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Bernanke - Still speaking as though to children

Monday, December 1, 2008, 3:45 PM

Bernanke's remarks today did little to soothe this ruffled observer.  His remarks struck me as practically dishonest in their inability to speak directly to our actual problems. 

Bernanke says Fed still has arrows in quiver
WASHINGTON (MarketWatch) - The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S. central bank still has plenty of available firepower it could deploy to restore financial markets to normal, Fed Chairman Ben Bernanke said Monday.

I wish that we could just get some straight talk about our actual condition, instead of this weird insistence on "restoring our financial markets to normal."  This ignores the fact that they were completely abnormal.  Why would we want to return there? I guess it's this strange insistence on continually repeating the mantra that things can be "restored to normal" that's got me unsettled. 

The way I see it, there's no "normal" to return to.  Things were hopelessly out of whack before, and now they will settle into some new, different level of activity.  

George Soros refers to this same process in his Theory of Reflexivity, arguing that the mainstream economic insistence that there is some sort of magic equilibrium is utterly without merit.  Instead, markets reflect the interplay between human perceptions and reality.  So there's no such thing as "equilibrium."  Everything is constantly in flux.  

Hence, any efforts to "restore normality" are destined to fail, because there's really nothing to return to.  "Normal" doesn't exist. If you subscribe to this theory, as I do, then Bernanke's efforts are destined to be not only fruitless but also horribly expensive errors that are compounding the prior mistakes.

The Fed could buy Treasury notes and bonds or agency bonds in a bid to drive yields lower and "spur aggregate demand," Bernanke said. Many analysts refer to such a policy as "quantitative easing," because the Fed would target a specific amount of money to flood into the economy.

"Could?"  The Fed balance sheet is already loaded with both agency and Treasury debt, and they just announced a $600 billion program for more agency debt last week.  So I guess what they meant to say here was that the Fed could buy more government debt than usual.

The U.S. economy is under "considerable stress," Bernanke said, and is likely to remain weak for some time. The economy "downshifted further" after the financial crisis of September, he said.

The economy won't be able to fully recover unless and until financial markets resume normal functioning, he said. The economic outlook is unusually uncertain, he said, because it's difficult to know when financial markets will be healthy again. He noted some tentative signs of improvement, but other signs were worsening.

Again, this economic talk is so far off the mark that it makes me feel like I am being talked down to, as though I were a small child.  This is not "considerable stress."  9/11 was "considerable stress."  This is the worst economic crisis ever in our history, if the record-breaking and record-setting across-the-board declines are any indication.  

I advocate a bit of honesty and truth.  We can handle it.  In fact, it might even be refreshing, and in an odd sort of way allow some people to conclude that we've turned a critical corner.  As long as we continue to sugar-coat every bit of language in an attempt to "soothe the markets," I think we will find a real bottom to be perpetually elusive.

Bernanke spoke at the Greater Austin Chamber of Commerce in the Texas capital, just hours after the private National Bureau of Economic Affairs announced that the economy had entered a recession nearly a year ago.

Thanks NBER!  Right on top of things, as usual.  That's a very helpful service you've got there, telling us we started a recession a year ago.  Perhaps GM can use that information in their planning process. 

Further rate cuts are "certainly feasible," but the ability of traditional monetary policy to further stimulate the economy is limited, the Fed chairman said.

Additional rate cuts?  To what?  Three month T-bills are currently yielding 0.00%.  Hard to imagine going much lower than that.  The Fed has a long history of following the market on rates, and the market is already at 0.00%.

The Fed could also expand its efforts to supply liquidity directly to markets and investors, bypassing banks and other reluctant institutions, he said.

Uh, oh.  This is a very ominous statement.  Let's imagine what mechanisms he might be envisioning to "supply liquidity directly to markets and investors."  All I can think of is a wire transfer or check directly from the Fed to these "markets and investors."  In the case of "markets," I suspect Bernanke is talking about buying stocks.  The Fed granted itself the right to perform this function about 3 months ago, and I guess Bernanke is reminding us that they may yet directly buy equities in an effort to support stock prices.

But directly to investors?  All I can say there is that if you receive a check from the Fed, spend it as fast as you possibly can, as that will mark a turning point for our currency.  If you don't believe me, then we should take a road trip to Zimbabwe together, because that is exactly what their Central Bank did early on in their current inflationary crisis.

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24 Comments

Caasi's picture
Caasi
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Re: Bernanke - Still speaking as though to children

Bernanke is following exactly what he said in his speech in Geneva in Jan 2004.

http://www.federalreserve.gov/boarddocs/speeches/2004/200401033/default.htm

For example:

"As an important participant in the Treasury market, the Federal Reserve might be able to influence term premiums, and thus overall yields, by shifting the composition of its holdings, say from shorter- to longer-dated securities."

