Bernanke Is Making the Crisis Worse
by ilene - November 23rd, 2010 7:10 pm
Bud Conrad of Casey Research delivers some more harsh criticism to Ben Bernanke regarding QE2, foreign relations and currency devaluation. – Ilene
Courtesy of Casey Research
The Fed is a corrupt and powerful institution, and Chairman Bernanke is making the global crisis worse. His new speech given last week in Europe was terribly misguided and will upset markets as the Chinese and Germans won’t ignore his challenges. Bernanke’s interpretations of the markets have been wrong since before he was appointed to head the Fed, and his actions are doing nothing but aggravating the situation.
In this seminal speech, titled “Rebalancing the Global Recovery,” Bernanke not only defended QE II as the right policy, but also attacked the monetary policy of China, the biggest holder of U.S. debt, an action that must be understood for how misdirected it is.
Here are a few excerpts from the speech:
On our "tepid" recovery
- In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years.
Indeed, although I expect that growth will pick up and unemployment will decline somewhat next year, we cannot rule out the possibility that unemployment might rise further in the near term, creating added risks for the recovery.
On China
- The strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy.
… For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth [i.e., China and its strategy] cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.
On defending QEII as the right policy
- Following up on this earlier success, the Committee [i.e., the Federal Open Market Committee] announced this month that it would purchase additional Treasury securities. In taking that action, the Committee seeks to support the economic recovery, promote a faster pace of job creation, and reduce the risk of a further decline in inflation that would prove damaging to the recovery.
Fully aware of the important role that the dollar plays in the international monetary and financial system, the Committee believes that the best way to continue to deliver
…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggRISKS TO THE OUTLOOK
by ilene - November 22nd, 2010 4:49 pm
The Pragmatic Capitalist discusses RISKS TO THE OUTLOOK. In addtition to listing David Rosenberg’s concerns, Pragcap adds one of his own — a double dip in housing. – Ilene
Courtesy of The Pragmatic Capitalist
David Rosenberg provided a nice list of risk in this morning’s client letter. The one major risk that Rosenberg and the market is largely overlooking at this juncture is the housing double dip. This has the potential to be THE most important story of 2011. As I’ve previously explained, declining asset values are highly destructive during a balance sheet recession. If the housing double dip surprises to the downside the problems that we’ve swept under the rug will quickly reemerge and this time there won’t be any political will for government intervention.
I still believe we are mired in a balance sheet recession that will result in below trend growth, deflationary risks and leaves us extremely vulnerable to exogenous risks that could exacerbate the current malaise. Rosenberg’s excellent list follows:
1. China is getting more active in its policy tightening moves as inflation pressures intensify. It’s not just food but wages too. Headline inflation, at 4.4%, is at a 25-month high. The People’s Bank of China (PBOC) just hiked banking sector reserve ratios by 50 basis points to 18.5% — the second such increase in the past two weeks and the fifth for the year. This could well keep commodity prices under wraps over the near-term.
2. European debt concerns will not be fully alleviated just because a rescue plan has been cobbled together for Ireland as it deals with its banking crisis. The focus will now likely shift to other basket cases such as Portugal and Spain. Greece has a two-year lifeline before it defaults. This saga is going to continue for some time yet.
3. Massive tightening in U.S. fiscal policy coming via spending cuts and tax hikes. This is the part of the macro forecast that is not given enough attention. See States Raise Payroll Taxes to Repay Loans on page A5 of the weekend WSJ.
4. Gasoline prices are about six cents shy of re-testing the $3-a-gallon threshold for the first time since mid October 2008. On a national average basis, prices at the pump are up 26 cents from a year ago — effectively draining about $25 billion out of household cash flow. Tack on the coming
…
Flip, Flop and Friday – Options Expiration Spectacular!
by Phil - November 19th, 2010 8:25 am
I don’t care if I die
Don’t ever leave me
don’t ever say goodbye
Things were going according to plan (even though the plan was horrifying) and everyone was happy but then Uncle Ben had to screw it up this morning when "The Bernank," speaking in Germany, indicated that the Fed would pull the plug on QE2 if they thought inflation would rise higher than "2 percent or a bit less."
