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.

Update on Wednesday, April 27, 2011 at 9:47AM by Nomi Prins

And, of course - the FOMC delivers - more of the same..... rates unchanged, mortgage interest re-investment continues, qe2 will end as planned in June ...