Ben Bernanke & US Fed 01 (May 08 - Nov 10 )

Re: Ben Bernanke / US Fed

Postby millionairemind » Fri Jun 04, 2010 10:25 am

That's 3 months from now...

Pretty aggressive move.

Fed should raise rates to 1 percent: Hoenig

Oklahoma (Reuters) - A top Federal Reserve official on Thursday made a bold call for the U.S. central bank to raise its key interest rate to 1 percent by the end of summer, saying the economy is strong enough to support such a hike.

Thomas Hoenig, president of the Kansas City Federal Reserve Bank, has called for a modest increase in borrowing costs before, but he went further on Thursday by before, but he went further on Thursday by suggesting it should happen over the next several months and by calling for an increase in borrowing costs to 3 percent in rapid order.


Hoenig, who is known as one of the Fed's most strident anti-inflation hawks, said the U.S. central bank should raise its benchmark federal funds rates to avoid being slow in responding to the recovery.

"Based on the current outlook consensus, it seems reasonable that the economy would be well-positioned to accept this modest increase in the funds rate," Hoenig told a business lunch.

The Fed cut interest rates to near zero percent in December 2008 and has kept them there since to aid economic recovery.

Hoenig said the recovery is gaining steam and appears stronger and more broad-based than anticipated.

"We are now seeing clear signs that the process of job creation is taking hold," he said.

Hoenig is a voter on the Fed's policy-setting panel and has dissented against the Fed's exceptionally easy money policies at all three meetings this year. He has said he is worried that rock-bottom borrowing costs for such a long period will fuel another dangerous boom-and-bust cycle.

Hoenig said on Thursday the Fed should start by dropping its promise to hold rates exceptionally low for an extended period, as part of the process of bringing interest rates and the Fed's extension of credit to the economy back to normal.

The U.S. central bank should then raise rates to 1 percent and then stop while it assesses how the economy reacts to the higher rates. If the recovery remains solid, the Fed should push borrowing costs to 3 percent reasonably quickly, he said.

The Fed should also sell some of the mortgage-backed securities it bought as it sought to give the flagging economy an additional boost after it chopped interest rates to near zero, he added.

The debt crisis in Europe is "fluid" and poses a risk to the recovery, Hoenig said.
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Re: Ben Bernanke / US Fed

Postby millionairemind » Tue Jun 08, 2010 10:28 am

Jun 8, 2010
No double-dip: Bernanke
WASHINGTON - THE US economic recovery remains on track and the country should avoid falling back into the depths of recession, Federal Reserve chairman Ben Bernanke said on Monday.

'So far it is pretty good,' Mr Bernanke said of the slow road out of the downturn that has gripped the United States since late 2007, 'we will have a continued recovery.'

His upbeat comments come as investors are increasing uneasy about the prospect of a jobless recovery, a sentiment fueled by recent disappointing unemployment figures for May, which showed the private sector continues to be wary about hiring.

'There are some signs that the private sector... is moving the economy forward,' Mr Bernanke told a Washington event hosted by the Woodrow Wilson International Center for Scholars.

'There seems to be a good momentum in consumer spending and investment.' But, he admitted, 'unemployment will stay high for some time.' The US unemployment rate currently stands at 9.7 per cent. -- AFP
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Re: Ben Bernanke / US Fed

Postby iam802 » Tue Jun 08, 2010 12:16 pm

Ah Ben did not gave any timeframe on the recovery.

Things are not going to be worse than the bottom of 2009.

But, can the market goes lower from where we are?

I think so. And it does not need to go down a lot to hurt the pockets.
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Re: Ben Bernanke / US Fed

Postby millionairemind » Tue Jun 08, 2010 12:30 pm

iam802 wrote:Ah Ben did not gave any timeframe on the recovery.

Things are not going to be worse than the bottom of 2009.

But, can the market goes lower from where we are?

I think so. And it does not need to go down a lot to hurt the pockets.


When SP500 hits 950, alot of the baby boomers who are retiring will be squirming. They were the ones who powered the BULL run in the 80s and 90s.
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Re: Ben Bernanke / US Fed

Postby winston » Wed Jun 09, 2010 9:57 pm

Helicopter speaking today but he's an old hand now. He knows what the market wants to hear. Unlike those jokers in Europe ..
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Re: Ben Bernanke / US Fed

Postby kennynah » Wed Jun 09, 2010 10:33 pm

i agree....same old same old stuff.... i dont understand why they even bother to invite him to speak... it's a wayang show....boring....
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Re: Ben Bernanke / US Fed

Postby millionairemind » Fri Jun 11, 2010 9:52 am

Jun 11, 2010
Emergency borrowing falls
WASHINGTON - BANK borrowing from the Federal Reserve's emergency lending program over the past week fell to the lowest point in more than two years, further evidence that credit markets are improving.

The Fed said that banks averaged US$105 million (S$147.2 million) in borrowing for the week ended on Wednesday. That was the lowest borrowing since it averaged US$23 million for the week ended March 12, 2008, before the credit crisis struck with full force.

