Is Ben Bernanke facing political pressure as Fed chair?

[rootX]

http://www.bbc.co.uk/news/business-11678022

Good time to buy US dollars?

 

[turbo]

http://www.bbc.co.uk/news/business-11678022

Good time to buy US dollars?

Good time to hide, IMO.

 

[NobodySpecial]

Good time to buy US dollars?

Or a good time to sell them !

I'm only a humble physicist but can someone explain how it's good for a country to borrow $500Bn on top of $1.7Tn and hand it out to the people, who are going to have to pay it back one day, so that they can boost demand. Yet it's irresponsible to just give everyone a credit card with a $10,000 limit and tell them to enjoy themselves.

 

[Ivan Seeking]

Or a good time to sell them !

I'm only a humble physicist but can someone explain how it's good for a country to borrow $500Bn on top of $1.7Tn and hand it out to the people, who are going to have to pay it back one day, so that they can boost demand.

Yes, this isn't a math equation. It is a matter of momentum.

No stimulus program can buy our way out of a recession. Everyone knows that.

By your logic, no business would ever invest in itself.

 

[mugaliens]

Or a good time to sell them !

I'm only a humble physicist but can someone explain how it's good for a country to borrow $500Bn on top of $1.7Tn and hand it out to the people, who are going to have to pay it back one day, so that they can boost demand. Yet it's irresponsible to just give everyone a credit card with a $10,000 limit and tell them to enjoy themselves.

It's not. At all. Why folks continue to pour lead into the anchor of debt that's capsizing the ship is beyond everything I learned of economics.

 

[talk2glenn]

http://www.bbc.co.uk/news/business-11678022

Good time to buy US dollars?

Your missing the point. The Fed isn't interested in inflation or exchange rates. It's concern is the yield curve (the interest rate). I'm guessing your English; the Federal Reserve is not like the ECB. It's mandate goes beyond inflation control - it is responsible for promoting long term economic growth while maintain a healthy inflation rate.

Consumers are still saving. This pushes yields up, which is the worst possible scenario (a so-called unhealthy yield curve has historically been a very reliable indicator of recession). The Fed will do anything it can (including risking significant long term inflation) to keep the yield curves healthy. A healthy yield curve is one which is directly related to coupon term - longer term bonds should have higher yields than shorter term bonds. An unhealthy yield curve has no or an inverse relationship between rate and term. The American yield curve inverted in late 2006. A healthy yield curve returned in 2009, due as much to actions by the Fed as the market.

The Fed's lingering concern is that, if it stops buying short term rates down, the yield curve will steepen and the market will collapse.

If you're interested in speculating on anything, then, it's stocks, but this is not financial advice.

I'm only a humble physicist but can someone explain how it's good for a country to borrow $500Bn on top of $1.7Tn and hand it out to the people, who are going to have to pay it back one day, so that they can boost demand. Yet it's irresponsible to just give everyone a credit card with a $10,000 limit and tell them to enjoy themselves.

This is not how it works. The Federal Reserve is not borrowing money, it's creating it. It is not giving it away, it is selling it (and buying Treasuries). The people who buy those dollars don't have to give them back later.

 

[rootX]

Your missing the point. The Fed isn't interested in inflation or exchange rates. It's concern is the yield curve (the interest rate). I'm guessing your English; the Federal Reserve is not like the ECB. It's mandate goes beyond inflation control - it is responsible for promoting long term economic growth while maintain a healthy inflation rate.

No, I was literal; only concerned about the consequences of this on the exchange rates.

 

[WhoWee]

Yes, this isn't a math equation. It is a matter of momentum.

No stimulus program can buy our way out of a recession. Everyone knows that.

By your logic, no business would ever invest in itself.

Can you elaborate?

