Has the Fed been fueling bubbles? You be the judge

Some say the Fed-engineered rates have produced an economic sugar high that risks triggering a crash akin to the tech-stock swoon in 2000 and the housing bust in 2006.


By JOSH BOAK, AP Economics Writer 12/19/13 10:28 am :: Last updated: 12/19/13 10:28 am


The Federal Reserve’s super-low interest-rate policies have inflated a slew of dangerous asset bubbles. Or so critics say.

They say stocks are at unsustainable prices. California homes are fetching frothy sums. Same with farmland, Bitcoins and rare Scotch.




Under Chairman Ben Bernanke, the Fed has aggressively bought bonds to try to cut borrowing rates and accelerate spending, investing and hiring. Its supporters say low rates have helped nourish the still-modest economic rebound.

Yet some say the Fed-engineered rates have produced an economic sugar high that risks triggering a crash akin to the tech-stock swoon in 2000 and the housing bust in 2006.

STOCKS

The Standard & Poor’s 500 stock index has jumped about 26 percent since the Fed announced a year ago that it would buy $85 billion in bonds each month. And since the Fed’s first round of bond buying at the end of 2008, stocks have soared 124 percent. Stocks outside the United States have also surged as other central banks have followed the Fed with their own low-rate policies. Germany’s DAX is up 20 percent, Japan’s Nikkei index 46 percent.

Why it’s a bubble:

By artificially depressing bond yields, the Fed has led more investors to shift money into stocks. Such a flood of cash can swell share prices without regard to corporate earnings. Once the Fed unwinds its support, many investors could abandon stocks and send shares tumbling. “I am most worried about the boom in the U.S. stock market” because of its disconnect from a “weak and vulnerable” economy, Robert Shiller, the Nobel Prize-winning Yale economist, told the German magazine Der Spiegel a few weeks ago. Shiller knows a bubble when he sees one. He accurately warned of both the tech and housing bubbles before they burst.

Why it isn’t:

One key measure assesses stock prices relative to corporate profits. A healthy price-earnings ratio is around 15 — or $15 a share for each dollar of profit. The current P/E ratio is about 18.4, slightly above average but probably no cause to panic. Janet Yellen, nominated to succeed Bernanke, said last month: “If you look at traditional valuation measures … you would not see stock prices in territory that suggests bubble-like conditions.”

HOUSING

The last housing bubble ignited the worst economic catastrophe since the Great Depression. Home prices became inflated in part from an influx of cash and low rates driven by the Fed and other central banks. And in recent months, prices have again soared in some hot U.S. markets.

Why it’s a bubble:

It depends on location, location, location. All-cash sales, low rates and tight supplies have lifted prices in areas like New York City and Washington, D.C. Fitch Ratings estimated in November that a worrisome 17 percent of the U.S. home market is overvalued, a risk because much of the buying is tied to investments and house-flipping. Coastal California is “approaching bubble-year peaks,” with Bay Area prices nearing the “environment in 2003,” Fitch said. Some leading forecasters have also warned of bubbles in London and areas of Canada and Norway. New York University economist Nouriel Roubini worries about bubbles in Switzerland, France, India, Indonesia, Turkey, Israel and Brazil. These countries have accelerating prices, rising price-to-income ratios and huge proportions of mortgage debt as a share of total household debt.

Why it isn’t:

At least in the United States, some safety valves are in place that didn’t exist during the previous housing bubble, Roubini wrote this month. Lending standards are tighter. Banks are cushioned from possible losses from greater capital in reserve. And homeowners have more home equity this time.

FARMLAND

Over the past five years, the cost of Iowa farmland has rocketed 118 percent to $8,400 an acre, according to the Agriculture Department. Prices have more than doubled, too, in Kansas, Nebraska and North Dakota. The prices recall a 1970s-era boom. That ended with a bust that put many family farms into foreclosure, leading musicians such as Willie Nelson to start the Farm Aid benefit concerts.

Why it’s a bubble:

The Fed’s low-rate policies have encouraged farmers to expand their holdings over the past five years. Ethanol subsidies led them to plant more corn as prices for that crop rose during the past three years. “The bubble has been climbing,” said Dan Muhlbauer, a grain farmer who’s also a Democratic representative in the Iowa House. One ominous sign: The Environmental Protection Agency has proposed cutting ethanol blending requirements.

Why it isn’t:

Unlike during the 1970s bubble, farmers haven’t become “over-leveraged” with debt, Esther George, president of the Kansas City Fed, noted last summer. The percentage of farmers’ assets financed with borrowed money has dropped from 22 percent in 1985 to less than 11 percent. This decline in debt should protect many farmers if the value of cropland plunges.

BITCOIN

Critics fear that the Fed’s low rates are undermining the dollar’s value. For some, the hot new choice is an Internet-based currency called Bitcoin. Because there’s a finite supply of 21 million Bitcoins, devotees say the currency will continue to appreciate. The value of a Bitcoin relative to the U.S. dollar has surged at an average pace of 292 percent a year, according to a Bank of America analysis.

Why it’s a bubble:

Prices are insanely volatile. They jumped 50 percent on Nov. 18 after regulators signaled that digital currencies could be acceptable. They plunged 30 percent on Dec. 5 after China’s central bank banned Bitcoins as currency, according to the online exchange Mt.Gox. And the volatility suggests that Bitcoins are highly speculative. Bank of America said this month that Bitcoin is “at risk” of bubble status.

Why it isn’t:

Bitcoin may become a useful commodity in the future economy. Its digital nature could make it easier for immigrants to send money back home. It could charge lower transaction fees than credit cards, saving retailers money. Eli Dourado, an economics research fellow at George Mason University, says bubbles occur when assets are priced above their fundamental value, “but we don’t know the fundamental value of a Bitcoin yet.”


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Will The New Housing Bubble That Bernanke Is Creating End As Badly As The Last One Did?

By Michael, on April 30th, 2013

Federal Reserve Chairman Ben Bernanke has done it. He has succeeded in creating a new housing bubble. By driving mortgage rates down to the lowest level in 100 years and recklessly printing money with wild abandon, Bernanke has been able to get housing prices to rebound a bit. In fact, in some of the more prosperous areas of the country you would be tempted to think that it is 2005 all over again. If you can believe it, in some areas of the country builders are actually holding lotteries to see who will get the chance to buy their homes. Wow - that sounds great, right? Unfortunately, this "housing recovery" is not based on solid economic fundamentals. As you will see below, this is a recovery that is being led by investors. They are paying cash for cheap properties that they believe will appreciate rapidly in the coming years. Meanwhile, the homeownership rate in the United States continues to decline. It is now the lowest that it has been since 1995. There are a couple of reasons for this. Number one, there has not been a jobs recovery in the United States. The percentage of working age Americans with a job has not rebounded at all and is still about the exact same place where it was at the end of the last recession. Secondly, crippling levels of student loan debt continue to drive down the percentage of young people that are buying homes. So no, this is not a real housing recovery. It is an investor-led recovery that is mostly limited to the more prosperous areas of the country. For example, the median sale price of a home in Washington D.C. just hit a new all-time record high. But this bubble will not last, and when this new housing bubble does burst, will it end as badly as the last one did? (Read More....)