"Besides changing the composition of its balance sheet, the central bank can also alter policy by changing the size of its balance sheet; that is, by buying or selling securities to affect the overall supply of reserves and the money stock."

and of course,

"When stated in terms of quantities, it becomes apparent that even if the price of reserves (the federal funds rate) becomes pinned at zero, the central bank can still expand the quantity of reserves. That is, reserves can be increased beyond the level required to hold the overnight rate at zero--a policy sometimes referred to as "quantitative easing." Some evidence exists that quantitative easing can stimulate the economy even when interest rates are near zero; see, for example, Christina Romer's (1992) discussion of the effects of increases in the money supply during the Great Depression in the United States. "

Does everyone remember the name Christina Romer, the soon-to-be head of Council of Economic Advisors. Looks like we're in for change alright - Change American Style.

"Quantitative easing may also work by altering expectations of the future path of policy rates. For example, suppose that the central bank commits itself to keeping reserves at a high level, well above that needed to ensure a zero short-term interest rate, until certain economic conditions obtain."

I read that as no end in sight.

Sorry about the length of the post, but one more:

"quantitative easing that is sufficiently aggressive and that is perceived to be long-lived may have expansionary fiscal effects. 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 open-market operation is not expected to be reversed too quickly, this exchange reduces the present and future interest costs of the government and the tax burden on the public. "

Long-range planning Fed style.

-Caasi

bearing01's picture
bearing01
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Re: Bernanke - Still speaking as though to children

Bernanke is also admitting to buying US treasuries with printed money.

 http://www.bloomberg.com/apps/news?pid=20601087&sid=aAyFFofa8zd8&refer=worldwide

 I am now more fearful for the US dollar than back in October when I was storing can soup & bullets in the bomb shelter.

I believe that this is the sign to start spending your savings (between now and next year) on whatever non-depreciating assets you can find.  Particular gold, silver and equities.

I already stopped buying treasuries as part of my 401k and soon will be time to dump the ones I already have.  Great time to dump considering bonds are in a good bubble right now and Bernanke intends to keep it that way.

Headless's picture
Headless
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Re: Bernanke - Still speaking as though to children

Chris said: "Thanks NBER!  Right on top of things, as usual.  That's a very helpful service you've got there telling us we started a recession a year ago.  Perhaps GM can use that information in their planning process."

Chris,

This (NBER's year-belated announcement of the recession) will now be used as another strategy to pump the market; that is to say, everyone in our corrupt government, the parrots on CNBC, the analcysts et al will all start claiming that since the recession started "a year ago," and given that the average recession is X months, "we are in great shape now. The bottom's in. The market should start anticipating the recovery."

Where does this B.S. stop! Our entire country--save the few of us that post here--seems to be either completely senseless and incompetent or in unprecedented denial or some combination of the the two.

I just want to scream--every day! This whole charade, the willingness to lie? cheat? steal? deny?...pick a concept, it is just too much.

We're not being treated like children. We're being treated like crops. Feed 'em what they need, then shear them off at at the knees.

 

P.S. Gak, if you read this: Congrats on the SKF!

Davos's picture
Davos
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Re: Bernanke - Still speaking as though to children

Firepower - sure, if he is talking jet fuel that he can pour onto a raging inferno, then yes, I'd agree, the "Fed" has the firepower to burn the house down by hyperinflation or destroying the bond market and taking the currency with it.

In any event I see the cleanup crew for isle one being prepped. Vockler and Romer, Mr. High Interest Rates and Ms. New Currency.

What scares me is what stands in between this time period - and I'm not the least bit concerned with the money aspect of all this.

 

ashtonw's picture
ashtonw
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Re: Bernanke - Still speaking as though to children

I was thinking of getting laser eye surgery.  Would that be a good investment now?

Erik T.'s picture
Erik T.
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Re: Bernanke - Still speaking as though to children

There are consultants who watch people on video and analyze body language and voice timbre to detect deception. SOme of them are quite good.

I would absolutely LOVE to see a pro analysis on Bernanke's speech today from one of these guys. I watched it live, and although I am not expert enough to back this up with specifics, I didn't believe that he believed one word of the BS he was putting out. His voice kept going high at funny times, and his speech was irregular.

Like a little kid lying to his parents, and knowing he's certain to get caught sooner if not later.

Where does it end?

