Romney: "I'd Remove Ben Bernanke As Fed Reserve Chief"

More Fed Easing Seems Likely: What Is Bernanke Thinking?

From: CNBC

Apparently the bar has just gotten lower for Ben Bernanke.

The central bank chairman stunned financial markets Wednesday when he told Congress that the next round of stimulus—much like objects in the rear-view mirror—is closer than it may appear. 

While there were plenty of caveats and continued references to the slowdown being nothing more than a “soft patch” for those 14 million Americans without jobs, that bar for doing even more quantitative easing suddenly doesn’t look so high. 

“Bernanke thinks the answer to everything is money-printing,” says Michael Pento, senior economist at Euro Pacific Capital in New York. “He thinks that’s what saved us from the Great Depression part two and that’s what could have saved us from the Great Depression part one. He’s doing what he said he would do, which is print money.” 

“I can’t fathom the logic,” Pento adds. 

Pento’s voice is a particularly important one on this issue because he’s one of the few economists of any stature who has been unrelenting in predicting a QE3 —or a third round of Fed easing. 

Pento also has been one of the loudest voices warning about inflation dangers, even as the Fed has been working overtime to combat a perceived deflation threat and as most of Pento’s colleagues brush his concerns aside. 

“Look at first quarter GDP and second quarter GDP. They will have a one handle,” Pento said as he watched Bernanke’s speech. (The “one handle” means GDP will be in the 1 percent range.) “It clearly puts Bernanke on the spot. I think he does what he does best, which is counterfeit the US dollar.” 

The central bank chairman posed two scenarios: One in which the economy improves more than expected and requires tighter monetary policy, and another in which unemployment and housing weakness persists and the Fed is wrong about inflation pressures being “transitory.”

That would require more Fed intervention and, hence, QE3.

You can guess which side the market took. 

The Dow industrials surged as soon as Bernanke began his speech, rising about 100 points along the way as the dollar got hammered and gold and silver prices rallied. 

Since Bernanke delivered his seminal remarks at Jackson Hole, Wyo., last August signaling QE2, the dollar has lost nearly 10 percent of its value against the world’s currencies. 

In the meantime, import prices have jumped about 13 percent and inflation has risen 3.6 percent, tamped down primarily by sagging housing and rent costs, which make up 40 percent of the government’s main price gauge. 

The menu Bernanke laid out on Capitol Hill promises more of the same should the Fed come off the sidelines with the last pile of dirt only recently shoveled on QE2’s grave. 

He is considering more asset purchases to lengthen their average duration, providing “more explicit guidance” on how long the Fed balance sheet will remain in its current state, and, perhaps most significantly, cut the interest paid on bank reserves at the Fed, a move aimed at jumpstarting lending. 

“What I find most disturbing is he could lower the interest paid on excess reserves, which would be a huge impetus for commercial banks to make goofy, crazy loans,” Pento says. 

Pento is surprised mostly by the timing—he figured QE3 wouldn’t rear its head until late this year or early in 2012 as Bernanke had indicated “he would be dragged kicking and screaming to QE3, but he would be dragged there.” 

Most other economists who had dismissed the possibility of more easing figured Bernanke would only begin discussing it after a steep drop in the stock market, a rise to double-digit unemployment and signs that deflation again was a threat. 

Government-Assisted Economic Suicide

From: American Thinker

Quantitative Easing ends in June, according to Ben Bernanke's initial commitment. As June begins, the ending seems in doubt despite Fed statements regarding its imminent demise. 

These comments are perfunctory propaganda and will ultimately prove to be as premature as those of Mark Twain's misreported death. Twain eventually died; so too will QE. It just will not do so now, at least on a permanent basis.

There will likely be a face-saving pause, after which a new "crisis" will be discovered or imagined. The recent plunge in the stock market is a likely excuse if it continues, although nowhere in the Fed's charter does it suggest that "pumping" financial assets is a proper role.


There is no economic case for quantitative easing, nor has there ever been one. 

Quantitative easing is simply a political gimmick. Knowledgeable economists understood that QE2 would not produce economic improvement. "Rented" government economists (political mercenaries) argued for it on behalf of their bosses.

The results are now in and there are no surprises. Brett Arends of MarketWatch summarized it thusly:

QE2 has created a massive new bubble in dollar-based financial assets, from stocks to gold. Meanwhile, it has had zero visible effect on the real economy.

QE made matters worse in the sense that it prevented adjustments in relative prices and the liquidation of misallocated resources. These adjustments are necessary for any recovery to occur. As expressed by Pater Tenebrarum:

... the Fed managed to quickly arrest and reverse the liquidation of malinvestments. While this has averted more short term pain in 2009 -2010, the economy is now once again faced with having to deal with a distorted and discoordinated production structure that needs to be realigned with reality.

The political case for inflation or loose money is simple. It covers over (temporarily) the seriousness of underlying economic problems. It has been used in this country since the 1930s, when Keynesian economics provided "legitimacy" for interventions. Similar interventions have been documented for more than a thousand years in other countries.