WHA-WHA-WHAT? Keep in mind that WE are the only country on the planet Earth that is still pretending inflation is under 2% and he’s making this speech in China, where inflation is 4.4% so what do you think happened?
Of course, if you can answer that, you are smarter than the Wall Street Journal (but then again, who isn’t when it’s being run by people like Roger Ailes, who just said of National Public Radio: "They are, of course, Nazis. They have a kind of Nazi attitude. They are the left wing of Nazism.") who went with the headline: "Dollar Sinks Despite Chines Rate Rise" because they clearly do not understand the workings of International Monetary Policy, which I would find disturbing if the Wall Street Journal were a trusted source of financial information and not just a right-wing mouthpiece. As our friend Jon Stewart so aptly pointed out last night, there’s a pretty large disconnect between Conservatives and reality these days and it should be no surprise to any of us that this carries over to their trading positions.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| George Soros Plans to Overthrow America | ||||
|
||||
Fortunately, PSW readers are well aware that any indication by The Bernank that the…
Thrilling Thursday – The Luck of the Irish
by Phil - November 18th, 2010 8:03 am
Yawn!
Yes, YAWN I say to a 1% bounce! I mean REALLY people, have we taught you nothing following our 5% Rule? This is a very basic part of it, you get a 20% reversal off of 5% moves and that is called a WEAK BOUNCE. Don’t blame me, I don’t make the rules… Oh wait, actually I did make this one. Anyway, don’t blame me, this is just a rule based on how the system works so let’s not get too excited about what basically amounts to physics.
It could have been Ireland (which we were expecting) or it could have been JPM bashing the dollar (they did) or it could have been Buffett saying "All is well" in the NYTimes (gotta get the liberal into the market too!) – it could have been anything but SOMETHING was going to give us a dead cat bounce.
Note the Nov 2nd levels on the chart. Here, if it helps I’ll do an impression of a TV analyst: "It is truly amazing to see how resilient our markets are making such a strong recovery and we project…" Oh, excuse me, I made myself sick… Come on people, we’re back to our Nov 2nd highs (if that) and, if we pull back to the "year to date" view, the song "I’m Always Chasing Rainbows" springs to mind (the Alice Cooper version):
.jpg)
So pretty, isn’t it? Maybe this time it will be different. I’m not saying we CAN’T go up – with the Fed pumping in cash at an annualized rate of $1.8Bn it would be pathetic if we DON’T go up but I am very skeptical until we do break over those April highs and hold them as a firm floor. I was skeptical about Monday’s bounce (from 11,200 on the Dow to 11,275 and from 1,200 on the S&P to 1,207) and that served us quite well so give me the benefit of the doubt on this one before you all go off chasing this rally. We have a weekend coming up (lots of things could go wrong) and then a short week into a holiday which just so happens to be the holiday after which we expected the market to fall off a cliff if it continues to follow April’s Beta 3 pattern (see Monday’s…
Monday Market Movement – Meaty Beaty Big and Bouncy!!
by Phil - November 15th, 2010 7:40 am
The Fed is in all-out attack mode this week with $35Bn scheduled for release in the next 5 days. If that doesn’t goose the markets, then I think we are screwed because people, $35Bn is A LOT of money for a week. It’s $1.82Tn a year at that pace or 12% of our entire GDP being created by the Fed to give you the illusion that all is well with the markets. So say, thank you Chairman Bernanke, for treating us like children who would rather be lied to than facing reality and making necessary choices.
Speaking of necessary choices, I HIGHLY recommend looking at Barry Ritholtz’s "Fix It Yourself" deficit kit. Barry takes the more complex (but also good) NY Times article and presents the very excellent chart that shows us exactly what budget cap needs to be filled and what the available choices are to fill it. It’s a great way to think about the budget and also it makes you realize that 5 or 6 reasonable people sitting down with this chart at a table should be able to knock this thing out in a weekend if we were living in a rational world or perhaps one where an out-of-control Central Bank cooperated with a deceitful Treasury Department to maintain a status quo that clearly is not working for the American people.
QE2 is not about "fixing" the economy, it’s about FIXING the profits of the Primary Dealers (Gang of 12) who are estimated to reap a $50Bn benefit by simply acting as the conduits through which the Fed distributes our money as if they were the town Santa tossing candy off the back of a fire truck.
