Bernanke Digs Deeper
December 1, 2008 · Posted in Monetary Economics
It was deja vu time when Federal Reserve Chairman Ben Bernanke spoke today. To all those who remember his helicopter speech, but thought he was kidding: He was obviously not. He is ready to destroy the currency whose stability he is supposed to overlook, prolong the agony of this depression, and then plunge the nation into a hyperinflation of unprecedented proportions. Reuters writes:
Federal Reserve Chairman Ben Bernanke on Monday urged decisive action to protect the economy and said the central bank had alternative tools it could employ to help as interest rates approach zero.
“Our nation’s economic policy must vigorously address the substantial risks to financial stability and economic growth,” Bernanke told the Greater Austin Chamber of Commerce.
Yes, we must address the substantial risks that a reckless monetary and fiscal policy of credit expansion has created.
On a day when the arbiter of U.S. business cycles said the United States fell into recession last December, Bernanke said the economy was still under “considerable stress” and had slipped further since markets crumbled anew in September.
“Households have continued to retrench, putting consumer spending on a pace to post another sharp decline in the fourth quarter,” the Fed chief warned.
Yes, they have cut down on consumption in order to begin generating savings again. Something that the US has forgotten about over the past 30 years. Something that the US direly needs lest it keep moving toward national bankruptcy.
Bernanke said further cuts in overnight interest rates beneath the Fed’s current target of 1 percent were “certainly feasible,” but he suggested the U.S. central bank would also use other unconventional measures to spur growth.
“Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Federal Reserve’s quiver — the provision of liquidity — remains effective,” he said.
He said the Fed could directly purchase “substantial quantities” of longer-term securities issued by the U.S. Treasury or government-sponsored agencies to lower yields and stimulate demand.
As a response, 10 yr Treasuries surged again as today and they will certainly keep going down the path I suggested. That this will do nothing but encourage more government borrowing and spending and will plunge us deeper into financial Armageddon goes without saying.
Bernanke also said the Fed could side-step institutions that are reluctant to lend and pump money directly into specific markets. The Fed has already done this in the market for commercial paper, short-term debt companies use to finance day-to-day operations, and last week it announced a program to push funds into markets for consumer-related debt as well.
Yes, the Fed is, in fact, not leaving out a single opportunity to aggravate its credit expansion.
The Fed is widely expected to lower benchmark U.S. interest rates by a half-percentage point to 0.5 percent at its next scheduled meeting on December 15-16. It is also expected to discuss what other policy tools could be used, and Bernanke’s speech was seen as a game plan for likely next steps.
Of course the Fed is well aware that reducing the Fed funds rate to .5% will have no result whatsoever since short term interest rates on the open market are already near 0.
In calling for vigorous action to support the economy, Bernanke said the economy was likely to be sluggish for some time. “The likely duration of the financial turmoil is difficult to judge, and thus the uncertainty surrounding the economic outlook is unusually large. But even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time,” he said.
Bernanke’s prophetic predictions in the midst of this crisis are not very impressive, really. Just last year he called the economy sound. He has absolutely no understanding of what is going on.
But he said there was no comparison between the current downturn — already the third-longest since the 1930s — and the Great Depression, when the U.S. economy contracted for over a decade, one in four U.S. workers was unemployed and bank failures were rampant.
“Let’s put that out of our minds. There is no comparison in terms of severity.”
…and I guess this is true because he says so? If anything, this crisis will be much worse than what happened in 1930. Bernanke’s poor judgment is simply deplorable. He truly believes he can fix this thing. Even if he doesn’t solely share the blame for the causes of the recent credit expansions, he has surely done everything he needed to do in order to prolong and aggravate it.
Bernanke drew a distinction between the aggressive actions he and his colleagues have taken and blunders by the 1930s-era Fed, including excessively tight monetary policy and inaction as the financial system collapsed. He said he was being guided in part by his reading of history.
“I made my own mistakes, but I don’t want to make someone else’s mistakes,” he said.
Excessively tight monetary policy? If anything the monetary policy of the 20s was excessively lavish. And the Federal Reserve of 1930 didn’t shy away from continuing it until the banks started accumulating excess reserves. Sound familiar? Sorry Ben, sadly you are precisely repeating the mistakes of The Great Depression.