"It is not the responsibility of the Federal Reserve --nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions," Bernanke said in an Aug. 31 speech in Jackson Hole, Wyoming.
[On Sept 11] Bernanke said the large US deficit to the rest of the world "cannot persist indefinitely because the ability of the United States to make debt service payments and the willingness of foreigners to hold US assets in their portfolios are both limited." The process of narrowing the gap "will have both real and financial consequences." Should the U.S. deficits stay near current levels, "foreign investors would ultimately become satiated with dollar assets, and financing the deficit at a reasonable cost would become difficult."
Cutting rates would widen the gap, not narrow it, and reduce(if not drive away) foreign investment in US securities. The US Dollar has already become a Pariah.
Bernanke has repeatedly stated inflation is the focus.(Perhaps better understood had he said the decline in the US Dollar is the focus.) Bernanke has already stated no bailout.
The Fed's focus is on protecting(if not saving) the US Dollar. The Fed is also focused on preventing the loss of foreign investment in US debt which would be devastating. Far more devastating than the collapse of the financial markets. They have already ensured the survival of the major banks and consider their job done with regard to the domestic markets.
There will be no cut in the Fed Funds rate. It would result in exactly the opposite of what the Fed is attempting to do.
Bernanke will not succumb to blackmail by the US markets. The markets having 'factored in a cut', will not influence Fed policy. Bernanke is not Greenspan, and there are bigger fish to fry.
There is no correct move anymore...raise it and it will destroy the markets and the credit/debt market...lower it and insure a rapid demise of the USD.
He is well documented about inflating things away...bad things.
So he will reduce the rates (not much) and print money like mad. Lots and lots of money.
To buy lots of worthless paper with...er...I guess it is a fair exchange after all.
The U.S. housing market is an ``unmitigated disaster'' and will take at least another 18 months to recover, as the U.S. Federal Reserve and European Central Bank respond to turmoil in credit markets, Penner said. As foreclosures rise, lenders will try to sell the properties they acquire at depressed prices, dragging the market down further, he said.
``The effect that's going to have on the economy is sure to be bad,'' Penner said. ``I don't think we're going to have a depression-like situation, but we are going to print a lot of money, and that's going to have its consequences. The price we will pay as a society to avoid depression is high inflation.''
-snip-
``It's good at this time to be a guy with no balance sheet,'' he said today
``Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time,'' the statement said.
BAILOUT!: The Fed Caves to Pressure from White House and US Financial Markets
The Fed announced Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25 percent to 4.75 percent.
In addition to cutting the federal funds rate by a half point, the central bank also reduced its discount rate, the interest it charges in making direct loans to banks, by a half-point as well.
Former Federal Reserve Chairman Alan Greenspan has sharply criticized President George W. Bush's administration and Republican congressional leaders for putting political imperatives ahead of sound economic policies.
Bernanke and the Fed just proved to the rest of the world they are NOT serious about addressing the problem of the US Dollar. If the US and the Fed will not address the problem, the world will address the problem to the detriment of the United States.
Marc Faber on Bloomberg today said a rate cut would be "suicidal" and "you cannot cure a condition by the same thing that caused it".
Are we looking at hyper-inflation? What kind of time frame?
The Fed continues its gutting of the US economy according to plan, but inflation is not the way to do it. And as Mish explained earlier this week in Is the U.S. printing money like mad?, the printing presses are not anywhere near full speed.
The M3 increase comes from keystroke created money, not printing presses. Much of it will soon be gone, through losses in home values, stocks and derivatives. And you can't have inflation while most of the money vanishes from your economy, let alone hyperinflation.
The rate cut will further devalue the dollar, but the Fed will not make up the difference. The average American will simply have less money to spend.
I previously contributed to this debate with an editorial on the so-called Dollar Short Squeeze theory. In the current piece, I will take on what I consider a few of the errors and more questionable arguments that have been appearing from the deflation side.
We will have deflation to the extent that lowering stock and home values and credit defaults cause the money supply to shrink as money essentially disappears from the economy.
BUT, we will have inflation to the extent that governments attempt to print their way out of the mess we're in AND as declining primary energy causes a contraction of the producible goods and services in relation to a given supply of money.
I think in this case the irresistible force of inflation will win out over the immovable object of defaults and declining market values.
Its a bit funny in a sense. The timing of peak oil and rate of decline will determine when peak oil destroys our economy. The financial games joust to either destroy us with hyper-inflation or deflations are just plain broke no matter how you denominate it. And global warming threatens both oil supply and crops with the population straining all resources.
Maybe I'm a nut and I hope some of our writings survive since I think historians will find the battle over how the oil economy ended funny.
We are toast but is it burnt toast and are we going to land butter side up ?
It would be wonderful if the Fed operated intelligently, but I don't see it happening.
My prediction is a 25 bp cut.
The Fed needs to calm the markets. Anything other than a cut will increase the panic in the market.
Even the Fed doesn't know the full impact of the credit woes, so they also need to buy some time. The PPI dropped in August, which gives the Fed some room on inflation.
I think it would be shocking if there was not a small cut to soothe fears in the market.
Claptrap. The dollar is propped neither by the strength of US economy, nor even by the interest rates.
It is ultimately propped by the need of reserve currency and the fear of China and Japan they could ruin their own economy if they sell their dollars.
