Fed Policies Fuel More Uncertainty, Not Less
By Craig R. Smith
6.20.12 -- Wall Street yawned at the latest Fed policy statement because it was just more of the same failed policies of the past. Interest rates will remain at 0 - 0.25% until late 2014, Operation "Twist" (scheduled to end in June) will continue until year end - to the tune of another $267 billion piled onto the Fed balance sheet.
According to Bernanke's latest Fed-speak, unemployment is expected to remain from 8 to 8.2% for the remainder of 2012 and fall to 7.7% by 4th quarter of 2014, GDP growth has been revised downward to 2.15% for this quarter.
The Fed chief blames the non-recovery on; troubles in Europe, depressed housing, tight credit for borrowers and fiscal restraints on the federal, state and local levels of government - all of which remain major headwinds for the recovery.
I found Bernanke's statement rather revealing given there is zero fiscal restraint at the federal government level. The Obama administration continues to borrow and spend $58,000 per second beyond revenues - racking up $1.4 trillion in long-term debt each year.
Mr. Bernanke says inflation (i.e.CPI) is expected to remain under 2% until late 2014 as a result of the drop in oil prices. It appears when oil prices are up they take them out of the inflation equation, BUT if lower oil prices make the CPI look good, they include them.
Ben Bernanke is convinced Q.E.2 stopped deflation, yet only caused zero to 1.2% inflation in the process. If so, he is a miracle worker indeed, and may find a new cure for cancer next.
Regarding the effects of Q.E. he almost seemed to brag about manipulating investors, saying: "We induced investors to move into other substantive securities". Many investors sold treasuries and bought corporate bonds. Banks may have sold T-bills and made the money available in the form of new lending. Yet tight credit is still a major headwind? Ben sounds more like a politician than a Fed chairman. Or are they now one in the same?
In essence, Mr. Bernanke confessed that the Fed is manipulating investors in order to prop up the economy and hang onto what is an anemic recovery at best - thereby forcing investors to buy stocks instead of deposits, which will pay zero to .50%.
When questioned about the "fiscal cliff" we will soon face in January 2013, he all but refused to answer the question. He said it is a bit too early to worry about it, but we will need to make some decisions soon.
Really? Are you sure Mr. Bernanke?
Between his willingness to continue "twisting" and his dodging of the "fiscal cliff" crisis, he has decided to kick the can really, really, really far down the road which will inspire no confidence in the next generation toward their future.
I am becoming more convinced with each press conference, Mr. Bernanke, like his boss Barack Obama, is in over his head and is powerless to improve the economy.
Until our nation's leadership begins to unleash capitalism, entrepreneurial spirit and to establish certainty in taxes and regulations; we are in for a long, slow, stagflation-ridden recovery - which could easily morph into a much deeper recession or even a depression.