Posted tagged ‘Ben Bernanke’

Bernanke’s Secret Plan To Raise Rates Too Late

November 4, 2009

Business Insider’s Henry Blodgett explains:

Explainer: Bernanke’s Secret Plan To Raise Rates Too Late (3 min):

Why is Ben Bernanke being so slow to start talking about raising rates, much less start raising them?  Because he has a secret plan that he can’t talk about.

What’s Ben’s secret plan?

Intentionally keep rates too low for too long, thus encouraging uncomfortably high inflation.

Why would Ben want that when he keeps talking about the importance of managing inflation?

Two reasons:

  • Faster economic growth, which leads to more jobs, fewer angry constituents, and a Congress that’s happier with Ben Bernanke
  • Faster erosion of the real value of our debts.  Consumers and the government are drowning under a massive debt load.  One way to make paying off this debt easier is to make the dollars it is denominated in worth less.  Bernanke will try to hasten this process as much as possible, taking it right to the point where our creditor China is mad as hell–but not quite to the point where China actually stops lending to us.

Click for video.

Constituents? Happier Congress? But I thought the whole argument against a full audit of the Fed is that it is supposed to be independent of politics. So which is it?

“Consumers and the government are drowning under a massive debt load. One way to make paying off this debt easier is to make the dollars it is denominated in worth less.”

That works for government and the biggest of the TBTF bankers (GS, JPM) because the dollars aren’t really devalued until they are released into the economy at large. By the time they reach the consumer, the prices of everything consumers might buy have already risen in response to the inflated money supply.

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The Fed Under Fire

September 8, 2009

Banksters Part II: An Offer BofA Could Not Refuse

April 26, 2009

gf-brandoNew York Attorney General Andrew Cuomo has sent an angry letter to regulators … regarding the behavior of Hank Paulson and Ben Bernanke over the allegation that they forced Bank of America (BAC) to complete its acquisition of Merrill Lynch.

Bank of America CEO Ken Lewis may become subject to an SEC investigation and will certainly have to answer to angry shareholders. But what of Bernanke and Paulson?

Former Treasury Secretary Henry Paulson “admitted to Andrew Cuomo that he threatened to oust Ken Lewis and the Bank of America board if Bank of America invoked a Material Adverse Change (MAC) clause to block the deal, Cuomo says.  Paulson also added, however, that he made this threat at the request of Ben Bernanke”, a statement he later recanted

Mike (Mish) Shedlock wrote in his blog, “It’s crystal clear from the letter that a strong case can be made that Paulson and Bernanke coerced Lewis to carry out a merger agreement that was not in Bank of America’s shareholders best interest. Lewis arguably did so only to save his own job and the board.”

I’m with Mish – let the criminal indictments begin: Paulson, Bernanke, Lewis.

February Economic Picture

March 1, 2009

Lots of economic news in February 2009, so let’s look at it in several categories.

Federal Government

News about federal government spending came at a head-spinning pace in February, with enough twists and turns to satisfy the most intense rollercoaster fans.

Feb 17: Obama signs $787 billion stimulus bill

Feb 18: Some GOP Governors Consider Refusing Stimulus Money

Feb 19: Obama announces Housing Bailout at $275 Billion

Feb 19: CNBC’s Rick Santelli wants to have a tea party

Feb 23: Obama convenes a “Fiscal Responsibility Summit”, says it’s time to clamp down on federal expenditures

Feb 24: Obama addresses joint session of Congress, says he intends to cut deficits in half over the next four years

Feb 25: House OKs $410B spending

Feb 26: Obama unveils his first budget –  $1.75 trillion deficit for the 2009 fiscal year

There are problems with Obama’s budget – for one, it depends on revenue by 2012 from carbon emission trading, a program that does not yet exist.

It also expects 3.2% growth in GDP next year, an enormous increase given the most recent figures of a 6.2 percent decline in the last quarter of 2008.

And Obama’s plan to raisetaxes on the wealthiest 2% of taxpayers to pay for his expensive domestic agenda is more wishful thinking. According to this Wall Street Journal editorial, he could take everything they earn, and it still won’t be enough.

Obama’s budget: huge ambitions, huge obstacles.

The Fed

 Federal Reserve Chairman Ben Bernanke testified before the Senate Committee on Banking, Housing and Urban Affairs on February 24, 2009.

He was asked by Senator Evan Bayh what he thought about the anger brewing among people who feel the federal government’s “housing rescue plan” is unfair.