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Fed to Crash Markets Before Launching QE3

Posted by Dominique de Kevelioc de Bailleul on Aug 29, 2012

Desperate to print Wiemar-style to fight off the most viscous Kondratiev Winter on record, Federal Reserve Chairman Ben Bernanke may not satisfy ‘inflation trade’ onlookers at the close of his Jackson Hole speech scheduled Friday. He may, instead, merely allow months of anticipatory front-running of stocks do the work of propping up asset prices for him.

And if investors don’t get the ‘all-systems go’ at Jackson Hole, there’s always the FOMC meeting of Sept. 12 & 13 to get the good news. That’s when market volatility could move off the charts, maybe extreme volatility to the downside, according some Wall Street analysts.

“With the equity market pricing in a significant chance of QE3, stock prices are no longer as useful a signal to Fed officials. Should the Fed disappoint at its September policy meeting, the risk of a stock sell-off is high,” Bank of America Merrill Lynch analysts wrote in a note to clients, Aug. 21.

Read more: http://www.beaconequity.com/fed-to-crash-markets-before-launching-qe3-2012-08-29/#ixzz258pUwDd5

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U.S. "close to faltering," Fed ready to act: Bernanke

1 of 2. U.S. Federal Reserve Chairman Ben Bernanke is pictured before testifying at a Joint Economic Committee hearing on the economic outlook, on Capitol Hill in Washington October 4, 2011.

Credit: Reuters/Jason Reed

By Pedro da Costa and Mark Felsenthal

WASHINGTON | Wed Oct 5, 2011 2:52am EDT

(Reuters) - The Federal Reserve is prepared to take further steps to help an economy that is "close to faltering," Fed chairman Ben Bernanke said on Tuesday in his bleakest assessment yet of the fragile U.S. recovery.

Citing anemic employment, depressed confidence, and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit.

He made clear that the U.S. central bank's policy committee considers inflationary pressures well under control and given high unemployment, would be ready to ease monetary conditions further following the launch of a new stimulus measure in September.

"The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability," Bernanke told the Joint Economic Committee of Congress.

His language was firmer than the policy-setting Federal Open Market Committee's statement less than two weeks ago, when the Fed said it would monitor the outlook and was "prepared to employ its tools as appropriate."

Since then, uncertainty about the outcome of the euro zone's sovereign debt crisis has undermined U.S. business and consumer confidence and helped to slow economic growth. The business cycle monitoring group ECRI last Friday said that the U.S. economy is tipping into a new recession.

Asked whether another round of bond purchases, known as quantitative easing, was in store, Bernanke was noncommittal.

"We never take anything off the table because we don't know where the economy is going to go. We have no immediate plans to do anything like that," he said.

The prospect of further Fed support for the economy lifted U.S. stocks though, after the market saw selling early in the day, pushing the S&P 500 briefly dipping into bear market territory.

Andrew Tilton, economist at Goldman Sachs, said contagion from the European crisis is a serious risk, threatening to tighten credit availability in the United States and weaken exports to the region. "This impact is likely to slow the U.S. economy to the edge of recession by early 2012," he said.

Recent U.S. economic data has been mixed after a dismal August, with a key manufacturing survey showing an unexpected improvement, but the slightly better tone has not been sufficient to dispel fears of another downturn.

Fresh clarity on the state of the economy will come on Friday, when the Labor Department releases monthly employment figures. Economists in a Reuters poll forecast a paltry gain of 60,000 jobs for September, and Bernanke in his testimony offered little hope for much improvement.

"Recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead," he told the Joint Economic Committee of Congress.

FISCAL WARNING

Bernanke said government belt-tightening was likely to prove a significant drag on the world's largest economy, which averaged less than 1.0 percent annualized growth in the first half of the year.

"An important objective is to avoid fiscal actions that could impede the ongoing economic recovery," he said,

Stressing that higher inflation earlier in the year had not become ingrained in the economy, Bernanke argued price pressures will remain subdued for the foreseeable future.

That backdrop made it easier for the Fed to launch its latest monetary easing effort in September, when it announced it would be selling $400 billion in short-term Treasuries and using the proceeds to buy longer-dated ones.

Bernanke estimated the new policy would lower long-term interest rates by about 0.20 percentage point which he said was roughly equivalent to a half percentage point reduction in the benchmark federal funds rate. Already 10-year Treasury note yields are at multi-year lows of 1.83 percent, helping keep mortgage and corporate borrowing costs extraordinarily cheap.

"We think this is a meaningful but not an enormous support to the economy. I think it provides some additional monetary accommodation, it should help somewhat on job creation and growth. It's particularly important now the economy is close -- the recovery is close -- to faltering," Bernanke said.

"We need to make sure that the recovery continues and doesn't drop back and the unemployment rate continues to fall downward."

INFLATION VS JOBS

Republican lawmakers pressed Bernanke on whether the Fed's dual mandate for full employment and price stability meant that it had to make compromises on inflation. On the 2012 presidential campaign trail, Republican candidate, Texas Governor Rick Perry earlier said it would be "treasonous" for the Fed to add further money to the economy.

Bernanke was categorical in defending the Fed's record of price stability in recent decades. He noted inflation has averaged 2.0 percent during his tenure and blamed regulatory failures, not excessively low rates, for the financial crisis.

Some economists believe the central bank could announce more concrete targets for policy goals, by linking the path of rates directly to unemployment and or inflation.

In response to the financial crisis and recession of 2008-2009, the Fed slashed interest rates to effectively zero and more than tripled the size of its balance sheet to a record $2.9 trillion, buyingbonds off banks balance sheets. Bernanke said this was not bailing out Wall Street, but was part of its mandate to provide price and financial stability.

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GLOBAL MARKETS-U.S. stocks slip on Bernanke; euro slumps

2011-09-08 18:26:55 GMT (Reuters)

* Investors look to government, central banks for help

* Fed's Bernanke pledges more aid but mum on details

* Markets await Obama's jobs plan, doubts over feasibility

* ECB rates unchanged, Trichet sees downside growth risks

(Recasts lead, updates action after Bernanke remarks)

By Richard Leong

NEW YORK, Sept 8 (Reuters) - Wall Street stocks fell on Thursday on disappointment that a speech by the Federal Reserve chief lacked details on plans to spur economic growth, while the euro slipped on fears the euro zone debt crisis is worsening with Greece failing to meet fiscal targets.

Safe havens were still in favor with investors, with gold prices rising after a two-day fall and German and U.S. government bonds yields edging lower.

Fed Chairman Ben Bernanke said the U.S. central bank "will do all it can" to boost economic growth and reduce unemployment, but he did not disclose what monetary tools the Fed might use. For more, see [ID:nW1E7IR02M]

"The markets are going to be disappointed in this and concerned that the Fed is only acknowledging the problems without offering any real solutions," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

U.S. President Barack Obama will deliver a televised speech to Congress at 7 p.m. (2300 GMT), in which he is expected to propose tax cuts for middle-class households and businesses and new spending to repair roads, bridges and other infrastructure. For details, see [nN1E786157]

"Everyone's waiting for the President to give a real, good, solid speech tonight. He's got to deliver something strong and positive," said Michael Cullen, head bond trader at Wall Street Access in New York.

