FedUpUSA

Archive for December 3rd, 2009

By Tyler Durden and Geoffrey Batt

These days catching the Fed chairman telling the truth as opposed to a b(a)ld faced lie is in itself a six sigma event. Sadly this post will continue with hugging the median. Some observations on the most recent fabrications by the chief money printer himself, which go to show just how willing Bernanke is willing to bend reality and/or his perception of it as the occasion suits.

A week ago Zimbabwe Ben wrote an op-ed in Washington Post last week in which he said:

“Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation.”

Recovery without inflation is another way of articulating the Fed’s quixotic dual mandate.  Of course, everyone knows the Fed does not care about inflation, or, it seems, the economy, unless of course Goldman Sachs recently changed its name to Inflation Economy, Inc. But what’s striking about this sentence (the last sentence, no less, of a decidedly political op-ed), is that it directly contradicts what he says about QE in two papers in 2004.
 
In the May 2004 edition of The American Economic Review, Bernanke and Reinhart published “Conducting Monetary Policy at Very Low Short-Term Interest Rates.”  ZH cited this paper before as evidence that Bernanke considered monetizing equities viable in a debt deflation.  This time, however, it’s useful because he claims aggressive QE may “have expansionary fiscal effects.” 

Furthermore:

“So long as market participants expect a positive short-term interest rate at some date in the future, the existence of government debt implies a current or future tax liability for the public. In expanding its balance sheet by open-market purchases, the central bank replaces public holdings of interest-bearing government debt with non-interest-bearing currency or reserves. If the increase in the monetary base is expected to persist, then the expected interest costs of the government and, hence, the public’s expected tax burden decline. (Effectively, this process replaces a direct tax, say on labor, with the inflation tax.)”

Then in the Fed Minutes from Nov 4th we get:

“Participants noted that the recent fall in the foreign exchange value of the dollar had been orderly and appeared to reflect an unwinding of safe-haven demand in light of the recovery in financial market conditions this year, but that any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching.”

An odd remark considering what Bernanke et al said in Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment Author(s): Ben S. Bernanke, Vincent R. Reinhart, Brian P. Sack Source: Brookings Papers on Economic Activity, Vol. 2004, No. 2 (2004), pp. 1-78. More specifically:

…quantitative easing may work through a signaling channel if its implementation marks a general willingness of the central bank to break from the cautious and conventional policies of the past. A historical episode that may illustrate this channel at work (although the policymaker in question was the executive rather than the central bank) was the period following Franklin D. Roosevelt’s inauguration as U.S. president in 1933. During 1933 and 1934 the extreme deflation seen earlier in the decade suddenly reversed, stock prices jumped, and the economy grew rapidly.Christina Romer has argued persuasively that this surprisingly sharp recovery was closely associated with the rapid growth in the money supply that arose from Roosevelt’s devaluation of the dollar, capital inflows from an increasingly unstable Europe, and other factors. Because short-term interest rates remained near zero throughout the period, the episode is reasonably characterized as a successful application of quantitative easing.

It appears despite Bernanke (and Geithner’s) repeated appearances, admonitions and Fed Minute posturings to the contrary, Bernanke is fully aware of what his actions will do to both inflation and the dollar, and that the devaluation of the greenback is critical to the success of his campaign of bailing out CREs laden bank balance sheets. Yet in the meantime on every TV and congressional appearance the Chairman will eagerly lie and prevaricate, hoping his listeners have short memories, and have not bought a Kindle yet (difficult to imagine judging by Amazon’s 1,000,000,000,000,000 (non)inflation adjusted P/E) to have read his own scribblings on the matter of impending dollar devaluation. America deserves all it gets if it allows its Senators to reconfirm this human being for the most important post in the world.

I guess we know who the ‘mystery’ Republican is that is joining with Bernie Sanders to block Bernanke’s re-confirmation.  You know when the far left and the far right agree on something so passionately, hell must’ve frozen over.  In reality, it is just that these two Senators seem to understand the giant fraud and the illegalities perpetrated by the Federal Reserve upon the American public. 

Take a minute to call Senator Bunning and Senator Sanders and tell them thank you for actually standing up for the rule of law and attempting to protect the American people.  

Senator Bunning:  202-224-4343 DC office

Senator Sander’s DC Office:  (202) 224-5141

And we now have another Senator, Jim DeMint, who also will join with Bunning and Sanders in placing Bernanke’s confirmation on hold – specifically, Senator DeMint wants no action taken until S604 is passed to audit the Federal Reserve in full (its sister Bill, HR 1207 appears to be poised to pass the house).