Erik

Headless's picture
Headless
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Re: Bernanke - Still speaking as though to children

Erik said:

"Like a little kid lying to his parents, and knowing he's certain to get caught sooner if not later."

Erik,

I couldn't agree with you more. Having been a teacher for almost 20 years and a union rep for 3 (which involved working with children, colleagues, adminstrators, members, etc, in all imaginable situations of various degrees of intensity), I can say that my instinct tells me--and I've watched every congressional hearing that Paulson and Bernanke have participated in--that they are scared to death; they are putting on an act, hoping to their Gods, whatever they pray to, that nobody is picking up on what they are really thinking.

You have hit the nail on the head with your comment!

NZO

mainecooncat's picture
mainecooncat
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Re: Bernanke - Still speaking as though to children
ashtonw wrote:

I was thinking of getting laser eye surgery.  Would that be a good investment now?

Can't tell if you're being facetious here or if I'm missing some obvious quip. However, I think it would be a good investment. I bought a couple of pairs of back-up glasses and ordered a few years worth of contact lenses. My vision's so bad if I don't have corrective lenses I'm an invalid.

mainecooncat's picture
mainecooncat
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Re: Bernanke - Still speaking as though to children
Nonzeroone wrote:

Where does this B.S. stop! Our entire country--save the few of us that post here--seems to be either completely senseless and incompetent or in unprecedented denial or some combination of the the two.

I just want to scream--every day! This whole charade, the willingness to lie? cheat? steal? deny?...pick a concept, it is just too much.

My feelings exactly.

I also love the reference to "the financial crisis of September" as if it's some compartmentalized event separate from the financial crisis of August, October, November and December.

Obfuscation is one of the most effective forms of propaganda.

 

Davos's picture
Davos
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Re: Bernanke - Still speaking as though to children

Erik:

Man, I watched a few clips of Ben and Hank recently. I thought I was being paranoid but Ben has to be the worst "poker player". Thanks for saying that out loud! Nonzeroon, as an ex-union rep and vice chairman I couldn't agree with you more.

I hope, for their sake, that the 20,000 troops being deployed on our soil http://www.washingtonpost.com/wp-dyn/content/article/2008/11/30/AR2008113002217_pf.html can save their collective hineys when the natives figure out that they have been had.  

Arnie has declared a fiscal emergency http://www.breitbart.com/article.php?id=D94Q55T80&show_article=1 I guess he might be just a bit worried that he can't pay the cops, teachers and God knows who else...

capesurvivor's picture
capesurvivor
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Re: Bernanke - Still speaking as though to children

Erik, 

I've been a psychologist for 35 years and I could not agree with you more about Bernanke. As I've watched this guy all along, I wondered why they picked someone who was such a bad liar to be so much in the public eye. It seems that the most necessary skill for public officals is the ability to lie well, possibly even believing your own lies. 

SG

drb's picture
drb
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As the audience - do we not expect 'action' vs 'inaction'?

Individuals who we put in a position of responsibility have a lot of pressures imposed upon them by those of us on the outside.  This post is not meant to be viewed as support for the actions being taken by the Treasury and the Fed - but merely a recognition that we are sitting in a crowded coliseum where those of us screaming for the players to slow down and 'think' a bit cannot be heard over the much much larger crowd that is screaming for action.

Here is an interesting link on the psychological bias towards doing something vs nothing (my spin on this article would be that action bias is more pertinent among participants who are in the public eye - (i.e. lethargy, and a bias towards the status quo, takes over in the private domain).

Quote:

Don't Do Something

The October Journal of Economic Psychology says goalies do too much:

In
soccer penalty kicks, goalkeepers choose their action before they can
clearly observe the kick direction. An analysis of 286 penalty kicks in
top leagues and championships worldwide shows that given the
probability distribution of kick direction, the optimal strategy for
goalkeepers is to stay in the goal's center. Goalkeepers, however,
almost always jump right or left. ... The claim that jumping is the
norm is supported by a second study, a survey conducted with 32 top
professional goalkeepers. The seemingly biased decision making is
particularly striking since the goalkeepers have huge incentives to
make correct decisions, and it is a decision they encounter frequently.
Finally, we discuss several implications of the action/omission bias
for economics and management. ...

|

 

Futuo's picture
Futuo
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Re: Bernanke - Still speaking as though to children
capesurvivor wrote:

It seems that the most necessary skill for public officals is the ability to lie well, possibly even believing your own lies. 

Too true, reminds me of Doublethink. Bernanke doesn't seem to be believing it at all. Perhaps the Thought Police will nab him, and take him down to Miniluv? 

capesurvivor's picture
capesurvivor
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Re: As the audience - do we not expect 'action' vs ...