Later this week, G7 finance ministers and central bankers will convene in Marseilles, France with markets expecting them to pledge support to help a struggling global economy. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic-interest rate outlook: http://link.reuters.com/pej23s Graphic - U.S. jobless claims: http://r.reuters.com/dym63s Graphic - U.S. trade balance: http://r.reuters.com/nym63s U.S. exports and the dollar: http://r.reuters.com/xan63s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

An earlier U.S. government report showing an increase in weekly jobless claims and remarks by European Central Bank President Jean-Claude Trichet about downside risks to the euro zone's economy fueled fears that both the United States and Europe are at risk of slipping into recession.

Those worries briefly pushed equities markets in negative territory before some buying emerged before Bernanke's speech.

At 2:04 p.m. (1804 GMT), the Dow Jones industrial average <.DJI> was down 66.52 points, or 0.58 percent, at 11,348.34. The Standard & Poor's 500 Index <.SPX> was down 8.82 points, or 0.74 percent, at 1,189.80. The Nasdaq Composite Index <.IXIC> was down 11.53 points, or 0.45 percent, at 2,537.41.

World stocks as measured by MSCI <.MIWD00000PUS> were down 0.4 percent. The MSCI index has recovered somewhat from the August correction -- the worst monthly loss since 2008 -- but is still 16 percent below the 2011 highs hit in May.

Earlier, Tokyo's Nikkei <.N225> finished up 0.3 percent, while the FTSEurofirst 300 index <.FTEU3> of top European shares ended up 0.9 percent after erasing earlier gains on the ECB's decision to leave key rates alone.

In the wake of Trichet's cautious economic outlook and the chances of no more rate hikes in the foreseeable future, the euro fell to a two-month low against the dollar. It touched a session low of $1.3943 on the EBS trading platform .

In the bond market, benchmark 10-year German Bund yields touched a historic low of 1.82 percent while the yield on U.S. 10-year Treasuries hovered at 2 percent, not far above a 60-year low of 1.9080 percent.

Spot gold prices jumped $40 at $1,856 an ounce. [GOL/]

(Additional reporting by Chuck Mikolajczak, Chris Reese, Gertrude Chavez-Dreyfuss in New York; Amanda Cooper, Kirsten Donovan and Jeremy Gaunt in London, Editing by Chizu Nomiyama)

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Bernanke Offers No Plan for New Stimulus

By BINYAMIN APPELBAUM
Published: August 26, 2011

JACKSON HOLE, Wyo. — The Federal Reserve chairman, Ben S. Bernanke, said Friday that the economy was recovering and the nation’s long-term prospects remained strong, an upbeat assessment that offered little indication of any plans for additional measures to bolster short-term growth.

Reed Saxon/Associated Press

Federal Reserve Chairman Ben S. Bernanke, right, and Jean-Claude Trichet, head of the European Central Bank, at Jackson Hole, Wyo., on Friday.

Mr. Bernanke’s much-anticipated remarks follow the Fed’s announcement earlier this month that it intended to hold short-term interest rates near zero until at least the middle of 2013, a reflection of its view that growth will not be fast enough during that period to drive up wages and prices.

“With respect to longer-run prospects, however, my own view is more optimistic,” Mr. Bernanke said in his prepared remarks. “The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.”

Mr. Bernanke was careful to note that the nation faces significant challenges, including high unemployment and an unsustainable federal debt. But the speech, delivered at a policy conference held each August in Grand Teton National Park, marked a return to the Fed’s position earlier this year that the Fed has done most of what it can, and that the rest of the government must do more.

Indeed, Mr. Bernanke devoted much of his speech to fiscal policy, rather than the monetary policy that is the Fed’s primary responsibility. And he offered an unusual critique of the government’s handling of those issues.

“The country would be well-served by a better process for making fiscal decisions,” he said, noting that the political battle over raising the debt-ceiling had disrupted the financial markets “and probably the economy as well.”

Mr. Bernanke suggested a different process, involving “clear and transparent budget goals, together with budget mechanisms to establish the credibility of these goals.”

The conference, held each August at a resort in Jackson Hole, has become a key event on the Fed’s annual calendar, in part because Mr. Bernanke and his predecessors have made a habit of coming here to clarify their views and intentions.

Last year Mr. Bernanke used his remarks to provide the first clear indication that the Fed intended to launch a second round of asset purchases. The Fed went on to buy $600 billion in Treasury securities between November and June, increasing its total portfolio of Treasuries and mortgage securities to more than $2.5 trillion.

This year’s speech offered little if any indication that something similar is in store. Mr. Bernanke made his standard announcement that the Fed would take any steps necessary to help the economy, and he said the issue would be discussed at the next meeting of the Fed’s policy-making board, in late September. But noticeable by its absence was a list of the measures the Fed might take, something Mr. Bernanke has provided on several occasions earlier this year.

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” he said.

The Fed is operating in an unusually charged political environment. Several Republican candidates for president have sharply criticized the Fed’s existing efforts and expressed disapproval of any new steps. Mr. Bernanke opened the conference Wednesday night with a brief speech, during which he mentioned that he had attended a rodeo with his wife earlier this week. The announcer, he said, asked the crowd to sing the national anthem even though many of them were angry about decisions made by people in Washington.

Mr. Bernanke has previously described other steps that the Fed could take. Perhaps the most modest would be a similar commitment to maintain the size of the Fed’s investment portfolio for a fixed period. The central bank has accumulated more than $2 trillion in low-risk mortgage securities and Treasuries in an effort to reduce longer-term interest rates and to push investors to buy riskier assets, such as stocks and corporate debt.

A related but more aggressive step would involve changing the kinds of assets that the Fed owns while maintaining the size of the portfolio. By selling bonds that mature in the near future, and buying bonds with more distant maturities, the Fed might be able to increase the downward pressure it is exerting on longer-term rates.

The most dramatic option available to the central bank would be an announcement that it intends to increase the total size of the portfolio. This is what markets refer to as “QE3,” meaning that it would represent a third round of the strategy known as quantitative easing.

There are other actions the Fed could take that are not directly related to its portfolio. The central bank pays interest on the reserves that banks keep on deposit with the Fed. Reducing those rates, an option Mr. Bernanke and others have mentioned, could give banks a greater incentive to lend. But banks already are awash in cash and most economists — including Fed officials — doubt the utility of such a step.

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Roubini: QE3 Is Coming, But Bernanke Will Be Too Late

By Chris Barth Forbes


Nouriel Roubini, the much heralded NYU economist who has gotten much attention – and the nickname Dr. Doom – for his gloomy predictions in the past few years, isn’t exactly confident in Ben Bernanke or the US economy. Over the past few days he has taken to Twitter to voice his concerns on the recent market free fall, the potential for a double dip and the ongoing crisis in Europe. Today, on the heels of currency market intervention by Japan and Switzerland, Roubini predicted that a third round of quantitative easing here in the United States, tweeting, “QE3 started in Japan & Switzerland via fx action &/or monetary easing. Fed will eventually get to QE3 but it will be too little too late.”

