Interesting times from both a fiscal and as well as a monetary perspective...With Bernanke doing 'all' that he can do on the monetary front how will our fiscal policy 'monitors' deal with their end of our economic malaise? It all sounds so "Greek" to me!
It shall be very interesting to see what happens when the Fed begins to 'deleverage' their balance sheet and liquidates those 'bought assets' that 'saved' us from deflation.
prb
It shall be very interesting to see what happens when the Fed begins to 'deleverage' their balance sheet and liquidates those 'bought assets' that 'saved' us from deflation.
prb
Bernanke Admits He’s Clueless On Economy’s Soft Patch
Jun. 22 2011 By AGUSTINO FONTEVECCHIA, FORBES
In his second post-FOMC press conference, Fed Chairman Ben Bernanke touched on every topic, admitting that the recovery was weaker than expected and that beyond temporary factors like supply chain disruptions in Japan and high energy prices, he was at a loss as to what was causing the soft patch. In a Q&A session with reporters, Bernanke said a disorderly default in Greece would have significant effects on the U.S. economy, while adding that Fed still had several tools at its disposal the to pump up the economy.
With markets at a crossroads, amid a cooling economic recovery and a dangerous Greek crisis threatening the euro and the global economy, reporters grilled Bernanke and asked many of the right questions.
Brutally honest, Bernanke admitted that he had no clue what was actually causing the current fragility in the U.S. economic recovery. While the FOMC statement assigned blame outside of the U.S., pointing at Japan along with rising food and oil prices, Bernanke was put on the spot by a reporter who noted the inconsistency behind that explanation and a lowering of long term forecasts. Bernanke took the hit, admitting only some of the factors were temporary and that he didn’t know exactly what was causing the slowdown, but that it would persist. “Growth,” said Bernanke, “will return into 2012.”
“Bernanke was just summing up what has happened in the markets, what has been priced in,” explained Nick Kalivas of MF Global. “But the Fed has taken extraordinary measures to support the economy, they have done what they can and monetary policy isn’t a solution for everything,” added Kalivas, pointing at problems with the fiscal situation and the debt ceiling debate.
The Fed chairman was explicit about the situation in Washington, directly slapping Republicans in the face saying “I don’t think sharp immediate cuts in the deficit would bring more jobs.” Having made clear before that Congress should raise the debt ceiling, Bernanke explained budgetary problems are very long run in nature.
Taking his time to address the situation in Europe, and the increased urgency of the crisis in Greece, Bernanke said U.S. bank exposure to Greek was minimal, and only indirect via positions in large, core-nation banks in Germany and France. Raising a red flag, the bearded academic said that money market mutual funds had substantial exposure to those same banks and could take a big hit if push comes to shove in Europe. “A disorderly Greek default would have significant effects on the U.S.” economy, he added.
Patting himself on the back, Bernanke once again defended his controversial programs of long-term asset purchases, dubbed QE1 and 2. “People don’t appreciate how pernicious deflation could be” for the economy, said the chairman, who then said QE2 saved the economy from deflation and was completely justified at the time. “[Back then] we were missing on both sides of our dual mandate, today we are much closer [to fulfilling it].”
Adding that they had made no decision on interest rates and further asset purchases at the moment, Bernanke listed cutting interest rates on excess reserves held at banks, giving guidance on balance sheet changes, as well as further asset purchases as “additional action we are prepared to take if the situation warrants it.”
Humbled by a question on his stark criticism of Japanese policymakers before the “lost decade,” Bernanke said he’s “a little more sympathetic to Central Bankers now than ten years ago.” Still, Bernanke avoided responding on whether the U.S. could be entering its own lost decade by highlighting the success of his QE policies in averting deflation. “A determined central bank can always do something about deflation.”
The second post-FOMC press conference saw sharper reporters asking the right questions, as opposed to their soft-ball pitching last time. Bernanke, as usual, avoided asking the uncomfortable questions and was even humble enough to admit he didn’t have all the answers. The question is, are we better off knowing Bernanke himself doesn’t know?
Brutally honest, Bernanke admitted that he had no clue what was actually causing the current fragility in the U.S. economic recovery. While the FOMC statement assigned blame outside of the U.S., pointing at Japan along with rising food and oil prices, Bernanke was put on the spot by a reporter who noted the inconsistency behind that explanation and a lowering of long term forecasts. Bernanke took the hit, admitting only some of the factors were temporary and that he didn’t know exactly what was causing the slowdown, but that it would persist. “Growth,” said Bernanke, “will return into 2012.”
“Bernanke was just summing up what has happened in the markets, what has been priced in,” explained Nick Kalivas of MF Global. “But the Fed has taken extraordinary measures to support the economy, they have done what they can and monetary policy isn’t a solution for everything,” added Kalivas, pointing at problems with the fiscal situation and the debt ceiling debate.
The Fed chairman was explicit about the situation in Washington, directly slapping Republicans in the face saying “I don’t think sharp immediate cuts in the deficit would bring more jobs.” Having made clear before that Congress should raise the debt ceiling, Bernanke explained budgetary problems are very long run in nature.
Taking his time to address the situation in Europe, and the increased urgency of the crisis in Greece, Bernanke said U.S. bank exposure to Greek was minimal, and only indirect via positions in large, core-nation banks in Germany and France. Raising a red flag, the bearded academic said that money market mutual funds had substantial exposure to those same banks and could take a big hit if push comes to shove in Europe. “A disorderly Greek default would have significant effects on the U.S.” economy, he added.
Patting himself on the back, Bernanke once again defended his controversial programs of long-term asset purchases, dubbed QE1 and 2. “People don’t appreciate how pernicious deflation could be” for the economy, said the chairman, who then said QE2 saved the economy from deflation and was completely justified at the time. “[Back then] we were missing on both sides of our dual mandate, today we are much closer [to fulfilling it].”
Adding that they had made no decision on interest rates and further asset purchases at the moment, Bernanke listed cutting interest rates on excess reserves held at banks, giving guidance on balance sheet changes, as well as further asset purchases as “additional action we are prepared to take if the situation warrants it.”
Humbled by a question on his stark criticism of Japanese policymakers before the “lost decade,” Bernanke said he’s “a little more sympathetic to Central Bankers now than ten years ago.” Still, Bernanke avoided responding on whether the U.S. could be entering its own lost decade by highlighting the success of his QE policies in averting deflation. “A determined central bank can always do something about deflation.”
The second post-FOMC press conference saw sharper reporters asking the right questions, as opposed to their soft-ball pitching last time. Bernanke, as usual, avoided asking the uncomfortable questions and was even humble enough to admit he didn’t have all the answers. The question is, are we better off knowing Bernanke himself doesn’t know?
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