Bernanke responded with the “your neighbor’s house is burning but it’s his fault” analogy. “You could punish him by refusing to send the fire dept and then he would learn his lesson, but unfortunately in the process you’d have the entire neighborhood burning down,” said Bernanke.

Read more…

There is a big flaw in Helicopter Ben’s analogy. We, the neighbors of this careless person who started a fire, have already paid our taxes to have a fire department. Calling 911 to have the fire put out should not entail any additional expense. In the meantime, my neighbors and I could be hosing down our own houses to prevent them catching fire.

What Mr. Bernanke and the federal government are proposing is that we buy a whole fleet of new fire engines, build a couple of new fire stations, then hire and train new firefighters while our neighborhood goes up in flames.

 But Helicopter Ben has no problem bailing out bad borrowers. The moral hazard does not matter, in his opinion.

He’s also confident he can prevent runaway inflation even though the Fed has dramatically increased the money supply in response to this crisis correction. Why do I not feel even the tiniest bit reassured?

Treasury

zombies_aheadLots of talk in February about nationalization of banks, particularly Citigroup. Even though Senate Majority Leader Harry Reid insists “It’s not nationalization” , Treasury Secretary Tim Geitner gave Citi another $25 Billion of taxpayer money in exchange for “preferred stock”. Timmy paid Citi $3.25 a share for these stocks – the same stocks that are selling on Wall Street for $1.50 a share (Dow closing Feb. 27, 2009). Nice terms if you can get ’em.

But that’s not likely to be the end of it. Citi still faces enormous new losses and investors are not reassured by this latest infusion from the TARP. Citigroup may become the next AIG   (watch for AIG to come begging again in the first days of March).

Mike Shedlock (aka “Mish”) has a good analysis of the Government – Citigroup dealings here.

Treasury also announced that it has provided $429 million to 29 banks in the latest batch of investments under the TARP. Details available here.

Bank of America’s balance sheet doesn’t look good – loans are valued at $44.6 billion less than what its balance sheet says, according to the bank’s annual report released Feb 27 and the losses BofA incurred with their purchase of Merrill Lynch are worse than they thought – about $500 million worse.

Fannie Mae reported a sixth straight quarter of losses – $25.2 billion in Q4 2008.

Fannie Mae (FNM, Fortune 500) had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac (FRE, Fortune 500), which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth.

Read more

 FDIC

On the last FDIC Friday in February, regulators closed two more banks, bringing the total of failed banks for 2009 to 16.

The good news is that the rate of failures per week seems to have slowed down a bit. The bad news is that the FDIC’s list of troubled banks has grown to its highest level since 1994.

CNNMoney reported that bank failures may cost the FDIC $80 billion. That’s a predicted $65 billion in bank failures between 2009 and 2013 added to the $18 billion cost of 2008 failures.

Stock Market

 February was another losing month for Wall Street. Stocks ended the month at 12-year lows and if you look at the percentages, the decline in stocks has already hit Great Depression levels – a 50+ percent decline from the beginning of the crash.

Also worth noting that it isn’t just the financial stocks that are losing ground anymore. The downward trend is spreading to manufacturers and makers of basic consumer goods.

Finally, to be filed under “a picture is worth a thousand words”, the latest update to the “Four Bad Bears” graph (the grey line is the Great Depression, the blue line is the current recession:

Read the details and view the larger version of the graph here.

Retail

Expect more store closings and layoffs. Reports that came out in February from major retailers show huge 4th quarter losses:

Home Depot reports 4th-quarter loss of $54M

Lowe’s 4Q profit falls 60 percent

J.C. Penney reports 51 percent slide in 4Q profit

Sears 4Q profit falls 55 percent on charges

Macy’s reports 59 percent drop in 4Q profit

Saks Fifth Avenue – $98.75 million 4Q Loss

Gap: Sales & Earnings Down, Stores to Close

Office Depot posts $1.54 billion loss for 4Q

Department stores are unlikely to recover this year. Their primary goal is more likely to be avoiding bankruptcy and having to go out of business completely. On a personal note, I sure hope J.C. Penney survives – it’s one of my favorite stores for affordable, quality merchandise.

Other Economic News

U.S. GDP fell off a cliff in Q4 2008.

The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday — the largest revision since the government started keeping records in 1976.

Read more

The decline of 6.2 percent is the worst decline since the depths of the 1982 recession.

Consumer confidence fell to a new low in February.

The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected.

The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4.

Read more

Even Warren Buffett says the economy will be ‘in shambles’ for 2009.

It’s not just that Americans are losing confidence in the economy, they’re scared about where the nation is headed.