Senator DeMint’s DC Office:  202-224-6121

While you’re at it, you might want to call the members of the Senate Banking Committee and tell them to vote NO on re-confirming Bernanke.

Christopher J. Dodd Chairman (D-CT) 202-224-1083
Richard C. Shelby Ranking Member (R-AL) 202-224-3416
Tim Johnson (D-SD) 202-228-5765
Robert F. Bennett (R-UT) 202-228-1168
Jack Reed (D-RI) 202-224-4680
Jim Bunning (R-KY) 202-228-1373
Charles E. Schumer (D-NY) 202-228-3027
Mike Crapo (R-ID) 202-228-1375
Evan Bayh (D-IN) 202-228-1377
Bob Corker (R-TN) 202-228-0566
Robert Menendez (D-NJ) 202-228-2197
Jim DeMint (R-SC) 202-228-5143
Daniel K. Akaka (D-HI) 202-224-2126
David Vitter (R-LA) 202-228-5061
Sherrod Brown (D-OH) 202-228-6321
Mike Johanns (R-NE) 202-228-0436
Jon Tester (D-MT) 202-224-8594
Kay Bailey Hutchison (R-TX) 202-224-0776
Herb Kohl (D-WI) 202-224-9787
Judd Gregg (R-NH) 202-224-4952
Mark Warner (D-VA) 202-224-6295
Jeff Merkley (D-OR) 202-228-3997
Michael Bennet (D-CO) 202-228-5036

We can’t let Bernanke’s confirmation hearings go without comment – but we also think we’re better off letting Senator Jim Bunning deliver the comment, since he was eager to lay the smackdown. A few choice extracts:

Now, I want to read you a quote: “I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled.”

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I’m going to ask that the full question and answer be included in today’s hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

…

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for.

Emphasis mine, because it’s where I noticed the most painful burns…

(h/t to Jr. Deputy Accountant where I saw this first)

ETA: Matt found the video via Karl Denninger:

This exciting development from Firedoglake:

As Ben Bernanke’s confirmation hearing begins in the Senate Banking
Committee, a source tells FDL News that one Senate staffer and an
outside source confirmed to him that at least one Republican on the
committee will also place a hold on the Federal Reserve chairman,
throwing the process into potential turmoil and giving Chris Dodd a
difficult series of choices to make.

Dodd, who just announced his intention to vote for Bernanke’s
confirmation in the Banking Committee and on the floor of the Senate,
would be in charge of the decision to honor or ignore that hold. The
fact that Dodd tried to place a hold on the FISA Amendments Act in
2007-08, and was generally ignored by Harry Reid, just adds a layer of
irony to the process.

The source, speaking on condition of anonymity because of his work
behind the scenes on the Bernanke confirmation, told me that two
separate sources assured him that the Republican hold would be made
public after today’s hearing. One staffer said that two Republicans
would place the hold, while the other said it would just be one. The
source said that the trans-partisan nature of opposition to Bernanke,
with a conservative Republican and a socialist independent uniting to
block the appointment, shows the intensity of the feelings on the
issue. “It’s great to see everyone come together – Democrats,
Republicans, progressives and libertarians, against this Federal
Reserve, which is not federal, and not a reserve, just a group printing
money and giving it to their buddies,” the source said.

While most people think that the multiple holds would delay the
process, it’s unclear whether or not it would succeed. Dodd would
probably have the discretion to roll over the hold in committee, though
he may be reluctant to do so, experts in Senate procedure said. Harry
Reid could also seek cloture on the motion to proceed on Bernanke’s
nomination on the floor, which would require 60 votes.

At the very least, this delay and the publicity surrounding
bipartisan opposition to Bernanke would bring attention to the issue of
the Federal Reserve and the desire for transparency, like the movement
to audit the Fed. That provision has already passed in the large
financial reform bill in the House Financial Services Committee, and Barney Frank said yesterday
that he didn’t expect any changes to the bill as it passed the House,
citing the public anger over the issue of transparency. There is
language on Fed audits in the draft financial reform bill written by
Sen. Dodd, which also strips the Fed of some of its power, but it is
not the same as Bernie Sanders’ audit the Fed bill, which has as many
as 30 cosponsors.

The source, who has been working on the Federal Reserve issue for
five years, marveled at how the issue has gained so much new attention
during the financial crisis. “Up until last year, nobody knew what the
Fed was. Ron Paul got 5 co-sponsors on his audit bill when he first
introduced it, and now we have 300.”

Sen. Dodd’s office has not yet responded with a comment.