Japan and Switzerland have both gotten involved in currency markets over the past two days, stepping in to prevent outsized appreciation in the yen and the Swiss franc. Switzerland cut interest rates on Wednesday in an attempt to weaken the franc, while the Japanese government and the Bank of Japan collaborated on moves today in an attempt stifle similar appreciation in the yen.
Roubini has previously said that he thinks future rounds of quantitative easing are on the way. As he pointed out in another tweet today, “I argued last year we will get QE3, then QE4 & then QE5 (the Fed, as in the 1950s, targeting the 10yr Treas at 1.5% once all else fails).”

In January, when he sat down with Steve Forbes, Roubini identified states and local municipalities as potential recipients of QE3.

“Until now, we have back-stopped the states through the federal budget – transfer payments of a variety of sorts to make sure that they don't blow up. At this point, the political willingness to do more of it is limited,” Roubini explained.

“During the crisis, [the Fed] bought even toxic assets of Bear Stearns and of AIG. They could go along the lines – if there are financing pressures like the Europeans – of trying to make stop all the state governments that are in trouble. If Congress doesn't do it, there'll be some pressure on the Fed to do that. That might be a version of QE3, after QE2. QE1 was mostly agencies -- Fannie and Freddie, QE2 was treasuries mostly. QE3 could be state and local debt.”


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Growth slowed in spring but didn't stall: Fed

Federal Reserve Board Chairman Ben Bernanke speaks at the International Monetary Conference in Atlanta, Georgia, June 7, 2011.

Credit: Reuters/Tami Chappell


By Glenn Somerville

WASHINGTON Wed Jun 8, 2011 9:37pm EDT

WASHINGTON (Reuters) - Growth slowed in some U.S. regions during May as costlier food and energy as well as supply disruptions stemming from a major earthquake in Japan in March took a toll, the Federal Reserve said on Wednesday.

"Reports from the 12 Fed districts indicated that economic activity generally continued to expand since the last report, though a few districts indicated some deceleration," the U.S. central bank's periodic "Beige Book" summary said.

The report on coast-to-coast conditions, prepared by the New York regional Fed bank and based on conditions on or before May 27, will be used by Fed monetary policy-makers at their next session on June 21-22.

The Beige Book's conclusions fit with other signs from recent government reports showing consumers struggling with higher gasoline prices and reduced job opportunities. The Labor Department said on Friday that employers added only 54,000 jobs in May and the unemployment rate hit 9.1 percent.

Fed Chairman Ben Bernanke acknowledged on Tuesday that growth had slowed but held out hope it would pick up in the second half of the year. He said policymakers were closely watching labor markets.

Analyst Michael Gapen of Barclays Capital Research said the Beige Book summary was "a bit more optimistic than the incoming data flow in recent weeks" but agreed that growth is likely to pick up later in the year.

"We believe that the main factors constraining activity -- higher energy prices and supply chain disruptions -- will be transitory in nature and we continue to believe that activity will accelerate in the second half of the year," Gapen said.

SOME LAYOFFS COMING

The Beige Book said there was "gradual improvement in labor market conditions" but it wasn't universal as Minneapolis cited several examples of expected layoffs and St Louis said jobs were likely going to be lost in the services sector.

The Fed said that respondents in New York, Philadelphia, Atlanta and Chicago reported some easing in the overall pace of growth last month, though Dallas said it picked up.

Manufacturing was still expanding overall but a number of districts said it too was not growing as quickly as it was earlier in the year.

Consumers, whose purchases of goods and services provide the economy's driving force, were holding steady but showing some signs of sticker shock last month.

"Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were ... weighing on consumers' propensity to spend," the summary said.

There are ample signs of consumer stress, including a report on Wednesday from fast-food giant McDonald's showing a reported a lower-than-expected rise in May sales at established restaurants.

Roughly 800 of McDonald's 14,000 U.S. restaurants are located by interstate highways and the company said high gasoline prices were a factor crimping spending by customers.

HOPES FOR SECOND-HALF PICKUP

The Fed said new-car sales were "fairly robust" in much of the country but the impact from disruptions that followed the devastating March 11 earthquake in Japan was apparent.

"Widespread supply disruptions -- primarily related to the disaster in Japan -- were reported to have substantially reduced the flow of new automobiles into dealers' inventories, which in turn held down sales in some districts," the Fed said.

The damage caused to Japanese factories and supply lines affected more than just the auto industry. High-tech firms in Boston and Dallas said their business also suffered because of shortages of Japanese-sourced parts.

New homebuilding and real estate sales showed "widespread weakness" although loan demand was steady or rose in the commercial and industrial sector and the Fed noted that was substantial improvement in credit quality.

Prices for agricultural commodities, petroleum-based products and industrial metals rose in May and fuel surcharges were increasingly common.

But wage pressures were described as "contained" and an abundance of workers was keeping wage growth down, the Fed said.

(Reporting by Glenn Somerville, Editing by James Dalgleish)

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Wednesday Look Ahead: Fed's First Briefing May Keep Stocks Rising but Drag Dollar Lower

Published: Tuesday, 26 Apr 2011 7:52 PM ET

By: Patti Domm
CNBC Executive News Editor


Regardless of what Ben Bernanke says at his first quarterly media briefing Wednesday, the markets are convinced the Fed chairman will lay out policies that will keep the stock market rallying and the dollar in decline.

CNBC


Stocks rose sharply Tuesday, as the two-day Fed meeting got underway. The Dow [.DJIA 12595.37 115.49 (+0.93%) ] was up 115 points at 12,595, and the S&P 500 [.SPX 1347.24 11.99 (+0.9%) ] rose 11 to 1347, a move that finally erases the last of its late winter losses. The S&P is now up about 7 percent since mid-March. The dollar was lower Tuesday, losing 0.4 percent against the euro, which was at a new 52-week high of 1.4640.

"I think it's a 'buy the rumor, sell the news' day. The reaction to what the Fed has said has been very accommodative for two years. To think this is the meeting where they stop being accommodative is highly unlikely," said Marc Pado, stock market strategist at Cantor Fitzgerald. "You might see some traders selling into the news, but I wouldn't say that's a 'bail the market' type of reaction."

The Federal Open Market Committee will issue its usual post-meeting statement early Wednesday, at 12:30 p.m. ET, instead of the usual 2:15 p.m. At 2:15 p.m., Bernanke will address the media and take questions in his first ever media briefing.

The Fed is expected to reaffirm that it will complete its quantitative easing program in June, as expected. The program, under which the Fed is buying $600 billion in Treasury securities, in theory was to have kept rates low while driving investors into riskier assets.

The program has been controversial and criticized, even by some Fed officials. QE has also been credited with driving the stock market and other risk assets higher, and the dollar lower since Bernanke first discussed it last August. It has also been blamed for creating inflationary pressures, which, while real in other parts of the world, are not elevated enough in the U.S. to worry the Fed.