Seventy-three percent of those questioned in a CNN/Opinion Research Corporation survey released Monday say they’re very or somewhat scared about the way things are going in the United States. That’s six points higher than in an October poll.

Read more

February Charts from Calculated Risk

Here are a few that stood out for me. See the full report and all the charts at the Calculated Risk blog.

January Employment Report

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 598,00 in January, and the annual revision reduced employment by another 311,000 in 2008. The economy has lost almost 2.5 million jobs over the last 5 months!

The unemployment rate rose to 7.6 percent; the highest level since June 1992.

Year over year employment is now strongly negative (there were 3.5 million fewer Americans employed in Jan 2008 than in Jan 2007).

 

January Retail Sales

This graph shows the year-over-year change in nominal and real retail sales since 1993.

Although the Census Bureau reported that nominal retail sales decreased 10.6% year-over-year (retail and food services decreased 9.7%), real retail sales declined by 10.9% (on a YoY basis). The YoY change decreased slightly from last month.

 

January Capacity Utilization

The Federal Reserve reported that industrial production fell 1.8 percent in January, and output in January was 10.0% below January 2008. The capacity utilization rate for total industry fell to 72.0%, the lowest level since 1983.

The significant decline in capacity utilization suggests less investment in non-residential structures for some time.

 

Vehicle Miles driven in December

This graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.

By this measure, vehicle miles driven are off 3.6% Year-over-year (YoY); the decline in miles driven is worse than during the early ’70s and 1979-1980 oil crisis. As the DOT noted, miles driven in December 2008 were 1.6% less than December 2007, so the YoY change in the rolling average may start to increase.

 

Case Shiller House Prices for December

This graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 28.3% from the peak.

The Composite 20 index is off 27.0% from the peak.

 

Unemployment Claims

This graph shows weekly claims and continued claims since 1971.

The four week moving average is at 639,000 the highest since 1982.

Continued claims are now at 5.11 million – another new record (not adjusted for population) – above the previous all time peak of 4.71 million in 1982.

Wrapping Up

Here’s one bit of good news after all the bad – gold is getting close to $1000 per troy ounce. Silver is also on the rise again.

That’s a lot to absorb for one short month so I’ll close with this a little music.

First, the classic “Sixteen Tons” performed by Tennessee Ernie Ford.

And finally, Jimmy Buffett performing his new song “A Lot To Drink About”

Econonspeak — Orwell’s 1984 Updated

February 1, 2009

Fantastic post by Michael S. Rozeff on the LRC Blog today:

Econonspeak: Toward the end of the twentieth and at the beginning of the twenty-first century, economists developed a language that distorted the reality of economics and replaced it with distortions and garbled allusions to economics and economic history. This became known as Econonspeak. It rapidly spread to court economists who found it useful in manipulating those who understood little economics. Eco-non-speak: a language using economics terms that is non-speak, that is, it provides no useful or, more usually, faulty economic concepts to the listener.

Fine examples of econonspeak are provided by what at that time was called macroeconomics (now regarded as little short of witchcraft.) Ben Bernanke and Timothy Geithner provide many instances of econonspeak.

It was Geithner who said “The President’s plan is meant to jumpstart our economy making a down payment on longterm economic growth.” This sentence shows the ability of econonspeak to confound the listener, while providing incoherent phrases that mimic real thought. We have here a mixing of the three metaphors of starting an engine, making a down payment on an investment, and improvement in economic income. There are in reality no connections among these three elements, which is what makes this a classic and beautiful example of econonspeak.

Continue reading…

The Threat of Hyperinflation

December 19, 2008

In an article for CBS News about the auto industry bailout, Declan McCullagh references a report by Celent, a financial services consultancy.

McCullagh later wrote to Lew Rockwell that readers of the LRC Blog might be interested in some additional information he found in the Celent report, particularly that:

M0 money supply “has recently increased at a pace never seen before in US history,” and has increased as much in the last 90 days as it has in the last 83 years.

The M0, according to Wikipedia,  measures “currency (notes and coins) in circulation and in bank vaults, as well as cash (reserves) owned by banks that is held at the central bank. M0 is usually called the monetary base–the base from which other forms of money (like checking deposits, listed below) are created–and is traditionally the most liquid measure of the money supply.”

The stage has been set for hyperinflation in the United States. What remains to be seen is if the Federal Reserve Banking cartel can reign in the huge increase of currency they have created or if hyperinflation will happen despite their efforts to prevent it.

Given how wrong the Fed has been about so much lately, I’m not feeling terribly confident that they will be able to prevent hyperinflation. They don’t call him “Helicopter Ben” Bernanke for nothing.