POMO spending might keep equities up and that is good for those of us who own them but what is it doing for the great unwashed and unemployed masses? Speaking of unemployed, did you know that 100,000 of Octobers 156,000 jobs created were not actual jobs but a bookkeeping entry as the government changed the "seasonal adjustment" it made to payroll numbers? Our friend, John Maudlin, explained the shenanigans over the weekend:
"According to John Williams at Shadow Government Statistics, the BLS’ fiddling with the figures via what he calls ‘seasonal-factor games’ actually created 200,000 phantom jobs last month. John cites such finagling as the
…
Alan Greenspan: The Banks Robbed You
by ilene - November 9th, 2010 8:07 pm
Alan Greenspan: The Banks Robbed You
Credit: Dan Lacey, Painter of Pancakes, via Jr. Deputy AccountantCourtesy of Karl Denninger at The Market Ticker
In a rather-stunning admission on Jekyll Island last weekend, Alan Greenspan "outed" what really happened.
What I’ve been talking about now for more than three and a half years.
And what many people have said was "an over-reaction" or "a distortion."
The claim has been repeatedly made that people made "mistakes" in our regulatory agencies, and that banks made "mistakes" making loans, packaging up securities and selling them to investors.
I have continually asserted that they were not mistakes.
They were scams and frauds.
This has been an unpopular viewpoint, with only a few – like Bill Black – agreeing with me.
Not any more…..
Is it time yet for America to force these banks into receivership?
To force prosecution for these frauds….. these crimes?
And to hold accountable the regulators…. including The Fed….. who intentionally ignored these frauds and crimes?
How many Americans have to lose their homes?
How many jobs have to go to China?
How much devaluation of our currency – undertaken to prop up these scams – will you tolerate?
How much higher does gasoline and food have to go in price, while your wages remain stagnant or you lose your job – and you’re evicted from your house - before you demand it stop and the scammers go to prison?
America’s Two Economies, and Why One is Recovering and the Other Isn’t.
by ilene - November 9th, 2010 5:02 pm
America’s Two Economies, and Why One is Recovering and the Other Isn’t.
Courtesy of Robert Reich
Next time you hear an economist or denizen of Wall Street talk about how the “American economy” is doing these days, watch your wallet.
There are two American economies. One is on the mend. The other is still coming apart.
The one that’s mending is America’s Big Money economy. It’s comprised of Wall Street traders, big investors, and top professionals and corporate executives.
The Big Money economy is doing well these days. That’s partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It’s essentially free money to America’s Big Money economy.
Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They’re merging and acquiring other companies.
And they’re going abroad in search of customers.
Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They’re selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America’s biggest investors are also going abroad to get a nice return on their money.
So don’t worry about America’s Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.
The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America’s largest corporations are heading upward.
But there’s another American economy, and it’s not on the mend. Call it the Average Worker economy.
Last Friday’s jobs report showed 159,000 new private-sector jobs in October. That’s better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.
Yet the American economy has lost 15 million jobs since the start of the Great Recession. And if you add in the growth of…
German Finance Minister calls Fed “Clueless”; G20 Showdown with China; Why Geithner’s “Non-Plan” is Nothing but Hot Air
by ilene - November 7th, 2010 5:32 pm
German Finance Minister calls Fed "Clueless"; G20 Showdown with China; Why Geithner’s "Non-Plan" is Nothing but Hot Air
Courtesy of Mish
Outside the blogosphere and into realm of high ranking government officials, it is rare to hear words like "clueless" to describe the Fed. That such talk is now occurring shows just how upset the rest of the world is at Bernanke’s policies.
Reuters reports US Policy ‘Clueless’: German Finance Minister.
Europe needs to strengthen economic governance and agree on a permanent crisis resolution mechanism, all the more so given current U.S. economic weakness, German Finance Minister Wolfgang Schaeuble said on Friday.
France and Germany should maintain their leadership role in Europe, Schaeuble said, especially in order to harmonise its economic policy and bolster stability given current economic uncertainties.