"I think the statement should be pretty plain vanilla, milk toast," said Mark Zandi, chief economist at Moody's Economy.com. "They'll reaffirm they 'll complete the QE in June. I think they leave the language regarding the economy's performance and inflation almost untouched. They'll continue to say they'll keep rates exceptionally low for an extended period. The only possible surprise they might have is if they announce they would not reinvest the proceeds of mortgage securities that are maturing. That's the only way they might surprise us."

Zandi, however, said it's highly unlikely the Fed will make changes in that program, and if it did, stocks would come under pressure and the dollar could strengthen. Traders call the Fed's program to reinvest the proceeds from its expiring mortgages by the name, "QE light," and they expect the roughly $20 billion in monthly Treasury purchases made with the proceeds to be maintained for the time being.

"I think (Bernanke) he's been frustrated by a lot of the criticism and attacks the Fed has received. I don't think he's had a real opportunity to fully explain his thinking about some of the policy steps they've taken," said Zandi. Zandi said Bernanke is likely to choose one main topic to defend, such as the Fed's position on inflation, and the fact it does not look at food and energy prices, both of which have been rising.

The Fed is also expected to release a new midpoint forecast for 2011 GDP, and possibly a new forecast for 2012, to reflect recent weakness in the economy. First quarter GDP is released Thursday and is expected to be below 2 percent by many economists. Zandi expects the Fed's midpoint on 2011 GDP to be 3.3 percent, from the current 3.65.

RBS Treasury strategist John Briggs said if the reduction in GDP is any more than 0.2, the bond market could be surprised. He expects the bond market to be barely changed by the end of Wednesday. "He's (Bernanke's) going to start educating on the long-term issues, and not provide any short term volatility," he said.

Treasurys gained Tuesday, as the yield on the 10-year slipped to 3.320 percent, its lowest level since March 21. There is an auction of $35 billion in 5-year notes at 11:30 a.m. Wednesday. On the data front, the markets will also be watching durable goods, released at 8:30 a.m.

Briggs said he wants to hear Bernanke speak about the sequence of what actions the Fed will take as it unwinds from its easy money policies. "What order does it occur in? I don't know if there's enough agreement on the committee for him to explain that," said Briggs. He noted the Fed could take steps to reduce its balance sheet before it moves its target interest rate from zero, and it could also sell assets after it begins to raise rates.

Brown Brothers Harriman chief currency strategist Marc Chandler said if Bernanke is asked about the sagging dollar, he will probably defer to the Treasury as being responsible for dollar policy and state that dollar weakness is the consequence of programs aimed at helping the economy.

"I think the dollar goes down because the Federal Reserve is making it clear it will push through quantitative easing," said Chandler, adding the other Fed easing programs that will continue after QE ends will also weaken the greenback.

"The real key is when will the market change its focus from the interest rate differentials and divergent trajectories between the U.S. and Europe and when will it shift from that focus to the European debt crisis," said Chandler. He said the European Central Bank's tightening policies should support the rising euro, and it could move to 1.50/1.51.

Rising oil prices have also been heavily correlated to the euro. "The ECB thinks high oil prices are inflationary. If it's inflationary, they have to raise interest rates so high oil prices mean stronger euro," he said.

Pado said the Fed's actions Wednesday and Bernanke's comments should be viewed as bullish by the stock market. "The bigger picture is the Fed is being very consistent, which the market likes...I expect a correction after earnings season is done by the middle of May. I think you'll see the summer doldrums and the typical 'sell in May' settle in." However, he expects the market to continue rising after that.

What Else to Watch

The blast of earnings news continues Wednesday, with reports from dozens of major companies, including BP, Boeing, ConocoPhillips, Baker Hughes, Corning, Credit Suisse, General Dynamics, Northrop Grumman, Barrick Gold and WellPoint. eBay, Starbucks, Allstate and Norfolk Southern report after the closing bell.
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Source
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The Invention of Money

Originally aired 01.07.2011

Five reporters stumbled on what seems like a basic question: What is money? The unsettling answer they found: Money is fiction.

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Photo: Stone money on the island of Yap.

Play episode

This episode is produced by the Planet Money team.

Prologue.

Ira Glass speaks with several members of the Planet Money team, who all found themselves—in the course of their reporting—independently asking the same stoner-ish question: What is money? Ira and Planet Money producer Jacob Goldstein discuss a pre-industrial society on the island of Yap that used giant stones as currency. The book that Jacob read about Yap is called The Island of Stone Money. (10 minutes)

Act One. The Lie That Saved Brazil.

A trip to a country where the fiction that is money completely fell apart. And in this same country, through a truly incredible piece of policy making, the government tricked a 150,000,000 people into believing their money had value again. Chana Joffe-Walt reports. (16 minutes)

Act Two. Weekend At Bernanke's.

Though the name of the Federal Reserve includes the word "federal," it's not actually part of the government. It's an independent institution tasked with something very simple, but very huge: Creating money out of thin air. And during this last financial crisis, the leaders of the Fed did things that they would never have considered doing in the past. Alex Blumberg and David Kestenbaum report on what the Fed usually does, and how, since 2008, it's taken a trip to what amounts to Fed Crazytown. (26 minutes)

Song: "We Do (The Stonecutters' Song)", The Simpsons

Photo: Paul Williams

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Source

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New Data Show Extent of Fed’s Free Money Programs

Posted on Dec 1, 2010

Wikimedia Commons / Robert Mihaly (CC-BY-SA)
Federal Reserve Chair Ben Bernanke as king of Central Banking.


Thanks to Bernie Sanders and the new financial regulation passed by Congress, we’re learning more about the Federal Reserve’s $3.3 trillion bailout of Wall Street in 2008. It turns out the Fed lent money not just to the likes of Goldman Sachs (which desperately needed it) but also to companies such as Verizon and Toyota, as well as to foreign financial institutions.

Essentially the Fed lent money at almost zero interest to, well, just about everybody.

Bernie Sanders, take it away… —PZS

The Washington Post:

But the extent of the lending to major banks—and the generous terms of some of those deals—heighten the political peril for a central bank that is already under the gun for a wide range of actions, including a recent decision to try to stimulate the economy by buying $600 billion of U.S. bonds.

“The American people are finally learning the incredible and jaw-dropping details of the Fed’s multitrillion-dollar bailout of Wall Street and corporate America,” said Sen. Bernie Sanders (I-Vt.), a longtime Fed critic whose provision in the Wall Street regulatory overhaul required the new disclosures. “Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions.”

Read more

Related

By eir, December 2 at 1:40 pm Link to this comment
Eliot Spitzer: “The Federal Reserve Is A Ponzi Scheme” (Inside The Fed’s Secret Pile Of Trash With Ratigan, Spitzer & Toure)
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The Fed and the Debased “Imperial Dollar”: Future Inflation, Timid Economic Growth and Higher Interest Rates Ahead

Tuesday, November 9, 2010

The Fed and the Debased “Imperial Dollar”: Future Inflation,

Timid Economic Growth and

Higher Interest Rates Ahead

by Rodrigue Tremblay

"Under a paper money system, a determined government can always generate higher spending and hence positive inflation."