 

[WhoWee]

Here is another description...
http://www.businessinsider.com/dalls-fed-chief-fisher-debt-monetization-2010-11

"Dallas Fed Chief: The Fed Is Monetizing The Nation's Debt For The Next 8 Months"
"To dwell on a point: Most all the businesses I talk to are expanding investment in productivity enhancement. Far too few of the large companies I talk to report interest in hiring American workers or committing to large-scale CAPEX (capital expenditures) in the United States; they believe their potential for return on investment (ROI) is greater elsewhere. The smaller companies that do not have global options are putting off hiring until the coast is clear on the tax and regulatory fronts. This reticence intensified during the final innings of the election season, which begs the question of whether this will now change with the new Congress."

 

[rootX]

Consumers are still saving. This pushes yields up, which is the worst possible scenario (a so-called unhealthy yield curve has historically been a very reliable indicator of recession). The Fed will do anything it can (including risking significant long term inflation) to keep the yield curves healthy. A healthy yield curve is one which is directly related to coupon term - longer term bonds should have higher yields than shorter term bonds. An unhealthy yield curve has no or an inverse relationship between rate and term. The American yield curve inverted in late 2006. A healthy yield curve returned in 2009, due as much to actions by the Fed as the market.

I read it was for inflation, didn't know yield curves could be reliable enough. I cannot recall at this moment, but I remember reading that yield curves are not good indication of future.

This is not how it works. The Federal Reserve is not borrowing money, it's creating it. It is not giving it away, it is selling it (and buying Treasuries). The people who buy those dollars don't have to give them back later

But, it can always take money out of the economy too.

 

[Monique]

Or a good time to sell them !

Indeed, I'm still regretting that I didn't sell my dollars 7 years ago in 2003. At the time I thought the dollar could rise again to the level of 2002. I also regret not selling them in June this year and taking my money. I'm thinking of getting rid of the dollars now before they devalue even more (I'm already too late), or just sit out the ride and maybe 20 years from now they'll be worth some money again.

edit: inserted a 10Y graph.

 

[loseyourname]

Or a good time to sell them !

I'm only a humble physicist but can someone explain how it's good for a country to borrow $500Bn on top of $1.7Tn and hand it out to the people, who are going to have to pay it back one day, so that they can boost demand. Yet it's irresponsible to just give everyone a credit card with a $10,000 limit and tell them to enjoy themselves.

This was already mentioned, but just to clarify, the Fed buys existing debt. No new debt is issued for this program.

 

[mheslep]

Whether the Fed directly buys existing or new debt is irrelevant, as when the Fed buys existing debt from some third party seller tomorrow at the beginning of QE2, that seller is then enabled to buy more new debt from the Treasury at the auction of new 10yrs in two weeks.

 

[mheslep]

The Ber-nanke has spoken on the topic:

"We're not going to monetize the debt," Mr. Bernanke declared flatly

http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/

 

[WhoWee]

The Ber-nanke has spoken on the topic:

http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/

Barney Frank (from your link) doesn't seem to like the idea of reduced spending?

 

[mheslep]

Barney Frank (from your link) doesn't seem to like the idea of reduced spending?

? There is no comment from Rep. Frank in the article.

 

[WhoWee]

? There is no comment from Rep. Frank in the article.

A picture is worth a thousand words?

 

[loseyourname]

Whether the Fed directly buys existing or new debt is irrelevant, as when the Fed buys existing debt from some third party seller tomorrow at the beginning of QE2, that seller is then enabled to buy more new debt from the Treasury at the auction of new 10yrs next Thursday.

It's pretty relevant, man. Buying existing debt takes it off the hands of banks and gives them cash to lend, with the express purpose of putting more money into circulation and driving down bond yields. Issuing new debt adds debt and drives up bond yields since there is a larger supply without any added demand. The Congress isn't sitting around waiting for this so they can now increase the budget by $600 billion without increasing tax receipts over the next eight months with the hopes that the banks will use that cash to buy more debt rather than lend.

 

[mheslep]

It's pretty relevant, man. Buying existing debt takes it off the hands of banks and gives them cash to lend, with the express purpose of putting more money into circulation and driving down bond yields. Issuing new debt adds debt and drives up bond yields since there is a larger supply without any added demand.

Yes I understand how the debt purchase places more money into circulation, but that will happen whether or not the Fed buys old or new debt, as the level of debt will remain the same. One can't uncouple the actions of the Fed and the Treasury here from the standpoint of an investor bank. The Treasury is scheduled to issue another $X billion in 10 yr notes two weeks from today no matter what the Fed does when it starts QE2 buys tomorrow. After that Treasury issue two weeks from now the level of debt will be exactly the same whether the Fed bought $600B from GS, or directly from the Treasury.

As I understand it the only reason the Fed buys debt via, say Goldman Sachs, and doesn't buy directly from the Treasury is investors would very reasonably suspect the Treasury can't find real 3rd party buyers (who can't print there own money) for its debt any more and flee the market.

 

[WhoWee]

It seems Mr. Geithner has an opinion.
http://finance.yahoo.com/news/Geithner-opposes-effort-to-apf-3043185814.html?x=0

"Geithner also warned Republicans about politicizing the Federal Reserve. A number of conservative economists and Republicans in Congress have attacked the central bank for its decision to launch a new round of $600 billion in purchases of Treasury securities as a way to lower long-term interest rates. They warn this effort runs the risk of weakening the value of the dollar and setting off higher inflation down the road.

Asked about this criticism, Geithner said, "It is very important to keep politics out of monetary policy, as Congress recognized when it established the Fed."

Geithner said it was essential that policymakers "respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure ... they are promoting sustainable economic growth.""

 

[Astronuc]

Interesting reading here -
http://www.economy.com/mark-zandi/default.asp
See toward the bottom of the page - Fiscal Stimulus Fades

It seems the stimulus (from two years ago) isn't working as predicted. Unemployment was supposed to be falling through 2010 - but it obviously hasn't. Several sectors of our local economy are more or less frozen (no growth, zero activity) and in some cases in decline. Local development has essentially stopped, and one company, which has been around for decades just closed. On our Main Street business is down about 30% +/- from two years ago.

More recently
http://www.csmonitor.com/USA/Politi...-John-Boehner-just-wrong-about-Obama-stimulus

As far as I can tell - the economy is so damaged at this point - the stimulus as implemented cannot help stimulate growth. And the fundamentals of the economy aren't strong, and they were not strong in 2007.

 

[mheslep]

It seems Mr. Geithner has an opinion.
http://finance.yahoo.com/news/Geithner-opposes-effort-to-apf-3043185814.html?x=0

"Geithner also warned Republicans about politicizing the Federal Reserve. A number of conservative economists and Republicans in Congress have attacked the central bank for its decision to launch a new round of $600 billion in purchases of Treasury securities as a way to lower long-term interest rates. They warn this effort runs the risk of weakening the value of the dollar and setting off higher inflation down the road.

Asked about this criticism, Geithner said, "It is very important to keep politics out of monetary policy, as Congress recognized when it established the Fed."

Geithner said it was essential that policymakers "respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure ... they are promoting sustainable economic growth.""

Geithner is absolutely right there, at least in word. So why the ?

 

[mheslep]

Interesting reading here -
http://www.economy.com/mark-zandi/default.asp
See toward the bottom of the page - Fiscal Stimulus Fades

It seems the stimulus (from two years ago) isn't working as predicted. Unemployment was supposed to be falling through 2010 - but it obviously hasn't. Several sectors of our local economy are more or less frozen (no growth, zero activity) and in some cases in decline. Local development has essentially stopped, and one company, which has been around for decades just closed. On our Main Street business is down about 30% +/- from two years ago.

More recently
http://www.csmonitor.com/USA/Politi...-John-Boehner-just-wrong-about-Obama-stimulus

Zandi is the darling of NPR and Marketplace broadcasts. Hopefully his record will eventually put a stake through his popularity.
The Abysmal Track Record of Moody’s Mark Zandi

 

[Astronuc]

Geithner is absolutely right there, at least in word. So why the ?

Well the could be because the Fed is playing politics itself, or because the QE2 seems to contractict Bernanke's statement earlier this year when he "declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt." [quote attributed to Washington time article cited above]

So the Fed is monitizing the debt(?).

Interesting commentary from Roubini last year
http://www.forbes.com/2009/08/26/st...axes-opinions-columnists-nouriel-roubini.html

BTW, Barney Frank made a comment two nights ago that he was wrong about Freddie and Fannie, but I missed the context, so I don't know what wrong he was acknowledging. Presumably their role in the secondary mortgage markets and the development of the financial crisis.

 

[WhoWee]

Geithner is absolutely right there, at least in word. So why the ?

The Fed is isolated from politics under Obama?

http://www.nytimes.com/2010/11/19/business/economy/19fed.html?src=me
"Echoing Obama, Bernanke Presses China on Imbalances"

I would say they are inseparable...
http://blogs.abcnews.com/politicalpunch/2010/11/amidst-criticisms-of-fed-action-president-obama-urges-g-20-leaders-to-get-behind-plans-for-us-econom.html
http://business.timesonline.co.uk/tol/business/economics/article7000881.ece


http://articlesofinterest-kelley.blogspot.com/2010/11/bernanke-urges-more-us-economic.html
http://www.moneynews.com/StreetTalk/ChinaUrgesBernanketoStopthePrintingPresses/2010/10/28/id/375187
http://www.newsmax.com/Headline/ber...son-fox-cavuto-greenspan/2010/07/22/id/365426

 

[mheslep]

Well the could be because the Fed is playing politics itself,

How? Why? Bernanke doesn't have to win any elections.

or because the QE2 seems to contractict Bernanke's statement earlier this year when he "declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt." [quote attributed to Washington time article cited above]

So the Fed is monitizing the debt(?).

Maybe slightly. But then the Fed has two mandates, not one, as Geitner mentioned in the quote. The current Fed dual charter may indeed be a mistake, but for the moment there it is. Even so I don't know how that runs counter to what Geitner said.

 

[mheslep]

The Fed is isolated from politics under Obama?

http://www.nytimes.com/2010/11/19/business/economy/19fed.html?src=me
"Echoing Obama, Bernanke Presses China on Imbalances"

? The whole developed economic world is pressing China over there low currency.

I would say they are inseparable...

Even though Bush appointed him?
Your links don't make your point, which is annoying.

 

[WhoWee]

? The whole developed economic world is pressing China over there low currency.

Even though Bush appointed him?
Your links don't make your point, which is annoying.

What does Bush have to do with anything?

 

[mheslep]

What does Bush have to do with anything?

You said, "The Fed is isolated from politics under Obama?", implying Bernanke actions somehow favor or are under the influence of Obama's politics. That doesn't make much sense given he's a Bush appointee.

 

[WhoWee]

? The whole developed economic world is pressing China over there low currency.

Even though Bush appointed him?
Your links don't make your point, which is annoying.

My point was that the Fed is eyeball deep in politics. Bernanke is all over the planet giving speeches.

I guess you didn't get a chance to open either of these links I posted?

http://business.timesonline.co.uk/tol/business/economics/article7000881.ece
"Obama urges Senate to stand by Ben Bernanke"
Because you made the point about Bush - and

http://www.moneynews.com/StreetTalk/ChinaUrgesBernanketoStopthePrintingPresses/2010/10/28/id/375187
"China Urges Bernanke: Stop Printing Dollars!"
then you made the point the entire world having a problem with China manipulating currency - who in turn has a problem with the US actions (that will also devalue currency).

What is your point - other than to find fault with my post?