The DOW lost 220 points during and immediately after Bernanke’s speech, which it has now regained. It is being treated almost like a non-event, and maybe that is what is really important.
Immediately, the focus was shifted to Europe and the Euro, which the talking heads said is seen as much more of a problem than we have here in the US.
At a time like this, I turn to Mish’s blog, and what he has to say should come as no surprise. ~J
Bernanke’s Invisible Bazooka Ploy
Bernanke is out of tools that make any sense even to him.
Seriously, what can he do he has not already done? Given that $1.6 trillion in excess reserves did not do a damn thing to spur lending or job creation, what possible good can another $1 trillion do?
The answer is none.
Yet Monetarist fools want more QE. Monetarist fools are also hoping for “Operation Twist”, technically not QE but an attempt to drive down long-term rates by buying the long end of the curve and selling the short end.
Yield Curve Table
| Duration | U.S. | Japan | Germany | UK |
|---|---|---|---|---|
| 3-Month | -.01 | 0.10 | 0.97 | 0.51 |
| 6-Month | 0.02 | 0.11 | 0.56 | 0.59 |
| 12-Month | 0.08 | 0.12 | 0.59 | 0.53 |
| 2-Year | 0.19 | 0.14 | 063 | 0.59 |
| 3-Year | 0.32 | 0.17 | 0.67 | 0.75 |
| 5-Year | 0.93 | 0.34 | 1.20 | 1.36 |
| 7-Year | 1.52 | 0.59 | 1.63 | 1.84 |
| 10-Year | 2.18 | 1.04 | 2.14 | 2.49 |
| 30-Year | 3.55 | 2.01 | 2.98 | 3.75 |
Seriously, what possible good can come from say, driving down 10-year yields to say 1.75% or even 1.5% from here. Mortgage rates are at record low yields, yet new home sales are at the 1963 levels.
Clearly something other than the yield curve is holding down sales.
So what else can Bernanke do? Monetize more debt? How about …..
The Invisible Bazooka Ploy
Bloomberg reports Bernanke Says Fed Still Has Stimulus Tools, Doesn’t Signal He’ll Use Them
Federal Reserve Chairman Ben S. Bernanke said the central bank still has tools to stimulate the economy without providing details or signaling when or whether policy makers might deploy them.
“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said in a speech today to central bankers and economists gathered at an annual forum in Jackson Hole, Wyoming. He said a second day has been added to the next policy meeting in September to “allow a fuller discussion” of the economy and the Fed’s possible response.
Translation: I don’t have any tools that make any sense and I know it.
What else is there to do but bluff? He sounds like a 6-year old bragging about the size of his dog, that will protect him against all evils when the kid does not have a dog at all.
That does not mean Bernanke will not try something. Rest assured he will. I am not sure what but it will likely be given a creative name hoping to dazzle us with the same misguided Fed policies that got us into this mess in the first place.
Mike “Mish” Shedlock
Related articles
- As Economy Teeters, All Eyes On Bernanke (npr.org)
- Bond Report: Treasurys gain ahead of Bernanke speech (marketwatch.com)
- Bleak Commerce Report Ahead of Bernanke Speech (foxnews.com)
- Krugman: Political Intimidation Killing Recovery’s ‘Last Remaining Hope’ (huffingtonpost.com)
