Stimulus Addiction: Tougher to Kick Than Cigarettes
Bloomberg reports that the FOMC has decided to complete its $1.25 trillion program of purchasing mortgage securities by March 2010:
Sept. 24 (Bloomberg) — The Federal Reserve signaled that the U.S. economy’s return to growth is insufficient to withdraw stimulus as officials seek to reduce the highest unemployment rate in a quarter century.
While the economy has “picked up,” the central bank’s planned asset purchases will help ensure a “gradual return to higher levels of resource utilization,” the Fed’s Open Market Committee said yesterday. Policy makers committed to complete their $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December.
Policy makers, as part of a unanimous decision, kept the main interest rate in a range of zero to 0.25 percent and reiterated that rates will stay low for an “extended period. ”The central bank pledged to purchase “a total of” $1.25 trillion of mortgage debt, changing prior language saying it will buy “up to” that amount.
Capacity utilization, the proportion of industrial volume in use, rose in August to 69.6 percent from 68.3 percent in June, its lowest level since record-keeping began in 1967. The figure averaged about 81 percent from 2005 to 2007.
It’s typical for the Fedheads to keep their “policy” interest rate low while capacity use is slack — though I maintain that a zero interest rate is patently dangerous. It’s FREE MONEY, and it will be used to speculate.
However, for the Fed to continue monetizing mortgage securities on this scale during a recovery is quite unprecedented. It’s a backhanded admission of the Ponzi-like character of the U.S. economy. Until the private sector can start generating more debt to fuel the emergent Bubble III, the Fed must maintain the debt growth. Otherwise Benny Bubbles’ high-wire bicycle clown act tumbles off the cable strung across the main poles of the big tent.
If only there were a therapeutic patch that could be applied to the arms of FOMC members to treat their fiat-currency addiction! Intravenous naltrexone would have burst opium-fueled delusions. But I’m afraid they’ve moved on to crack smoking now.
LIGHT IT AGAIN, BEN!
Funny stuff, thanks for adding some laughs to my morning coffee.
The Huffington Post has an article today entitled “Time to Change Bernanke’s Medication? Secret White House letter to G-20.”
While acknowledging that this year’s economy has gone to hell in a handbag, Obama’s aide and ambassador to the G-20 seems to be parroting the irrational exuberance of Federal Reserve Chief Ben Bernanke who declared last week that, “The recession is very likely over.” All that was missing from Bernanke’s statement was a banner, “MISSION ACCOMPLISHED.”
And the French are furious. The White House letter to the G-20 leaders was a response to a confidential diplomatic missive from the chief of the European Union Fredrik Reinfeldt written a day earlier to “Monsieur le Président” Obama.
We have Reinfeldt’s confidential note as well. In it, the EU president says, despite Bernanke’s happy-talk, “la crise n’est pas terminée (the crisis is not over) and (continuing in translation) the labor market will continue to suffer the consequences of weak use of capacity and production in the coming months.” This is diplomatic speak for, What the hell is Bernanke smoking?
May I remind you Monsieur le Président, that last month 216,000 Americans lost their jobs, bringing the total lost since your inauguration to about seven million? And rising.
The Wall Street Journal also has a copy of the White House letter, though they haven’t released it. (I have: read it here, with the EU message and our translation.) The Journal spins the leak as the White House would want it: “Big Changes to Global Economic Policy” to produce “lasting growth.” Obama takes charge!
The technical policy conflict between the Obama and EU plans reflects a deep difference in the answer to a crucial question: Whose recession is it, anyway? To Obama and Bernanke, this is a bankers’ recession and so, as “stresses in financial markets have abated significantly,” to use the words of the White House epistle, then “Happy Days Are Here Again.” But, if this recession is about workers the world over losing their jobs and life savings, the EU view, then it’s still “Buddy, Can You Spare a Dime.”
If Bernanke and Obama were truly concerned about preserving jobs, they would have required banks loaded with taxpayer bail-out loot to lend these funds to consumers and business. China did so, ordering its banks to increase credit. And boy, did they, expanding credit by an eye-popping 30%, rocketing China’s economy out of recession and into double-digit growth.
American’s seem to like the idea of our president being some type of world leader even if he is so detached from reality that one must wonder what drugs are involved. The president is a cheerleader for his bosses at the federal reserve. If we are going to be subjected to this craziness, at least let us have some NFL cheerleaders like the “dallas cowgirls” or philadelphia’s “liberty belles.”