Ben Bernanke, future Fed Chairman (in 2002)


“My thesis here is that cooperation between the monetary and fiscal authorities in Japan could help solve the problems that each policymaker faces on its own. Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt – so that the tax cut is in effect financed by money creation. Moreover, assume that the Bank of Japan has made a commitment, by announcing a price-level target, to reflate the economy, so that much or all of the increase in the money stock is viewed as permanent.”

Ben Bernanke, future Fed Chairman (in 2002)


“The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need - as with Charles Ponzi - to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not.”

Bill Gross, PIMCO's managing director

On Wednesday, November 3rd, the Bernanke Fed announced that it stands ready to resume money printing to stimulate the economy through quantitative money easing, an euphemism for printing more dollars. Indeed, it intends to buy $600-billion of longer-term Treasury securities until the end of the second quarter of 2011, plus some $300 billion of reinvestments, on top of the some $1.75 trillion of various types of securities, many of which were mortgage backed securities, that it has added in 2009 to its balance sheet, currently standing at a total of $2.3 trillion. There could even be additional increases in newly printed money as the Fed intends to "regularly review and adjust the program as needed to best foster maximum employment and price stability."

After the election of fiscal conservatives on November 2nd, it seems that printing money is the only instrument left for the Obama administration to stimulate the economy. I fail to see, however, what is “conservative” about that. Actively debasing a currency to stimulate an economy used to be a Third-World economic recipe, —A recipe for disaster. Now, the United States government feels that is the only way to get out of the economic doldrums.

But U.S. economic problems are essentially structural in nature, and are due to a bad housing mortgage policy, a bad industrial policy, a bad financial policy, a bad fiscal policy, a bad foreign investment policy, too much entitlement debt, severe demographic problems related to the aging baby-boomers, and to very costly wars abroad. Relying exclusively on monetary quick fixes to correct them misses the mark and may have serious unintended negative consequences down the road.

In fact, it is likely that in the long run, this extreme monetary policy risks exacerbating rather than correcting the problems. Economic structural problems cannot be corrected with monetary means. They rather require real economic solutions. That means correcting the housing mortgage mess and devising an industrial strategy, a fiscal strategy, and an investment strategy that can put the economy back on its tracks of economic growth.

But, for better or worse, the Federal Reserve Board (Fed) seems to be the only branch of the U.S. government left that can still function properly, i.e. that is not caught in a permanent political gridlock. As a consequence, for the time being at least, bankers are in charge of the U.S. economy. Since they are the ones who created many of the current problems, this is not very reassuring.

Let's remind ourselves that the Fed is a semi-public, semi-private organization that has a long history of creating financial asset price bubbles in the U.S and around the world, essentially because the U.S. dollar is an international key-currency widely used around the world and is an important part of other central banks' official reserves.

Thus, the real danger is that the Fed will again overdo it and create unmanageable financial and monetary bubbles in the coming years. —It did it in the past. It did it in the late 1960's and early '70s, and we witnessed the same scenario unfolding with the Greenspan Fed in the late 1990s, when excessive easy money helped inflate the Internet and tech stock market bubble. We saw this again in the early 2000s, when easy Fed money helped inflate the housing bubble. And now, we're seeing it again with the Bernanke Fed. As a general rule, a central bank should not push the monetary gas pedal to the floor and be obliged to slam on the monetary brakes later, thus placing the real economy on a roller-coaster of booms and busts. That is not the way to run a large economy.

But because of the circumstances, the Fed may be at it again. This time it is busy creating a massive bond bubble, some important currency misalignments and a massive gold and commodity price bubble. We should also not forget that abnormally low interest rates and lower bond yields increase the present value of pension liabilities of most defined benefit pension plans.
Therefore, I would not be surprised to see a pension crisis developing in the coming years under the current Fed monetary policy. Of course, all of these bubbles are interrelated but when they come crashing down, four or five years down the road, maybe sooner, the economy may then be in worse shape than it is today. My most likely scenario is for the Fed to keep the monetary gas pedal way down until the 2012 election, and then slam on the monetary brakes thereafter to salvage what will be left of the imperial dollar.

If so, this could be a partial repeat of Japan's experience in mismanaging its economy in the early 1990's until 2000, a period known as the lost decade.

The current Fed's monetary policy is to flood financial markets with liquidity, i.e. newly created dollars, and, in the process, devalue the U.S. dollar, spur American exports and prevent deflationary expectations from taking hold and from making already high debt loads even heavier. For this, the Fed has been engaged since 2009 in round after round of money creation and interest rate reductions to the point of pushing short-term monetary rates close to zero and keeping short-term real rates negative. But if the economy is in a liquidity trap, as it is fair to assume it is, although a central bank can print all the money it wants, this is unlikely to stimulate the real economy for very long. —This is like pushing on a string. Printing money, if it is an emergency temporary measure, can help mitigate the effect of having too much debt and debt-service costs relative to income, as is the case today with many debtors in a debt liquidation mode. However, if this becomes a feature of monetary policy for too long, it can have disastrous consequences.

In general, it can be said that the Fed can manipulate short term interest rates by artificially increasing demand for short term securities, but inflation expectations are a big component of long term interest rates and are much less influenced by the Fed. Therefore, if the Fed's intention of printing large amounts of new money raises fears of future inflation, long term interest rates may rise rather than fall, and this is bound to hurt long-term productive investments.

Moreover, make no mistake, with globalized financial markets, a large chunk of the newly created dollars is flowing out of the United States and is invested in higher interest rate countries, pushing the dollar further down and these countries' currencies further up. Of course, some of the newly created money will immediately find its way in the stock market, but there is no certainty that this will induce already stretched banks to increase their banking loans to businesses.

Another consequence is this: The current outflow of U.S. dollars helps keep the dollar exchange rate low, but when the Fed is forced to aggressively raise interest rates, as it will inevitably be forced to do later on, the reverse will happen and the U.S. dollar will likely overshoot and then become overvalued. This is the case today with the Japanese yen which became unduly strong when the Japanese carry trade (too much cheap money invested abroad returns home) collapsed.

What counts for most people, however, is that the Fed’s zero-interest rate policy has not cured the structural housing mortgage crisis, since home foreclosures are still very high. The Fed now places most of its hopes on a currency devaluation, which is the old trick of the “beggar thy neighbor” policy, i.e. trying to export one country's unemployment to its trading partners by devaluating the currency. This was a form of protectionism much relied upon during the 1929-39 Great Depression. This may work for a while, at least as long as other countries can absorb American exports without launching their own money printing process in order to prevent an appreciation of their currencies.

Indeed, is it likely that countries which see their currencies being revalued by the Fed will remain passive? The Fed is implicitly making the bet that these countries will not retaliate, and that the international dollar-based currency system will remain intact. But for how long? Sooner or later, some central banks around the world will have no choice but to impose capital controls in order to slow down the inflow of unwanted outside money and the onslaught of imported inflation, and prevent their exchanges rates from rising too high too fast. If they do, the entire process of economic globalization may begin to unravel.

Meanwhile, foreign central banks, for example, could accelerate their rush to dump the U.S dollar and to accumulate gold and other more stable currencies such as the euro, the Swiss franc, the British pound, the Canadian dollar and the Australian dollar. China has already begun to do just that. The share of dollar official reserves would then decline from about 60 percent presently to perhaps less than 50 percent. That may signal the beginning of the end for the “imperial dollar” which has dominated the international monetary system since the Bretton Woods conference of 1944.

