Saturday, November 6, 2010

Germany Joins China & Brazil in Criticism of Bernanke; Volcker Also Weighs In

It is remarkable that in a democratic society we have given so much power to one man - a person unelected, and essentially unaccountable to anyone in the near term.  Or more broadly speaking a small group of men and women ... who control all these levers in the world's largest economy.  They can't be voted out by the people - there can be no recall petition... they can go rogue and essentially we can only sit by in awe.

Germany is the latest to criticize the unabashed manipulation by the Fed.... joining a world chorus.

  • Germany's finance minister is arguing that the Federal Reserve's move to pump money into the financial system increases uncertainty in the global economy and undermines the credibility of the U.S., according to an interview published Saturday.  "I have great doubts as to whether it makes sense to pump unlimited money into the markets," Finance Minister Wolfgang Schaeuble, a vocal critic of the decision, was quoted as telling the weekly Der Spiegel.
  • "They complicate a sensible balance between industrial and emerging countries and they undermine the financial policy credibility of the U.S.A." 
  • "It doesn't fit together if the Americans accuse the Chinese of exchange rate manipulation and then artificially push the dollar rate lower with the help of their bill printer," Schaeuble was quoted as saying. 
  • The U.S. "lived too long on tick, excessively inflated its financial sector and neglected its medium-sized industrial business," he argued.  (amen brother
  • “It’s our problem as well if the U.S. is no longer certain that the old recipes don’t work anymore,” German Finance Minister Wolfgang Schaeuble said. The Fed’s injection of $600 billion was “clueless” and won’t revive growth, he said.  "(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market, and now to say let's pump more into the market is not going to solve their problems."

Earlier in the week Brazil protested
  • Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.” 
  • Brazilian finance minister, Guido Mantega, who has warned of a global currency war, predicted that the Fed’s move would be ineffective, saying, “Throwing money out of a helicopter doesn’t do any good.
Define "any good"?  If you mean for the real economy and American's savers - you are correct.  If you mean helping the banks and the speculator class lavish in fake asset values - not so fast!

  • China Central Television -- the government broadcaster whose reach covers over 360 million households -- devoted part of its lunchtime news broadcast to lashing out at the policies agreed by the Federal Open Market Committee
  • "The U.S. government is now creating bubbles. The new round of the world financial crisis, characterized by U.S. government bubble-creation, may start today," Yang Yu, a CCTV commentator, told his viewers.  "The U.S. is taking a road of no return."

In a related note, U.S. central television was busy preparing a new TV show for noted intellectual Christine McDonnell.  TV ratings for anything to do with the Fed are far too low - hence wall to wall coverage of Lindsay Lohen and Dancing with the Stars along with a few words here or there about politics will dominate.

  • Chinese central bank adviser Xia Bin said yesterday that Fed quantitative easing is “uncontrolled” money printing.  "As long as the world exercises no restraint in issuing global currencies such as the dollar - and this is not easy - then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament," Mr Xia Bin wrote in a newspaper.


Ex Fed head Volcker:

  • Former Federal Reserve Chairman Paul Volcker says the U.S. central bank's plan to buy hundreds of billions of dollars in government bonds probably won't do much to boost the economic recovery.
  • "The thought that you can create a prosperous economy by inflating is an illusion, in my judgment," he told reporters after his speech. "And we should never forget that. I thought we'd learned that lesson and I hope we continue to learn that lesson."

But you can create an illusion in the stock market, helping the prospects of the upper sliver of the populace.  From which 'trickle down' economics (which has been working like gangbusters the past 2 decades) can continue... blah blah blah.


Those of you familiar with the hedge fund world will know who Michael Burry is (he is the "little known" version of John Paulson)
  • Critics including Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, have said Fed policy is encouraging investors to take on too much risk and threatens to undermine the dollar.
Frankly, I think that's actually one of the goals Mr. Burry....
  • The Fed’s support for asset values isn’t helping the “real” economy, and is creating “dangerous signs of a potential free fall” in the dollar and will be unsustainable, Burry said in an interview.


Ben continues with the lies that this is about 'full employment' and 'inflation'.  Did you see all the jobs QE1 created?  The Fed does not create jobs... sorry.  Dropping borrowing rates an additional half a percent is not going to change the decision mechanics of an employer.   That's just a facade to offer the populace... facade being a kind word for lie. 
  • Asked by a student if “skyrocketing” commodities prices may threaten his inflation outlook, Bernanke said rising commodities prices are “the one exception” to a broad reduction in inflationary pressures.
Translation: Look we have no inflation... unless you count inflation.
  • “Let me be very clear: We are absolutely committed to keeping inflation low and stable,” he said. “We have the tools to unwind and tighten policy at the appropriate time. We will honor both sides of our dual mandate.”
Translation:  You saw how we nailed policy in 2003 right?  Being a backwards looking organization with poor economic models (living in ivory towers), we were busy holding rates at 1% because "deflation threatened".   Granted we the free market caused a housing bubble but as my Jedi master Greenspan told us, we cannot see bubbles, only flood the world with liquidity to fix them after they transfer money from the middle class to the upper crust burst.  Yes, indeed somehow China can see bubbles and tries to fight them... as does India, but Asians apparently have far better eye sight.  To American central bankers, bubbles are invisible.

Did I mention how great our modeling track record has been?  We were raising rates in 07 (when we should have been lowering them) as the U.S. entered technical recession.  Anyhow, that is all details.  Just "trust us"; our track record the past 2 decades speaks for itself.

(Mark's comment - perhaps we need to hire some Asian central bankers since ours have poor eye sight?)

  • “They’re setting the stage for an outbreak of real serious inflation one to two years from now, at which point they will have no choice but to sell securities and raise interest rates, which will reduce the value of their assets and consequently their earnings,” said William F. Ford, a former president of the Atlanta Fed.

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