Obama's proposal will cost a whopping $900 billion over two years. For details please see Cookies for Susie and Obama's "Temporary" Tax Compromise
Bernanke let us all know this was coming in Sunday's Creampuff Interview on 60 Minutes
Pelley: Do you anticipate a scenario in which you would commit to more than $600 billion?
Bernanke: Oh, it's certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks.
Pelley: Some people think the $600 billion is a terrible idea.
Bernanke: Well, this fear of inflation, I think is way overstated.
I happen to agree with Bernanke's last statement (at least on the basis of $600 billion in QE alone). However, it's important to point out that I view inflation as an expansion of credit and I do not see that $600 billion in QE will spur lending.
Nonetheless, the Fed's QE policy is very misguided because it is likely to spur continued speculation in commodities. Think of it this way: China, Japan, or US investors do not have to finance $600 billion of US deficit spending, the Treasury simply printed enough money out of thin air to cover it.
That money will find another home, but I highly doubt it is the home Bernanke wants. There is little reason for businesses to hire workers in this environments and the odds of re-blowing the housing bubble are close to zero.
There are still other problems that adversely affect those on fixed income.
This is a very dangerous game Bernanke is playing. I talked about it yesterday in Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy
Internationally, there are multiple simultaneous games of chicken.Outright Lies
For example, Bernanke plays chicken with China via a QE policy hoping to force China to jack up its interest rate, something China does not want to do.
Bernanke plays a second game of chicken with Congress, treading on fiscal policy while demanding Congress not comment on monetary policy.
Bernanke plays a third game of chicken attempting to spur inflation in the US while simultaneously holding down long-term interest rates. Can that possibly work? For how long? At what cost?
Bernanke Plays Chicken with the Bond Market
Bernanke continued with statements best described a bald-faced lies.
"One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do."
Bernanke is printing money. He is monetizing the national debt. He tried to hide it by saying "currency in circulation is not changing". That is not the definition of money the Fed uses at all. The Fed typically uses M2.
M2 1980-Present
It appears to me that money is changing in a significant way. Bear in mind there are better representations of money than M2, at least I think so, but M2 is what the Fed watches.
Bernanke stated he is lowering interest rates. What he should have said is that he hopes QE will lower rates. The irony in this is he wants inflation to rise.
First in Flight
The above courtesy of Scott Simonton at BlackHawk Capital Management.
Bernanke wants it both ways: higher inflation and lower treasury yields. Meanwhile his goal is to get China to hike interest rates hoping to get the dollar to drop. China is resisting and the global pressures build.
This is the market's response tonight in metals and in treasuries.
Metals
Treasuries
Yield Curve courtesy of Bloomberg.
Bear in mind one day does not a trend make.
However, the trend towards higher yields started the day after the election when QE formally went into effect. The yield on 5-year treasuries is up over 55 basis points (1/2%) since then. Gold had been rising long before that.
Expect More QE
To keep treasury yields low in the face of the $900 billion deficit-chicken "compromise" of Obama, Bernanke will need to monetize another $37.5 billion in treasuries a month, hoping this spurs inflation, spending, and hiring.
100 Percent Hubris
What if this does not spur hiring but instead spurs gasoline prices and food prices? Oh not to worry ....
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.
Bernanke is a man with 100% confidence who did not see the housing bubble, who did not see a recession, whose worst case scenario for unemployment was 8.5% when it was already over 8%. Bernanke cannot find his ass with both hands and a roadmap, yet he is one hundred percent certain about his ability to control things.
After everything blows sky high we just may hear a statement like this.
Creampuff Non-Questions
That was not really an "interview" on 60 minutes, it was an infomercial for Bernanke. Many Fed governors disagree with Bernanke. Where was the other side of the story?
The most disgusting part for me was pathetic exchange.
Pelley: Falling prices lead to falling wages. It lets the steam out of the economy. And you start spiraling downward.
Bernanke: Exactly. Exactly. That's deflation and that's what happened in the Great Depression.
Spare me the sap. What caused the great depression was the runup in credit that preceded it. The idea that you can throw the biggest party the world has ever seen and not pay a price for it is preposterous.
Fixed Income and Middle-Class Crucifixion
The idea that rising prices is a good thing when there are 15 million unemployed is moronic.
Moreover, if Bernanke does manage to hold down interest rates while getting his wish for higher prices, those on fixed incomes will be crucified.
Inflation is a tax on the poor and middle class, benefiting those with first access to money: banks and the wealthy.
Ron Paul Under Attack
Ron Paul is under attack as discussed in Monetary Policy: Fed Critic Ron Paul's Power Play
Retiring New Hampshire Senator Judd Gregg, one of the Federal Reserve's most stalwart Republican supporters, showed up for a meeting at the central bank in November bearing a surprising gift: a box of End the Fed books. As he handed out the 2009 best seller by Representative Ron Paul, a longtime Fed critic, Gregg told the gathering it would be worth reading to see what the other side is plotting.Time's a Wastin'
Although his book ploy was couched in humor, Gregg laid plain a new Washington reality: Moderate, probusiness lawmakers like him, who consistently protected the central bank's independence and ability to set monetary policy, are mostly gone. In their place are politicians who view the Fed with suspicion, or worse. Their unofficial leader is Paul, the 75-year-old Texan whose quixotic 2008 Presidential run on the twin themes of ending the federal income tax and abolishing the Fed vaulted him to prominence with the nascent Tea Party. Some of those admirers are among the 75-plus new Republicans about to join Congress. For the first time since he was elected to the House in 1976, Paul's followers are formidable.
If he gets the subcommittee gavel, Paul says he plans a thorough review of Fed policy. Fear of inflation is what motivates him the most. Paul is a devotee of the Austrian School, which teaches that manipulating money supply and interest rates are responsible for history's boom-and-bust cycles. "The Fed creates all of the bubbles and they create the inevitable bursting of all of the bubbles," says Paul.
He believes his oversight role is long overdue. "There has been a politically cozy relationship between Congress and the Federal Reserve," he says. That includes past efforts to keep him from heading the subcommittee. "Republican leadership, with the Fed's influence, has been working to keep me away from this for a long time. That's not going to happen this time."
His prediction may be premature. Five GOP leadership aides, speaking anonymously because a decision isn't final, say incoming House Speaker John Boehner has discussed ways to prevent Paul from becoming chairman or to keep him on a tight leash if he does.
Boehner will decide some of those chair subcommittees as early as Dec. 8. There is no time to waste. Please phone, Fax, AND email Boehner today. Demand Ron Paul be given chairmanship of the monetary policy subcommittee.
Please email House Speaker Boehner to let him know how you feel.
Just click on the link. If your browser does not interface with email, then email Boehner at AsktheLeader@mail.house.gov
Sens an Email a day until the chairmanship is decided.
Phone: (202) 225-4000
Fax: (202) 225-5117
Please phone, Fax, and email today. Please forward to anyone willing to email Boehner.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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