This is to be followed closely.

_____________________________________

Rodrigue Tremblay
is professor emeritus of economics at the University of Montreal and can be reached at rodrigue.tremblay@yahoo.com . He is the author of the book "The Code for Global Ethics" at: www.TheCodeForGlobalEthics.com/

Source: http://www.thenewamericanempire.com/blog

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They're back!

Ben Bernanke - Just back from Jackson Hole, Wyoming.




Imam Abdul Rauf - Back from a whirlwind tour of Muslim nations.


Here's a little ditty 'bout Ben and Abdul, two distant cousins acting a fool.

This is a present day version of the Patty Duke song:


Meet Abdul, who's lived most everywhere,
From Zanzibar to Barclay Square.
But Ben's only seen the sight.
A guy can see from Brooklyn Heights --
What a crazy pair!

But they're cousins,
Identical cousins all the way.
One pair of matching bookends,
Different as night and day.

Where Abdul adores a minuet,
The Ballet Russes, and crepe suzette,
Our Ben loves to rock and roll,
A hot dog makes him lose control --
What a wild duet!

Still, they're cousins,
Identical cousins and you'll find,
They laugh alike, they walk alike,
At times they even talk alike --

You can lose your mind,
When cousins are two of a kind.

...

*Hot Dog: Hebrew National.

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And now, a "word from our sponsor".

World stocks slide on Greek debt, US jobs fears

By PAN PYLAS
AP
posted: 10:14 AM 02/25/10

LONDON -Greek shares led a retreat in world markets Thursday as investors worried that credit ratings agencies may downgrade the country's government debt further. Disappointing U.S. jobs data added to the gloom, sending Wall Street sharply lower at the open.

In Europe, the FTSE 100 index of leading British shares was down 67.30 points, or 1.3 percent, at 5,275.62 while Germany's DAX slid 76.98 points, or 1.4 percent, to 5,538.53. The CAC-40 in France was 55.79 points, or 1.5 percent, lower at 3,659.89.

The worst performing main index in Europe was the composite index in Athens, which was down 3.3 percent at 1,863.8.

And on Wall Street, the Dow Jones industrial average was 145.78 points, or 1.4 percent, lower at 10,228.38 soon after the open while the broader Standard & Poor's 500 index fell 15.91 points, or 1.4 percent, to 1,089.33.

Worries about Greece continued to be the main talking point in markets, overshadowing more assurances from U.S. Federal Reserve Chairman Ben Bernanke that borrowing costs will stay at rock-bottom lows for a while yet.

Any hopes that Greece could slash its budget deficit by four percentage points to 8.7 percent of GDP this year were diminished as leading credit rating agencies Standard & Poor's and Moody's warned that they may downgrade the country's debt even further in the coming weeks or months.

A two-notch downgrade would take S&P's rating on Greece to BBB- — the lowest level accepted by the European Central Bank as collateral for loans to banks. Moody's current rating on Greece is A2, but that looks like it could be a matter of history soon.

"This morning Moody's warned that it may cut Greece's credit rating unless the government provides reassurances that it will not significantly deviate from plans to cut its budget deficit," said Jane Foley, research director at Forex.com. Foley cited Wednesday's wide-ranging strikes in Greece against the government's austerity program.

"With strike action suggestive of public opposition to deep fiscal cuts, the market remains skeptical of the ability to manage this," said Foley.

The euro was once again on the retreat in the wake of the latest developments over Greece's debt crisis — by mid afternoon London time the euro was down 0.4 percent at $1.3484, not far off its nine-month low of $1.3444 hit earlier this month.

Aside from Greece, investors are also increasingly concerned that the global recovery from recession is proving to be less buoyant than previously thought, meaning that share prices could be too high.

Weekly U.S. jobless data did not nothing to assuage those fears, which were stoked earlier this week by awful U.S. consumer confidence figures.

The Labor Department said first-time claims for unemployment insurance rose by 22,000 to a seasonally adjusted 496,000, largely because of heavy snow on the Atlantic Seaboard. The consensus in the markets was for a decline to 455,000.

"The downward trend in jobless claims appears to have flattened out at a still historically high level," said Paul Ashworth, senior U.S. economist at Capital Economics. "That is not good for the employment outlook."

Investors are also monitoring Bernanke's testimony to the Senate, though there are doubts whether he will say anything different to what he relayed to the House of Representatives Wednesday.

Bernanke told the lower house that low rates were needed "for an extended period" to help keep the economic recovery on track and Americans hard-hit by high unemployment and falling housing prices.

Earlier in Asia, the Nikkei 225 stock average fell 96.87 points, or 1 percent, to 10,101.96. Shares of Toyota Motor Corp. edged down 0.2 percent after president Akio Toyoda, appearing before U.S. lawmakers, apologized for safety lapses that have led to deaths and widespread recalls.

South Korea's Kospi lost 1.6 percent to 1,587.51 and Hong Kong's Hang Seng fell 0.3 percent to 20,399.57.

Elsewhere, Australia's market dropped 1.2 percent while Shanghai's benchmark defied the downward swing, rising 1.3 percent.

Oil prices fell sharply, alongside stocks, with benchmark crude for April delivery down $1.93 at $78.07 a barrel.

—

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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Source: http://www.dailyfinance.com/article/world-stocks-slide-on-greek-debt-us-jobs/646657/?flv=1

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Bernanke will you tell American people to whom Fed Res lent $2.2 trillion of their dollars?

http://www.youtube.com/watch?v=kyl8c91qPbwhttp://



VoiceofAmericans2008

March 3, 2009
Senate Budget Committee Sanders (I-VT) Bernanke Chairman Federal Reserve

In a testy exchange at a hearing before the Senate Budget Committee, Vermont Sen. Bernie Sanders, an independent who usually votes with the Democrats, said he found it "unacceptable" that the central bank risked taxpayer money without detailing where the funds went."My question to you is, will you tell the American people to whom you lent $2.2 trillion of their dollars?" Sanders asked, referring to the size of the Fed's balance sheet.Bernanke responded that the Fed explains the various lending programs on its website, and details the terms and collateral requirements.When Sanders pressed on whether he would name the firms that borrowed from the Fed, the central bank chairman replied, "No," and started to say that doing so risked stigmatizing banks and discouraging them from borrowing from the central bank."Isn't that too bad," Sanders interrupted, cutting off Bernanke's answer. "They took the money but they don't want to be public about the fact that they received it."He said businesses in his state were in trouble and needed loans, but were not permitted to borrow from the Fed."Do you have to be a large, greedy, reckless financial institution to apply for this money?" he asked.Bernanke said the Fed's lending programs were not gifts or subsidies but rather over-collateralized loans. He said the law restricted the types of firms to which the central bank can lend."We have never lost a penny doing it," he said.Sanders responded: "Let me just say this, Mr. Chairman. I have a hard time understanding how you have put $2.2 trillion at risk without making those names available, those institutions public.""We are going to introduce legislation today, by the way, to demand that you do that. It is unacceptable to me that that this goes on," he added. (Reporting by Emily Kaiser, Editing by Chizu Nomiyama)
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P.S. Notice the swastika design directly behind the left side of Mr. sanders head. Carving symbol with complex swastika motif. ................. Arsenio.
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Time magazine names Bernanke 'Person of the Year'

Photo(Courtesy) http://www.washingtonpost.com/wp-dyn/content/article/2009/12/16/AR2009121600758.html?hpid=moreheadlines

Wed Dec 16, 2009 10:17am EST

By Mark Felsenthal

WASHINGTON, Dec 16 (Reuters) - Federal Reserve Chairman Ben Bernanke was named Person of the Year by Time magazine on Wednesday, a highly visible show of support at a time he seeks to beat back proposals that would erode the central bank's authority and independence.

