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| Source: audreymarie.edublogs.org |
The Committee will also issue forecasts on the economy. These forecasts are valuable in the same way you want to know the alcohol imbibed by the driver before you decide to get into a vehicle. In terms of accuracy, the forecasts are of no value. You can get better forecasts on where the economy is headed in any bar in Manhattan. If you want to get a sense of their ineptness, check out their forecasts as the housing crisis unfolded.
In the afternoon, chief price setter Bernanke will play the role of professor and field soft ball questions from the financial press. They'll ask whether the FOMC takes the developments in Europe into account. They'll ask whether the FOMC is running out of arrows in its quiver and whether monetary policy can do anything further in light of the precarious fiscal policy position of the Federal government.
His responses will provide fodder to talking heads on CNBC and Bloomberg news as they parse each response. Most pundits will say that QE3, if it occurs, won't have an impact. They are talking about the economy. They are talking about GDP and employment. The impact is more subtle, and it has been ongoing. It is pushing harder on retirees and others to take risks in the financial markets they don't understand. It is creating underlying pressures as price controls always do for a spike in yields. Along these lines, the financial press would do well to ask Bernanke to trace the likely consequences on investment markets, the housing market, and the Federal deficit if the yield on the 10-year Treasury spikes.
The bottom line is that all of this is pushing the U.S. towards a cliff other than the much bally-hooed "fiscal cliff." It is like getting sucker-punched when looking the other way. And when rates rise, Bernanke will follow his predecessor Greenspan, writing a memoir explaining why the debacle wasn't his fault.
The cure for all of this is simple. Accept the lesson of history - price controls do not work. Do what Volcker did to bring down the rate of inflation. Get a good definition of money and have it grow in a range of say 2% to 4% and let the market determine interest rates, i.e. the price of money.
Ha, if I would have read this post before looking at the markets yesterday, I would have known what was going on before having to search for the article. I knew that this meeting was upcoming but didn't realize it was yesterday. It is a circus indeed!
ReplyDeleteI certainly understand where you are coming from in your assessment of Bernanke. I feel like we should have learned our lessons before, and that we keep on trying to solve the same problems that same way and yet expect different results :-(
Bernanke is definitely earning his nickname of "helicopter Ben" from when he said one time that at the extreme we could just drop money from a helicopter to get the economy going.
DeleteSolve the problems caused by the previous bubble with a new bubble....... not what I would call sound planning.
ReplyDeleteIn his mind Bernanke believes he saved the world with his policies in 2008/2009. Now he is out to make the world even better. What I don't get is that he is supposed to be a student of history and therefore knows that the path he is going down of cheapening the currency has been followed many times and always ended very badly.
DeleteThis QE thing just goes on and on. Everything the federal reserve does reminds me of japan since 1989. Their economy has been frozen in time ever since.
ReplyDeleteIt is interesting you bring up Japan because I think a lot of the housing crisis occurred because Greenspan/Bernanke wanted to avoid becoming Japan. In 2003 they worried about deflation and therefore pushed short rates down to 1% in the midst of a strong housing market thereby playing into the hands of the greedy nutcases exploiting the American taxpayer over at Freddie Mac and Fannie Mae.
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