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

Printer's Devil

From: HUMAN EVENTS

Ben Bernanke​ orated. Like E.F. Hutton, when the chairman of the Federal Reserve speaks, people listen—even when he isn’t saying much.

At the Jackson Hole, Wyoming address on Friday, Bernanke did say that the economic recovery has “proved disappointing thus far.” We needed the Fed chairman to tell us this? He did not say whether or not the Fed would unleash another round of quantitative easing, bureaucratspeak for the government effectively defaulting on its debts by counterfeiting money to lend to itself.

Referencing the debt-ceiling negotiations, Bernanke lectured that Congress needs “a better process for making fiscal decisions.” He is one to talk. At least when Congress makes trillion-dollar decisions, the public knows about it. We didn’t get the details until last week on the $1.2 trillion the Federal Reserve secretly lent to financial institutions, including $84.5 billion to the Royal Bank of Scotland and $66 billion to Deutsche Bank, during the 2008 crisis. It took a lawsuit from Bloomberg for the Fed to reveal details of an endeavor even larger than the Troubled Asset Relief Program. This is what democracy looks like?

Printing money rewards failure and punishes success. Whether one speaks of Morgan Stanley​ or the federal government, the Fed’s printing-press bailouts have enabled recklessness. With losses socialized by the Fed, financial institutions will continue the risky lending that catalyzed the Great Recession. With debts absorbed by the printing press, the government will continue out-of-control spending without reference to revenues.

People who have accumulated money rather than debts are harmed. Printing an abundance of dollars doesn’t make us rich. It makes our dollars poor.

Supply and demand influence price. Gold, oil, and foodstuffs have experienced significant price rises during Bernanke’s Fed tenure. Is there a gold, petroleum, or milk/bread/meat shortage? No. But the prices have skyrocketed nevertheless. So what’s happening? The simpleton looks at one half of the economic transaction: the commodity. But a more aware observer considers supply and demand as it pertains to currency.

Gold isn’t skyrocketing. The dollar is plummeting. The price of oil isn’t rising. The value of our money is declining. Cows aren’t refusing to give up the milk. The Fed is flooding the market with greenbacks.

A dollar ain’t what it used to be. Today’s dollar has the purchasing power that a nickel had the year of the Federal Reserve’s birth. The Fed’s statistics released Friday showed that M1, one of its measures gauging the money supply, has increased by almost 20 percent in the last two years. And that is on top of a dramatic spike during the 2008 financial crisis. With such periodic violence against the currency, is it any wonder that the Fed has made a dollar less than a dime in its lifetime?

The legislation establishing the Federal Reserve sought “to furnish an elastic currency.” That objective has been too thoroughly accomplished. A relic from a “progressive” era in which technocrats seized power from the people, the Fed offers a multitude of reasons against its existence.

It’s unconstitutional. Article 1, Section 8 of the Constitution empowers Congress to “coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” Like the power to declare war, Congress has abdicated its responsibility in the hopes that voters won’t hold them responsible.

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.)

As Inflation Surges, Central Banks Run Amok

FROM: CAIXIN ONLINE

Super heroes for the world economy they're not, as the Federal Reserve's inflation-stoking policies prove

Inflation is rising around the world, and none of the major central banks have shown serious interest in containing it. To prosper now, under these inflationary conditions, one needs thick skin.

The Bank of England has the thickest skin of all: It no longer gives excuses for ignoring inflation. The U.S. Federal Reserve is constantly inventing new theories while trying to explain away inflation, and while trying to justify its QE2 quantitative easing project despite inflationary signs aplenty.

The European Central Bank has the thinnest skin of all, and recently raised interest rates to defend its credibility in targeting price stability even though, unfortunately, the ECB won't be able to maintain this stance. The Bank of Japan is still shy, but it will have to out-QE the Fed to help its government pay for post-earthquake reconstruction.

Price stability is supposed to be central banking's main goal. But these days, central bankers think they're super heroes who should rescue the world and make everyone happy.

Inflation, since its negative effects are spread thin and take time to materialize, is ignored. Today's central banking is about so many things except inflation. This is why inflation will worsen for a long time to come.

Indeed, inflation is the main theme for the current decade. A change will occur only when the current generation of central bankers is replaced.

