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Friday, August 27, 2010

The Wizard Behind the Curtain

Please help me. Does anyone know how long we're going to be in Oz? Is Jackson Hole Wyoming Oz? The Chairman says that the Fed maintaining its balance sheet by purchasing securities involves a lack of “very precise knowledge” of the impact of the buys and the possibility that increasing the Fed’s balance sheet further “could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time."

Here's just one little question that happened to pop into my mind-IF THE PUBLIC'S CONFIDENCE IN THE FED IS ALREADY ZERO, CAN IT DROP FURTHER?

A second possibility, according to Mr. Bernanke, would be to tell markets that the Fed will keep its fed funds target rate low for a “longer period than is currently priced in markets.” Does the Fed know the length of the period that is currently priced in? Do they think that pushing around fed funds futures is the way to go?

What are they smoking in Jackson Hole? Can it be any clearer that the Central Bank is clueless?

Bond holders today have no purchasing power because the Fed has driven short-term rates to zero. In some people's minds, this lack of purchasing power is a problem. In Bernanke's mind, the solution is to inflate the economy and thereby lessen the value of savings even more.

Isn't it time to send Chairman Bernanke back to academia and get some hard money advocates at the Fed? Somebody needs to stand up and proclaim that the printing presses are being shut down and the days of the Greenspan/Bernake Fed controlling the price of money are over.


  1. But prices are stable! (Are they really?)

    One has to wonder if the financial sector would have become so bloated without interest rate trickery and the expansion of the money supply that we saw over the last decade.

  2. What wizard behind the curtain? I don't claim to know what the answer is, but my instincts say we need higher interest rates and more restraint in government spending and policy.

  3. Amen to the more restraint in government spending and policy... all of this manipulation makes the market so well...unpredictable. It's no wonder why people with money are holding to cash!

  4. No wizardry in Wyoming Robert. The Fed is demonstrating bureaucracy at its finest :(

    When do you think U.S. gov't spending/stimulus will stop to demonstrate instead, more financial discipline?

    Throwing good money after bad is never a good idea.

  5. I agree that rates should be raised. Also, the constant manipulation creates uncertainty and does more damage than good (assuming it does any good). I would add as well that for the most part the participants at Jackson Hole are clueless on the economy. Nobody has been more wrong about the economy and the impact on housing than Bernanke. Furthermore, a number of participants led by former Fed governor Alan Blinder came out of one of the meetings in the past proclaiming Greenspan the greatest Chairman of all time and deserving of the title "Maestro" as proclaimed by the gullible, economically inept media. As history is showing his policies have taken us into the worst economic environment since the 1930s.

  6. Tell us how you really feel Robert? All kidding aside, things aren't going to skyrocket anytime soon. Maybe a slow climb to normalcy.

    Not to be a pessimist, but what happens when "boomers" vacate the workforce - or does that really happen in 5-10 years given the economic climate? I've often wondered how the economic environment will be impacted (if at all) by "boomers" trying to retire here in Canada. Spending per capita will ultimately fall won't it?