There is a great zen concept called "wu wei", which is defined as "action through inaction".

 

SG

 

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cwixom
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Re: Bernanke - Still speaking as though to children

People!  Putting 20,000 troops on our soil for a pretended anti terrorist force.  Just how long do you think it will be until they are used AGAINST THOSE US CITIZENS WHO DISAGREE WITH THEM??  This smacks of going into Iraq because of WMD.  A quick slight of hand and the population is duped again.  Heaven help us!

 BTW just incase anyone doesn't know it, the Fed does not control money supply nor do they control interest rates any more than I control the weather by telling you its raining.

joe2baba's picture
joe2baba
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Re: Bernanke - Still speaking as though to children

this is the wisdom of the market.

Dow plunges on news recession began in Dec. 2007
WASHINGTON (AP) -

oh my god i have been dead for a year please bury me.

joe2baba's picture
joe2baba
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Re: Bernanke - Still speaking as though to children

hey chris

in my meager understanding of markets since the interest rates are at zero does that not mean that we could possibly have  a dollar carry trade? ala the yen carry trade.

that is if anyone can find something to invest in.

of course i am waiting till they pay me to take the money. ala a stimulus package

i think i will take my next stimulus check and buy gold.

drb's picture
drb
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Re: Wu Wei
capesurvivor wrote:

There is a great zen concept called "wu wei", which is defined as "action through inaction".

 

Sounds like a possibility for a 'Dilbert' thread: 

ianp123's picture
ianp123
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Re: Bernanke - Still speaking as though to children

What's Bernake's next plan? Setting fire to his own hair?

krogoth's picture
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Re: Bernanke - Still speaking as though to children

And what about stuttering Paulson? OMG this guy looks like he is 12 and just got caught shoplifting or something, trying to talk his way out of it. If he says tranches one more time I think I am going to vomit. It's his favorite word. Boy I am glad he is going. But I see we have another Fed replacing him.

 

The game continues

Septimus's picture
Septimus
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Re: Laser Eye Surgery

My opinion,

Yes, get it now as well as any other elective or other wise postponable procedures. I had LASIK done in January 08 because it was really time for me and my vision and I had a "feeling" that I better go ahead and do it because of the economy and so on as they on fold over the next few years (months?).

Don't try to bargain on price too much, get the best doctor for outcomes. The one I used was in on some of the early work in this area and has tons of experience. He was not the cheapest but the results were excellent!

 Good luck!

Damnthematrix's picture
Damnthematrix
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Re: Laser Eye Surgery

Maybe that's what those bastards in charge need to become visionaries...... Laser Eye Surgery!  Could even be subsideised...!

aczop's picture
aczop
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Re: Bernanke - Still speaking as though to children

I guess the gov't thinks that something to the effect of "The past few years have been a fantasy, this is just the way it is now, sorry you lost 40% equity in your home and half of your retirement.  Good luck!" just won't cut it for Average Joe.  Those people "in the know" (Chris and most everyone who reads his site, etc), know that this is BS coming out of Bernanke's mouth, but I have a feeling that this sugar coating and all of these ridiculous ideas to get the economy "back on track" makes Average Joe feel better even if it isn't helping the economy.  The gov't is helping Average Joe cling on to hope for the time being - keeping him in the denial stage.  I think this is right where the gov't wants him for now.

Gaborzol's picture
Gaborzol
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Re: Bernanke - Still speaking as though to children

I just want to scream--every day! This whole charade, the willingness
to lie? cheat? steal? deny?...pick a concept, it is just too much.

We're not being treated like children. We're being treated like crops.
Feed 'em what they need, then shear them off at at the knees.

I have read this great story, that helped me a lot ever since when I get into the kind of consciousness you are describing. Castaneda and his teacher is out in the desert, when C. gets attacked by a carnivore, and has to run as fast as he can to reach a tree he can climb to. Afterwards the teacher ask C. if he was angry at the animal for chasing him. He answers, that of course in the moment he didn't have righteous feelings or any really, he was just concentrating on the difficult task on not to be captured and eaten.

The teaches says (to him and to me too) in essence: "This is the kind of mindset you want to maintain in your daily life. If you don't get bogged down in the why-s of what others do or don't do, you can use your energy to act in the most cool-headed, and organized, way. Otherwise your actions are only reactions, meaning you will always end up being behind the ones you are reacting to."

Sometimes (not frequently yet) I am able to maintain that kind of mind-set, and it is for sure easier to hang out and act with than the reactionary one.

Gábor     

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