Inflation's Hold
When western governments decided to bail out their bankrupt financial institutions in 2008, I foresaw inflation ahead. I argued it would start with commodities and in emerging economies, and then spread to developed economies. But now it seems inflation has already taken hold in developed economies.

The euro zone inflation rate reached 2.4 percent in February and 2.7 percent in March year-on-year, marking the third and fourth months that the rate topped the ECB's 2 percent target. More importantly, it's been on a solid upward trend for the past two years. Inflation's dip in 2008 seemed a temporary phenomenon due to negative demand shock. Actually, structural forces have been inflationary for a long time.

The U.S. Consumer Price Index increased 0.5 percent in March from the month before and 2.7 percent from the same month 2010. The index has risen an average 2.7 percent over the past 12 months, much higher than the Fed's assumed target of 2 percent. However, the Fed insists on focusing on core CPI, which excludes food and energy. That indicator averaged a 1.2 percent increase over the previous 12 months.

The problem with the Fed's view is that its policy is partly, if not mostly, the reason for a rapid increase in food and energy prices. If it continues on this policy track, this price trend will continue. And core CPI will eventually catch up with general CPI.

Britain's inflation rate conveniently fell 0.4 percent from the previous month to 4 percent in March. The decline was cited as the reason why the Bank of England has not raised interest rates. Britain has had an inflation rate above its policy target for nearly two years, but it hasn't raised rates. This seems to be a pattern. Data from a single month hardly matters.

China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

From: Zero Hedge.com

All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?


From Xinhua:

China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

And as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:

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?

Don't Like a Weak Dollar? Might as Well Get Used to It

FROM: CNBC

Weakness in the US dollar, which is causing everything to go up—including gas prices, food and stocks—is unlikely to go away soon as a selling frenzy hits the currency market.

CNBC.com

The greenback is approaching pre-financial crisis lows and threatening to smash through its all-time low when measured against the world's predominant national currencies.

A combination of factors accounts for the weakness, with the Federal Reserve's easy-money policies, huge national debts and deficits and the consequential possibility of a debt downgrade because of the financial mess in Washington leading the way.

In short, as trader Dennis Gartman noted Thursday, "the rout of the US dollar" is in full effect.

"Panic dollar selling is setting in," Gartman, a hedge fund manager and author of "The Gartman Letter," wrote in his daily commentary. "This may carry farther than any of us dream of or, worse, have nightmares of."

How low can it go?

Rick Bensignor, chief market strategist at Dahlman Rose in New York, said the dollar index [.DXY 74.10 -0.28 (-0.37%) ], which measures the greenback against a basket of select other global currencies, has scant technical support "that has any meaning" between its present level and the historical low of 70.70.

That's a widely shared view, even as currency pros wonder how the dollar could be falling against the euro considering the near certainty of sovereign debt defaults in smaller European Union nations.

Gartman described the dollar as being in "serious jeopardy" because of its status against the euro, which was defended recently as European Central Bank President Jean-Claude Trichet announced a rate hike in the zone.

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.

Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak

From: Bloomberg

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

US Approaching Insolvency, Fix To Be 'Painful'

From: CNBC

The United States is on a fiscal path towards insolvency and policymakers are at a "tipping point," a Federal Reserve official said on Tuesday.

"If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when," Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt. "The short-term negotiations are very important, I look at this as a tipping point."

But he added he was confident in the Americans' ability to take the right decisions and said the country would avoid insolvency.

"I think we are at the beginning of the process and it's going to be very painful," he added.

Fisher earlier said the US economic recovery is gathering momentum, adding that he personally was extremely vigilant on inflation pressures.

"We are all mindful of this phenomenon. Speaking personally, I am concerned and I am going to be extremely vigilant on that front," Fisher said in an interview with CNBC.

Fisher added that the U.S. Federal Reserve had ways to tighten its monetary policy other than interest rates, including by selling Treasurys, changing reserves levels and using time deposits.

He added that he does not support the Fed embarking on an additional round of quantitative easing.

"Barring some extraordinary circumstance I cannot forsee...I would vote against a QE3," Fisher told CNBC. "I don't think it's necessary. Again, we have a self-sustaining recovery."

WAR: WSJ Takes on Elizabeth Warren

EconomicPolicyJournal.com: WAR: WSJ Takes on Elizabeth Warren: "Popcorn time.The Elizabeth Warren PR machine ticks off WSJ's editorial board. Check this out from the grand observers at WSJ: Elizabet..."