Time credited Bernanke with creative leadership that ensured 2009 would be a year of recovery, however weak, rather than a catastrophic second Great Depression.

"The recession was the story of the year. Without Ben Bernanke ... it would have been a lot worse," Time managing editor Richard Stengel said in a statement.

"We've rarely had such a perfect revision of the cliche that those who do not learn from history are doomed to repeat it. Bernanke didn't just learn from history; he wrote it himself and was damned if he was going to repeat it."

Time's selection of Bernanke, an expert on the Depression, is sure to be noticed on Capitol Hill, where Fed-bashing has been the norm in recent weeks.

It comes a day ahead of a vote in the Senate Banking Committee on his nomination to a second term. His first four-year term as Fed chief expires on January 31.

Congress is considering proposals that would strip the Fed, which was due to close out a two-day policy meeting on Wednesday, of its regulatory authority over major banks and expose its interest rate decisions to audits.

One criticism that has been leveled at the Fed and the Obama administration is that despite efforts to prop up the financial system with billions of taxpayers' dollars, banks still show a reluctance to lend.

In an interview with Time, Bernanke said banks have been stabilized, but he conceded that lending remains too weak to support a healthy recovery.

"We have told the banks very clearly that we want them to make loans to creditworthy borrowers, where there are borrowers who can repay the loans," Bernanke said.

After a "near-death experience," banks are wary of taking on the kind of risk that led to the crisis, although they have rebuilt capital, he said.

Bernanke and his colleagues lowered overnight interest rates to near zero a year ago and have pumped more than a trillion dollars into the financial system to overcome the crisis.

Now, Bernanke said it was time to put in place reforms to ward off future crises. "We need to have extensive reform in the private sector, in the public sector, to eliminate these risks in the future," he said.

The Fed, along with the administration and Congress, still has a lot to do to get the economy back to stability and start creating jobs again, he said.

"Even though the recession may be technically over, in a sense that the economy is growing, it's going to feel like a recession for some time, because unemployment remains very high, about 10 percent," he said.

He also said that Congress and the administration need to develop "a credible medium term ... strategy for fiscal policy."

The Obama administration had proposed making the Fed the lead regulatory policing the financial sector for 'systemic" risks. Bernanke said the Fed had never proposed that it be responsible for regulating the entire financial system, although he argued no other agency has its expertise.

"We have a wide range of expertise that makes us the natural supervisor for these large, complex firms," he said.

Banks have yet to broadly understand the need for more restraint on pay after they were bailed out with taxpayer money, he said.

The Fed instituted policies "which we'll be enforcing on banks" that require them to structure pay in ways that align it with performance and discourage excessive risk taking, he said.

"We are going to be looking at that as part of our supervision of banks," he said. (Additional reporting by Ciara Linnane; Editing by Padraic Cassidy)

Source:http://www.reuters.com/article/idUSN1617297020091216

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Fight Over Finance Oversight, and Bernanke, Gets Hotter

Joseph Schuman

Fight Over Finance Oversight, and Bernanke, Gets Hotter
Posted:
12/2/09

(Dec. 2) -- The fight to tame U.S. oversight of banks and Wall Street heated up Wednesday and now looks likely to dominate this week's hearing on the renomination of Federal Reserve Chairman Ben Bernanke.

The House Financial Services Committee voted 31-27 along party lines to send an overhaul of financial regulation to the floor of the House for debate next week, a victory for chairman Barney Frank, D-Mass., but not a complete one. Members of the Congressional Black Caucus boycotted the vote, saying they want greater financial help for their communities amid all the fiscal stimulus measures of the past year. Those votes -- the caucus includes 41 representatives -- could be pivotal when the bill is put to a vote by the full House.

Perhaps the most controversial part of the bill, dubbed the Financial Stability Act, would increase congressional oversight of the Fed by broadening the Government Accountability Office's authority over the Fed's financial operations. Critics of the bill argue that any increase in political supervision of the Fed would weaken the U.S. central bank's credibility. Proponents say that credibility was already undercut more by the failure of the Fed and other agencies to foresee and prevent the subprime-mortgage meltdown that cascaded into a global recession.

Bernanke will likely be asked to address the matter himself on Thursday before the Senate banking committee, which is considering his nomination by President Obama to a second term as the country's chief financial steward. That hearing and any discussion of new restraints on the Fed were already expected to be animated, and Sen. Bernie Sanders, I-Vt., made sure of that Wednesday evening.

Sanders placed a hold on the Bernanke nomination, faulting both the Fed chairman's role in the financial crisis and his chairmanship of the President's Council of Economic Advisers under President George W. Bush. "The American people overwhelmingly voted last year for a change in our national priorities to put the interests of ordinary people ahead of the greed of Wall Street and the wealthy few," Sanders said. "What the American people did not bargain for was another four years for one of the key architects of the Bush economy.

" The hold will likely delay the renomination, but Bernanke appears to have enough support from Republicans and Democrats in the Senate to keep his job. The tenor of Thursday's hearing could indicate which way it will go.

A host of financial-regulation reform bills under consideration in Congress have already been subjected to repeated rounds of disparagement and lobbying from financial firms, which object to a tighter leash but have been restrained in their public criticism by the economic pain and popular anger of the past year. On the other side of the fight, consumer advocates have vociferously called for greater regulation, and the Obama administration has made passage of a bill one of its top economic priorities.

But the shape of a final measure -- for both the House legislation and a similar measure in the Senate -- is far from clear and might not take form before next year.

The thrust of the House bill aims to strengthen oversight across the spectrum of the finance industries by creating a council, headed by the Treasury, that will seek to identify and address systemic risks in the marketplace that could lead to another financial crisis. It would consolidate authority of the Fed, the Securities and Exchange Commission and other regulators to deal with crises, create new safeguards for insurance companies like AIG and other nonbanks -- so that none becomes "too big to fail" -- and force lenders to assume a greater portion of the risk in their loans rather than pass along all the risk to investors. The bill would also place limits on any future government bailouts.

The bill is likely to undergo changes by the full House, and if it passes there perhaps wholesale revision once the Senate finishes work on its version. Work on financial reform has stalled in the Senate Banking Committee, where Chairman Chris Dodd, D-Conn., is trying to get Republicans to contribute to and support his proposal.

Source: http://www.sphere.com/2009/12/02/fight-over-finance-oversight-and-bernanke-gets-hotter/#comments

Source: