Posted by Michael A. Kamperman on August 26, 2011
The markets may be initially disappointed but Bernanke sent the signal the Fed is prepared to take significant additional action. He announced that the September meeting has been changed from a one day meeting to a two day meeting and that all options will be on the table. He didn’t change the schedule to allow more time for tea and crumpets. He also kept the decks clear for the President’s speech on September 7. Momentum is growing for the President to finally push for measures to refinance all mortgages that are already guaranteed by the federal government and are current. This could put $100 billion annually into the hands of consumers and would cost next to nothing because these mortgage holders would be less likely to default with lower payments. Look for Bernanke to lead the Fed in September to come back into the market to buy large quantities of mortgage bonds. This would keep the interest rates low for those refinancing their mortgages and would be precisely the type of coordinated policy Bernanke argued Japan should have pursued a decade ago.
Bernanke won’t flinch and he won’t be intimidated by bashers out on the Presidential campaign trail that threaten to treat him ‘ugly.’ In Bernanke’s famous helicopter speech where he criticized the Bank of Japan he called for them to stand up in the face of obstacles and opponents like President Roosevelt did in the 30′s. Bernanke said Roosevelt tried many things, and many didn’t work, but he kept trying and restored confidence that the federal government would stand up and be there when needed. Bernanke plans to stand up. He has no intention of going down in history as the Fed Chairman who stood by and failed to take action when needed.
His speech this morning also called on the White House and the Congress to look for ways to stimulate the economy in the short term and to focus on deficit reduction for the long term. I disagree with any focus on long term deficit reduction, which is code for a combination of raising taxes and cutting entitlements. But if decisions made now take place in the out years they can be changed down the road. What is critical is more stimulus now in whatever form and shape. It is up to President Obama to come forward with workable solutions and not to come forward with plans that can’t pass but can be rolled out as talking points on the campaign trail. This is the President’s last chance to move the needle on economic growth before the election. He better deliver results and not rhetoric, because rhetoric alone won’t save his Presidency. Rhetoric alone will lead to a new President in 2013 whose last name starts with P.
Posted by Michael A. Kamperman on August 21, 2011
They’re all on vacation while the stock market is tanking and fear is rapidly rising. The fools at Standard & Poors who downgraded U.S. debt have proven their irrelevance as interest rates on the 10 year Treasury dropped under 2%, a multi-decade low. Everyone else in the world knows there is nothing safer than U.S. Treasuries. This latest wave of panic was set off not by people questioning the AAA worthiness of the U.S., but by questioning everyone else rated AAA. Hence France and French Banks didn’t seem to measure up so people ran from French financial assets to U.S. Treasuries, which is of course the opposite of what the fools at Standard and Poors predicted. Why this organization still exists after destroying the economy by rating subprime mortgages AAA is still a mystery. The trading action in U.S. Treasuries prove the dual point that the markets accept the U.S. can always pay because they can alays print and that it is the Federal Reserve that controls interest rates and not Asian bond buyers. Yet with fear gripping global markets and U.S. economic measurements plunging no one in a leadership position in Washington is putting forward a plan, especially a plan that will work and can be implemented now.
In one of the worst political optics in recent memory President Obama promised to put forward a new jobs plan when he returns from his 10 day vacation to Martha’s Vineyard. This is the last real chance to use fiscal policy to right the sinking economic ship before 2013. This is the last chance for President Obama to pivot out of his flirtations with Austrian Economics and plant his foot firmly in the Keynesian camp. This is the last chance to put forward something bold. But I won’t hold my breath. Calling for extending unemployment benefits and the 2% payroll tax cut into 2012 is only going to save jobs, not create jobs. We already have those things now and the economy is tanking. The President needs to put forward something that can pass Congress and not something to frame his 2012 re-election campaign. The way to get something to pass is to do something bi-partisan, which means something for you and something for me. The President has to be willing to trade some things for a big jobs plan and I’m not sure he is willing to do that. I’m also unsure that the Republicans in Congress are willing to do that. And without a bi-partisan trade nothing is going to get done on the fiscal front.