These are being worsened by reckless policy in part from the the United States, Schaeuble said, sharpening his criticism of the Federal Reserve’s program to buy an additional $600 billion worth of U.S. government bonds. Pumping more money into the economy will not solve the country’s problems, he said, adding that the world needed U.S. leadership that was currently lacking.
"With all due respect, U.S. policy is clueless," Schaeuble said. "(The problem) is not a shortage of liquidity. Late on Thursday, Schaeuble said Germany would take up this point critically with the United States both bilaterally and at next week’s G20 summit of industrialised and emerging nations.
G20 Showdown
The Financial Times reports China tees up G20 showdown with US
China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul.
Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.
“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”
China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest
…
To Hell Through QE
by ilene - November 7th, 2010 2:00 pm
To Hell Through QE
By Andy Xie, China International Business
The world seems full of smoke ahead of a world currency war. The weapon of choice is quantitative easing (QE). If you print a trillion, I’ll print a trillion. No change in exchange rate after a trillion? Let’s do it again, QE2. If you listen to people like Geithner, the end of the world is quite near. Rich people everywhere, not just the Chinese, are buying gold for peace of mind. When the currency values vanish in a QE melee, the rich at least have the gold to stay rich.
If you listen to American pundits, politicians or government officials, it’s all China’s fault. China is far from perfect – its currency policy certainly isn’t – but it is not the cause for the world’s ills. The US is by far the biggest source of uncertainty and the initiator of the QE war. Its elite created the biggest financial bubble since 1929, even removing regulations designed to prevent it, and left the US economy in a shambles after it burst. The same people want to find a quick cure to hold onto their power. Unfortunately, there isn’t one.
The US has cut interest rates to zero and run up budget deficits to 10% of GDP. It’s shock-and-awe Kenyesian policy. But, after a few quarters of strong growth, the economy is turning down again. Unemployment remains close to 10% (and would be much higher, close to Spain’s 20%, if the data included the underemployed and those who have stopped looking for work). The stimulus has failed.
How should one interpret the result? If you were Paul Krugman, you would say it wasn’t enough. Of course, if 20% of GDP in budget deficit and another round of QE still doesn’t work, he would say again it’s not enough. You can never prove Krugman wrong.
Continue here To Hell Through QE | China International Business.
ELECTION RESULTS: BIG WIN FOR THE GOP, POTENTIAL BIG LOSS FOR THE ECONOMY
by ilene - November 3rd, 2010 4:31 pm
ELECTION RESULTS: BIG WIN FOR THE GOP, POTENTIAL BIG LOSS FOR THE ECONOMY
Courtesy of The Pragmatic Capitalist
The country has spoken and they are not happy with the Obama economy. And rightfully so. It has been a remarkable disappointment thus far. President Obama’s biggest mistakes were often highlighted by me in real time:
- He should have chosen to bailout Main Street over Wall Street.
- He never should have appointed Geithner or Summers. They were merely attempts to rehash the Clinton economic team and unfortunately, due to his ignorance of the economic environment, President Obama had no idea that these men played a significant role in causing the crisis.
- He absolutely never should have reappointed Ben Bernanke. Mr. Bernanke has rehashed all of Alan Greenspan’s “flawed” policies and has chosen to focus on the banking sector at every twist and turn of this crisis.
- He should have saved his health care plan for term two and focused on helping Americans get the jobs they so badly needed.
- He should have dropped the hammer on Wall Street with harsh regulation. We have become a nation by the banks and for the banks and the de-regulation of the 90′s is largely to blame. We need to end the financialization of this country and get back to 3-6-3 banking as opposed to relying on our bankers to generate economic growth while also mis-allocating resources.
- He has had every opportunity to become the champion of Main Street. Instead, he appears no different than his many predecessors who have been slaves to bank lobbyists.
This election is largely a referendum on the Obama economy. Unfortunately, I am concerned that the change is not necessarily any better. Specifically, I am most concerned about a return to the ways that got us into this mess in the first place:
- I am concerned that we are moving back towards a belief that business is efficient and rational and therefore does not need to be regulated.
- I am concerned that gridlock will lead to severe budget constraints. Like it or not, we are in a balance sheet recession. And when you’re in a balance sheet recession someone must run a surplus or economic growth will decline. That is simply an accounting identity. With the private sector paying down
…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(