Man Without a Plan?

The other Bernanke my good mate Jimmy!

Maybe its the cynic in me; but I have read a any number of articles t his weekend dealing with Ben Bernanke's testimony last week and whether or not he will be re-elected in January of next year for another 4 years. There are the pros and cons; but before I deal with that there is still the conflicting statements of how he will take monetary policy ahead. Back in May I noted an article in market News that stated that the FED and Bernanke would try and adopt a two track approach to monetary policy within the very easy liquidity arrangements that have been instituted to drag us out of the current economic and credit malaise.
In this weeks testimony to Congress and even prior to that in a WSJ article the day prior to his confessions to Congress, Dr. Bernanke once again reflected on the trail balloon of May, the implications of which are t hat he could essentially drain the system very quickly, by paying for excess reserves held at the FED by banks at the same level as the Fed funds rate, while potentially retaining quantitative easing (vis-à-vis purchase of Mortgages and Treasuries).

It seems that Dr. Bernanke is speaking out of both sides of his mouth however or maybe its simple confusion on my part ( certainly wouldn't be a first), in that he is also stating that the Fed will retain rates at theses low levels for the foreseeable future (i.e. into 2010 as opposed to what the market believes is a necessary hike before year end).

Suddenly the unsmiling Dr. Ben is doing a world tour and has had more press in the last week than a politician running for office.
Well I guess he is running for office after all and so it should not be surprising; but I digress somewhat. It would seem that the there is a substantial split however on what and how Dr. Ben has done. I read two op-ed pieces in Sunday's NYT and I was horrified to find that Dr Roubini who wrote one, quite surprisingly was very supportive of the things that Bernanke had done to address the crisis; however I found myself siding with Anna Schwartz, the erstwhile and highly respected economist, who with great aplomb skewered Bernanke for his numerous failures ("Man without a Plan"). I am certainly with her. I was reminded that way too often the current incumbent of the position of Lord of The Universe like his predecessor Guru Greenspan, have chosen to articulate positions on all manner of things and have been horribly wrong in hindsight.

Where I would have to disagree is that part of his plan was always going to be about inflating the FED balance sheet. The 2002 speech referencing the printing press and distributing dollars from a helicopter has come to pass.

****"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined
government can always generate higher spending and hence positive inflation." Dr. Ben Bernanke 2002****

The FED has liabilities galore and continues to print money at an unprecedented rate. This week alone the treasury will be issuing some US$211 bn between T-bills and the auctions for 2Y (42bn); 5Y (39bn) ; 7Y ( 27bn) and the TIPS (6bn).

Its interesting to note that even the disgraced Elliot Spitzer once deemed Wall streets own sheriff for his eager desire to prosecute wrongdoing is now accusing the Creature from Jekyll Island (the place the FED was born) of running a huge ponzi scheme based on discussion with the hubristic and substantially overpaid Dylan Ratigan ( I don't like him).

****Advocating in favour of a House bill to audit the Federal Reserve, Spitzer said: "The Federal Reserve has benefited for decades from the notion that it is quasi-autonomous, it's supposed to be independent. Let me tell you a dirty secret: The Fed has done an absolutely disastrous job since [former Fed Chairman] Paul Volcker left.
"The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
"The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through - conduit payments - to the investment banks that are now solvent. We [taxpayers] didn't get stock in those banks, they didn't ask what was going on - this begs and cries out for hard, tough examination.
"You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy." ******** [Source - rawstory.com]