Loans from the central bank's emergency lending program, known as the discount window, had surged to a high of US$110 billion a day during the height of the financial crisis in the fall of 2008. At the time, banks found their customary sources of credit frozen. The US$105 million average borrowing for the week ended Wednesday was down from an average of US$678 million in borrowing for the previous week. With financial and economic conditions improving, the Fed has been winding down its special lending programs.

The largest of these efforts is a US$1.25 trillion program to purchase mortgage-backed securities issued by Fannie Mae and Freddie Mac in an effort to lower mortgage rates and provide a boost to the depressed housing market.

The new report showed that those holdings averaged US$1.11 trillion daily for the week ended Wednesday, up by US$138 million from the average for the previous week.

Some economists have worried that mortgage rates would start rising once the Fed's purchases of mortgage-backed securities end. But Fed officials have stressed that even after new purchases end, the central bank will be holding a sizeable portfolio of these types of securities that will continue to provide support for the mortgage market. -- AP
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Re: Ben Bernanke / US Fed

Postby greenhoney » Fri Jun 11, 2010 6:08 pm

saw an interesting series about money and the fed. quite amazingly (and i didnt know) all USD in circulation is actually debt money printed by the fed as bought from the US treasuries.

it is very interesting as what we deem as money. if any of you guys are free, do watch the whole series!

http://www.youtube.com/watch?v=vVkFb26u9g8
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Re: Ben Bernanke / US Fed

Postby millionairemind » Wed Jun 16, 2010 2:50 pm

Published June 16, 2010

Fed to wait till 2012 to raise interest rates: study

It also addresses objections to keeping the Fed funds rate near zero


(WASHINGTON) Given high unemployment and low inflation, the Federal Reserve is likely to wait until 2012 before it starts to raise interest rates, a new Fed research paper states.

The paper, released on Monday by the Federal Reserve Bank of San Francisco, does not represent the official position of the central bank, whose governors have declined to specify when they might begin to raise rates. The benchmark short-term interest rate, known as the federal funds rate, has been essentially zero since December 2008, and most economists estimate that the Fed will increase it earlier than 2012.

But the paper, by Glenn Rudebusch, a senior vice-president and associate director of research at the San Francisco Fed, is notable for its plainspoken conclusion. It could carry added significance because Janet Yellen, the president of the San Francisco Fed, is President Barack Obama's nominee to be vice-chairwoman of the central bank.

'Fed staff economists rarely come so close to making specific forecasts of - or recommendations for - monetary policy, but I suspect Glenn's views are shared by many others on the staff,' said Joseph Gagnon, a former Fed economist and now a senior fellow at the Peterson Institute for International Economics.

Mr Rudebusch concluded from Fed decisions over the last two decades that there was a statistical relationship between core consumer price inflation and the gap between actual unemployment and the natural, or normal, rate of unemployment.

Given that relationship, as the recession worsened and inflation slowed in 2009, the Fed in theory should have lowered the federal funds rate by another 5 per cent, Mr Rudebusch wrote. In reality, since the Fed had already hit what it called the 'zero lower bound', this was impossible; the central bank left its target range for the fed funds rate at zero to 0.25 per cent.

'To deliver future monetary stimulus consistent with the past - and ignoring the zero lower bound - the funds rate would be negative until late 2012,' Mr Rudebusch wrote. 'In practice, this suggests little need to raise the funds rate target above its zero lower bound anytime soon.'


Mr Rudebusch sought to address several objections, so far voiced by a minority of Fed policymakers, to keeping the federal funds rate near zero.

If the rate was raised too soon, it would be hard to reverse course; if tightening started too late, the Fed could catch up by raising rates at a rapid pace, he argued.

And while a few Fed officials have argued that extraordinarily low interest rates could lead to new price bubbles, or excessive leverage and speculation by banks, Mr Rudebusch argued that the relationship between short-term interest rates and financial imbalances was 'quite erratic and poorly understood', noting that Japan had very low interest rates for about 15 years without those problems.

In addition, Mr Rudebusch said the federal funds rate was less central than in the past because the Fed had been buying mortgage bonds and Treasury securities to hold down long-term rates.

'Changes in long-term interest rates have much larger effects on the economy than equal-sized changes in short-term interest rates,' he wrote.

Assuming that the Fed holds on to the roughly US$2 trillion in mortgage-backed securities and Treasury debt on its books, the Fed would not need to start raising rates until the beginning of 2012, he wrote. -- NYT
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Re: Ben Bernanke / US Fed

Postby millionairemind » Mon Jun 28, 2010 8:36 am


RBS tells clients to prepare for "monster" money printing by the Federal Reserve
As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.


By Ambrose Evans-Pritchard
Published: 5:11PM BST 27 Jun 2010


Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.

The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.

The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely (http://www.federalreserve.gov/BOARDDOCS ... efault.htm)

because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".

We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.

Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".

A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment.
The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.

Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.

Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.

The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.

It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?

Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.

Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.

The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.


Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.

At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc.

We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.

There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

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