history (the secret to that secret? - "I could, and banks wanted me to, so I did.") out of the openness of his heart. He also isn't likely to say anything of any importance in the grand scheme of an economic policy that been detractive for Main Street and extremely - successful and generous - for Wall Street.  

Bernanke isn't seeking validation. He doesn't need our, or journalists, or economists, approval. He already successfully skirted the so-called wrath of Congress when he passed his Obama-sparked reconfirmation hearings that were supposed to have been so tough, with him facing fire, and all, in the end of 2009. He's got the job.

Earlier this week, Tim Geithner's successor as NY Fed head, William Dudley confirmed how steadfast the Fed remains in its policy of bank stimulation  - noting that a great inflation-control tactic, for instance, is the tool of the Fed paying interest on excess bank reserves, a wonderfully strategic victory on the part of bank lobbyists that was inserted into the aptly (for-them) named Emergency Economic Stabilization Act of 2008, where Congress approved the notion of paying banks to hoard their cash from the public. Currently, with approximately $1.4 trillion of excess reserves stashed  at the Fed, banks receive nearly $4 billion of interest at the prevailing rate of 0.25%. If the FOMC or Bernanke indicated a minor tightening in the face of commodity inflation, these reserves will accrue another $4 billion per each quarter of a point rise. 

Of course, that's minor in the scheme of the seismic stash of QE2 Treasuries and trillion dollar mortgage-asset leftovers on the Fed's balance sheet, but it underscores the lack of connection between the Fed's priorities and those of the nation's citizens. 

Which is why, Bernanke isn't about to admit any failure on his, or the Fed's part in order to be the accountable body he has viewed the Fed to be. He's not going to talk about the danger of having the Fed, as per the feather-light Dodd-Frank bill, incur more power and regulatory authority over a more powerful and consolidated banking system than we had going into the fall of 2008. He's not going to question the related wisdom of approving bank-holding company transitions and federally subsidized mega-mergers, as opposed to going to prudent and opposite path of re-invoking Glass-Steagall to reinforce containment of banks' risk and their subsequent control over our economy. He's not going to address the accounting mirages that render these mega-banks appearances sound. He's not going to suggest that a historically  unprecedented level of excess bank reserves keeps a lid on credit for the Main Street economy which hurts, not helps small and mid-size business hiring, and that it has anything to do with a near zero rate policy for banks, but not for anyone else. He's probably not even going to mention the banks so we won't think saving their methods and practices is related to Fed policy. He's not going to suggest there's a speculative link between a near-zero rate policy and rising commodity prices and a falling dollar. He's going to skirt around the issue of jobs, by saying something pithy about how progress has been made on the employment front, but not enough - and that's why the Fed remains committed to its current stances. 

In effect, he will say as little as possible, but very earnestly.

 

 

Friday
Mar042011

Silver's Rise

I did an interview with Germany's investigative reporter, Lars Schall, last week. We covered everything from the Middle East Uprisings to Oil Prices to Silver Prices to the still weak global economy. He put the transcript up on his website yesterday. Here's the tidbit on silver, given today's continued hike in that metal:

Question: In general, do you think both metals (silver and gold) will go much higher?

Answer: Yes, I think they will. There is a fundamental weakness in the global economy. There is a fundamental weakness in the U.S. economy. The Federal Reserve chairman Ben Bernanke, President Obama, and Treasury Secretary Geithner are all talking about this recovery we are supposed to be in. Apparently, to them, we have been in a recovery since the middle of 2009, but real individuals don’t see that. The less they are finding jobs, the longer they are out of jobs, the more expensive it is to buy food, gas, and other basic items, including their health care, and the more people facing foreclosures amidst the month of lowest housing prices since this ‘recovery’ officially started, the more apparent it is, that we aren’t in a recovery.

We are in a weak, not a stable, situation despite all this talk. The dollar is weak, and that takes money out of the pockets of for instance, Americans, that pay more for imported items, and get less on exporting them. Also, our Treasury debt has gone up from $5.4 to $9.4 trillions in two years, that is an exceptional amount and increase. This is debt with which the government buys its own currency and circularly, its own debt, but it doesn’t get out into the real economy. As long as that is the case, as long as the economy is weak and immense debt is used to prop the dollar, and as long as there exists speculative capital seeking somewhat sure investments, at least short-term, the metal market will continue to go up. There might be days where it comes down on profit taking or other reasons, but in general it will climb higher.

The rest of the interview is here. What do you guys think?