Ben Bernanke's Economic Time Bomb

May, 20 2011

From: American Thinker

Ben Bernanke's Federal Reserve has laid the charges, connected the leads, and now stands ready at the detonator. America waits.

We wait for the economic effects of "quantitative easing" (QE). In QE, a nation's central bank buys financial instruments, such as Treasury bonds, with money decreed into existence through electronic transactions. The objective is to "stimulate" economic activity by injecting additional currency into circulation and bank reserves. Plusher reserves would theoretically encourage lenders to lend, which would kick-start business activity and home purchases. QE derives from the Keynesian economic hypothesis that government spending helps end recessions. But reality refuses to comply with theory.

For instance, in the current recession, the National Center for Policy Analysis calculates that the $800 billion stimulus passed by Democrats and signed by Obama in 2009 will generate a paltry 5 percent boost in Gross Domestic Product. Furthermore, each government dollar injected between 1947 and 2007, via deficit spending, stimulated only forty-six cents of additional GDP. Negative returns and higher debt make for crummy investment karma. But a miserable track record doesn't deter Keynesians, including Fed Chief Ben Bernanke.

In slow or shrinking economies, a Keynesian-minded Fed normally tries to impact short-term interest rates by buying up short-term Treasury bonds or T-bills. However by late 2008, short-term rates were already very low. "Normal" was off the table. Instead, using electronically-created dollars, Bernanke relieved financial institutions of $1.75 trillion in mortgage-backed securities heavy in high-risk loans. The move, referred to as QE1, almost tripled the monetary base (currency plus bank reserves) between December 2008 and March 2010. Hillsdale College economist Ivan Pongracic explains the mess created by Bernanke's Fed and Obama's regulators.

...rather than stimulating the economy through increased lending, much of [the injected] money has remained idle, locked up in vaults as banks have been unwilling and often unable to lend. (Regulators in the past two years have considerably tightened lending standards, making it much more difficult to qualify for a loan, especially in these uncertain times.)

The Failure of QE2

From: Don Surber

The Fed bet $900 billion it didn’t have — and it lost.

Good thing China is not the Mafia or someone would kneecap Ben Bernanke.

First, the Xtra Normal cartoon: Quantitative Easing Explained:

In that liberal shorthand that they substitute for critical thinking, this is called QE2.

But unlike the luxury ship that Cunard Lines operated for 39 years, Bernanke’s QE2 sank.

Taking with it, $900 billion.

The idea was to have the Federal Reserve buy $900 billion worth of Washington’s burgeoning debt under a Democratic Congress — up nearly $6 trillion since Democrats took over Congress in 2006 (and Congress has the power of the purse, and not the president) Quantitative Easing was pitched as another savior of the economy after the stimuli of 2008 ($150 billion) and 2009 ($787 billion) failed.

So we flushed nearly $2 trillion down the toilet and unemployment is still 8%-9% — far higher than when the government began trying to stop the inevitable retrenchment of the economy.

The fiscal plan of papering our problems over with $900 billion in new money hurt the economy.

The liberals brought back inflation.

$4 gasoline?

The Weak Dollar Problem

From: The Cato Institute

The Chairman of the Federal Reserve Ben S. Bernanke has embraced a weak dollar policy. And he is not alone. The weak dollar mantra is very much in evidence on most of the boulevards and in the back alleys of Washington, D.C. The idea even has a certain appeal to the common man on the street. After all, a cheap dollar is advertised as an export stimulant and the fuel for an economic boom. But, the common man is often wrong, and so is Chairman Bernanke.

About the only thing that has boomed during the last two years are prices, particularly commodity prices. The accompanying chart traces the producer price index for both crude materials (primarily food and energy) and for finished goods. Measured by both of these sensitive metrics, prices are booming, with the PPI for crude materials up by 14% since the Fed announced its second quantitative easing program in November 2010.

But, those prices are not the ones that Chairman Bernanke and his inflation-targeting colleagues at the Fed are looking at. Rather, they focus on the consumer price index, absent food and energy. By doing so, they exclude those items that are experiencing price surges. Never mind. The Chairman and his colleagues continue to play down the inflation threat. But, the public isn't buying their story. Most people are going to the gasoline station and grocery store several times a week and know what's happening to gasoline and food prices. Not surprisingly, the credibility of the Fed has all but disappeared, with even the taxman commanding more favorable ratings.

If the Fed is in denial about the inflation threat, it's blind to the possibility that the weak dollar is causing energy and food prices to surge. Oil and most other food and industrial commodities are invoiced in dollars. .

Accordingly, when the dollar goes "down" the price of primary commodities tend to automatically go "up," and vice versa.

The accompanying chart, which traces the course of the U.S. dollar-euro exchange rate and the price of crude oil since January 2011, tells the story. During that period, the dollar has lost value against the euro and the price of oil has increased. For each 1% decline in the dollar against the euro, there was on average a 0.5% increase in the price of oil. The biggest single contributor to oil price increases in recent months is not located in Libya, but at the headquarters of the Federal Reserve in Washington, D.C.