The only thing we can realistically hope for in the near term is QE3. Bernanke signalled strongly at the last Fed meeting that he is willing to go there, and go there for real this time. His promise to keep interest rates near zero through mid-2013 with three no votes is as strong a signal as he can send. He’s willing to lead, take responsibility, and move forward without consensus. Here are two things he should do to send the most effective signal he can that he will pull us out of the depression. First and foremost he should return the $1.6 trillion in U.S. Tresuries the Fed owns to the Treasury and shrink his balance sheet. This will show Congress, the President, and Americans of every stripe that jobs is the number one issue and not the national debt. The second thing the Federal Reserve should do is buy up the millions of foreclosed homes, turn them into rental properties, and remove them from the housing market. This would end the housing crisis and would send a signal to the banks that it would be safe to loan on homes again. We don’t need the Federal Reserve to compete with bond buyers for high grade bonds, we need the Federal Reserve to provide direct cash stimulus to the area it is needed the most and that area is restoring the housing market. Desperate times call for desperate measures and we are desperate.
Posted by Michael A. Kamperman on August 2, 2011
Well, it turns out the economy is slower than I thought and falling faster than I thought it would. That’s a mouthful considering I continuously predicted for months that the Federal Reserve would start QE3 before the end of 2011 because of a rapidly slowing economy in the second half of 2011. It turns out government data has missed the mark and now has revised most of the positive economic news down for the first half of the year. So far the data for July has been abysmal and that is after the months revised down. The reason I have predicted QE3 is the economy had already been perceived to be particularly slow in the first half despite extended unemployment benefits, the 2% payroll tax cut, quatitative easing 2, and the tail end of stimulus spending such as aid to the states to help with their Medicaid expenditures. Quantitative easing 2 and aid to the states for Medicaid both ended at the end of June. Unfortunately, the economy has probably already gone negative with extended unemployment benefits and the payroll tax cut still in effect, both of which are scheduled to expire at the end of 2011 along with most of the rest of the stimulus spending. As Washington congratulated itself for agreeing to budget austerity, the markets woke up and realized that fiscal help for an ailing economy from Washington will be all but non-existent in the near-term. All eyes have turned to Ben Bernanke’s Fed.
On Agust 9 the Federal Reserve will either move in to save the day with a quantitative easing program that dwarfs QE2, or we will begin the next leg down in the new great depression. It’s 1937 all over again, deja vu. FDR’s great economic error of prematurely cutting federal spending has just been repeated. In fairness to FDR, and in fairness to Hoover, they didn’t have history as a guide and our leaders do.
Make no mistake, President Obama has not been forced into a position he didn’t want. In my opinion he wants to tackle the debt and the defict more than he wants to tackle jobs. The President had multiple options to reject spending cuts with no aid for jobs. He could have threatened and followed through with the 14th Amendment, or better yet he could have minted coins and simply printed money to keep the wheels of the federal government humming along. If he wanted jobs he could have then negotiated from a position of strength rather than from a position of perceived weakness. Afterall, President Obama never seriously pushed for more stimulus. Instead he set up his own outside Deficit Commission headed by Simpson and Bowles almost two years ago. He has used the debt-ceiling “crisis” to orchestrate what he has wanted all along under the political cover of having no choice because of the Tea Party. He has turned out to be the Manchurian Candidate. But the cruel joke is on the Progressives who put him in power and not on the socialist fearing right who have fought him all the way. Sadly, it is the younger generations who will have to pay for Washington’s madness. It is the younger twenty somethings who face the worst brunt of the enployment crisis, it is the kids who suffer from the cuts to education, it is everyone under 50 who will not see the benefits of the older generations, and it is all of these people who will be left to pick up the tab for the fools who turned from Keynesian Economics and embraced Austrian Economics. Maybe the Federal Reserve will step up and be counted and save us. Or maybe they have been too busy buying canned goods, guns, and properties with secret caves to care about the plight of the rest of us.