Monday
Feb142011

Obama's Budget Banter Omission: The Banks Broke the Bank

Since the White House announced its 2012 budget, the requisite punditry stream has been breaking down its specific pluses and minuses. I could grab illustrative quotes from various places and people, or add to the analytical details, but for the most part, it boils down to something like this:

GOP and GOP supporters: Obama didn't make enough spending cuts, he's not taking this whole budget thing seriously. Oh, and about the cuts he did suggest with regard to corporate tax benefits, high-end mortgage-holder deductions and (his-own) extension of wealthy individual Bushian tax breaks - well, that's just plain anti-American and - will kill jobs. (The fact that corporations were contributing just 6.6% and 7.2% in 2009 and 2010, of the total federal tax receipts, a 50% drop relative to the rate before the financial crisis, or about $150 billion per year, isn't relevant in the scheme of things.) Now, where can we cut another $100 billion? 

DEMs and DEM supporters: Obama inherited a bum economy, bum budget and bum deficit from Bush. And, he's turning around the crap hand he was dealt, slowly.  That means he has to cut back on some important programs, but he's gonna champion a high-speed railway, electric cars (to drive along side the high-speed railway?), and clean energy initiatives, and those will most certainly put millions of people back to work. Yes, he appointed Tim Geithner, one of the lead bank bailout builders, whose Treasury department colluded with the Fed, under Ben Bernanke, the other guy Obama kept on deck to help the economy, to increase the amount of US Treasury debt to $9.4 trillion from $5.4 trillion since the financial system began inhaling subsidies in the fall of 2008, and went on to post record bonuses and profits. But, he had no choice.

The intent of the actual discourse kind of makes me imagine a burning building across the street, raging flames, engulfing smoke, crumbling over its foundation, and there are two people watching, one's a Democrat and one's a Republican. While the fire intensifies, they are arguing over whether it's better to use a thimble or a teaspoon of water as an extinguisher aid. Somewhere, off in the distance, is an engineer trying to figure out how to rebuild the building over its ashes.

The sad truth is that the budget deficit is a direct outcome of the economic policies that were adopted by both parties over the years. National debt nearly doubled under Bush, and continued to grow under Obama, while the financial system pillaged the country for trillions of dollars twice - first, during the leveraged build-up to the economic collapse, and then, via a stockpile of creative subsidization awards afterwards, the underlying debt build-up for which, lingers like a bad hangover.

Unless the real economy becomes healthier, more people are employed and we institute a far more progressive tax and distribution structure, there is simply no mathematical way, to balance this budget.

So, there is no silver bullet amount of spending cuts that is sufficient to balance it either, particularly as long as we are only looking at, and debating about, the spending side of the US balance sheet, and only a portion of the non-discretionary component, at that. Quibbling over whether Obama is cutting enough or not enough, is quibbling over the wrong question. Obama showcasing just the cuts as these 'hard choices' that will get us more towards balance, is meaningless. It is equally misleading for the GOP  to focus on a separate subset of potential spending cuts, and conclude that this extra $100 billion will do the trick. Making $1.1 trillion of cuts over ten years, all things equal, with a projected deficit per year that's higher than that, won't balance any budget, for any political party.

You know what would have been really cool?

If Obama had just said - you know what - the budget can't be balanced, deal with it. And you know why? Because over the past two years, the economy, that was trashed by the banking sector, still sucks. And, during the entirety of the Bush administration, while prepping the economy to suck, debt to pay for wars and tax cuts kept growing. And, when the banking system was facing the abyss, we opened our checkbooks, we stimulated the hell out of it, but we did it mostly through issuing Treasury debt and the magical Fed printing machines - so it doesn't show up in the budget that we're all debating, except for a couple hundred billion to Fannie and Freddie and what remains of the stellar TARP project. And you know what? I admit that was a stupid thing to do. It was stupid when it started under Bush, and it was stupid when it continued under me and the economic team I appointed to keep it going. The bailout binge increased our public debt by 50% under my reckless economic advisors, Treasury Secretary, the Federal Reserve. And, hell if other countries decide to dump Treasuries in bulk, and their interest rates rise, and Bernanke can't QE them down fast enough, our budget deficit will gap like the Grand Canyon. 

Meanwhile folks, we need revenue. Just like banks need profits to pay bonuses. And, that's something that can only be remedied through a healthier economy - not just for corporations, stock market investors and banks - that are sitting on $2 trillion in cash, with $1 trillion parked at the Fed  - but for the general population that still counts 26 million people under or unemployed, not to mention a historically high 48.9% unemployment rate for youth, rising food and basic needs costs, continued foreclosures on entire families, and health insurance rates that will double within the next three years. You know what, when this country needed revenue in the past, Republican presidents and congresses did the math. Now, it's my turn. Let the GOP explain exactly how a lower corporate tax contribution created more jobs in the past two years, and while they're trying to figure that out, I'm gonna show some real leadership, and do everything I can - not to balance the budget - but to balance our economy.

Oh well.