Bernake's "We have the balls" statement was entirely predictable. Which risk is worse? The US financial sector falling into a death liquidity trap or foreigners committing financial suicide? With FED privately owned by the same banks whose pants are shaking now, which side would Benny be willing to take? I don't remember even a single case when the market did not "predict" (actually demanded) Ben to the the proper thing. For them. Since the music is already ordered it costs nothing for him to pay some lip service to maintaining dollar value and still do what he's ordered. And weak dollar is great for the US economy. It's the Chinese who will be paying this bill.
Leanan: IMHO, I think people underestimate how difficult Bernanke's job is. It is a totally different ball game from when Volcker was in charge. The level of debt in the US economy in relation to the size of the economy servicing the debt puts a ceiling on the level of interest rates- a ceiling which is getting lower each year. Persons who say raise rates to protect the US dollar do not understand that at this point raising rates will not protect the value of the US dollar because the US dollar will not hold its value while the US economy crumbles around it. Bernanke is caught in a rip tide and he is just trying to survive.
Net foreign investment in long-term US securities is $19.2 bn when $90 bn was expected.
Net foreign acquisition - $3.0 bn. Negative, not only did they not invest, they dumped $3 bn. And this is before the rate cut. Fasten your seat belts, this is like the mark telling the Soprano's payments will be cut. LOL.
Confidence is nothing but a lag in time between fundamentals and perceived value, an intermediate, if you will. It can manipulate perceived value, but not forever. If the fundamentals are down, so will be the perceived value.
And everyone savvy knows that the fundamentals were bad two, three years ago.
Also, a FED that continuously tells you that everything's ok has no value at all, because you can't trust it. It has to give some of the times.
Just think, in the good old days priests examined the entrails of a sacrificed sheep to determine the future. Now, we've got the repayment rate of sub-prime borrowers as translated by the oracles of Ben Bernanke and Alan Greenspan.
What's that, god? What do you mean there's no difference...
That's the little divine revelation I had in my morning meditation today !
Bob Ebersole
I hope you're right, but I have a hard time believing he won't succumb to the markets (look at Greenspan's 'irrational exuberance' speech--he folded immediately to market and political pressure). But Bernanke does face a major difficulty in that he believes in loose money in the face of recession/depression but has the issue of keeping foreign investment interested in U.S. treasuries which are already declining in value as the dollar devalues.
Could this be Alan Greenspan's (and "Helicopter Ben's") theme song?
I'm Forever Blowing Bubbles, a popular song which debuted in 1918 and was first published in 1919:
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.
Congratulations for being one of the few to understand that ANY rate cut will flush the US$ down the toilet.
Francois is right that an increase is actually needed to truly protect the dollar. Maintaining neutrality would at least guarantee a slow and steady decline in value, though.
Forget any speculation about a rate increase, though. Given all the speculation about as much as a 50 bp cut, there is no way that they are going to spring a surprise of that magnitude on the markets. Were they seriously considering it, there would have been some trial baloons floating.
I wish I could share your optimism about the FED holding steady. Just like generals always fighting the last war, Ben Bernake is still fighting the Great Depression. If he makes a mistake, it will be on the side of easing too much.
So far today the loonie has hit a peak of $1 CAD = $0.9807 USD.
It would appear that the powers that be have decided to continue encouraging the housing and discretionary spending binges and ultimately trash the dollar and us peons along with it.
The Fed Will Not Cut
"It is not the responsibility of the Federal Reserve --nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions," Bernanke said in an Aug. 31 speech in Jackson Hole, Wyoming.
[On Sept 11] Bernanke said the large US deficit to the rest of the world "cannot persist indefinitely because the ability of the United States to make debt service payments and the willingness of foreigners to hold US assets in their portfolios are both limited." The process of narrowing the gap "will have both real and financial consequences." Should the U.S. deficits stay near current levels, "foreign investors would ultimately become satiated with dollar assets, and financing the deficit at a reasonable cost would become difficult."
Cutting rates would widen the gap, not narrow it, and reduce(if not drive away) foreign investment in US securities. The US Dollar has already become a Pariah.
Bernanke has repeatedly stated inflation is the focus.(Perhaps better understood had he said the decline in the US Dollar is the focus.) Bernanke has already stated no bailout.
The Fed's focus is on protecting(if not saving) the US Dollar. The Fed is also focused on preventing the loss of foreign investment in US debt which would be devastating. Far more devastating than the collapse of the financial markets. They have already ensured the survival of the major banks and consider their job done with regard to the domestic markets.
There will be no cut in the Fed Funds rate. It would result in exactly the opposite of what the Fed is attempting to do.
Bernanke will not succumb to blackmail by the US markets. The markets having 'factored in a cut', will not influence Fed policy. Bernanke is not Greenspan, and there are bigger fish to fry.
If they decide not to cut, they may as well raise it, since that is what is needed to "protect" the dollar. I dont see a neutral decision.
Francois.
If I were Bernanke I would raise it 25 basis points. It would show the rest of the world we are serious.(and also give notice to US markets.)
Nice sentiment...but he has masters too.
There is no correct move anymore...raise it and it will destroy the markets and the credit/debt market...lower it and insure a rapid demise of the USD.
He is well documented about inflating things away...bad things.
So he will reduce the rates (not much) and print money like mad. Lots and lots of money.
To buy lots of worthless paper with...er...I guess it is a fair exchange after all.
World Economy at `Scariest Point Since Depression,' Says Penner
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5I2qVjiG_Ow&refer=h...
WHOA... HALF POINT
http://www.bloomberg.com/apps/news?pid=20601087&sid=aV.iQCJeskKU&refer=h...
That ain't no good...panic anyone?!
Crap!
Hehe...look at the market after the announcement...spike up
http://finance.google.ca/finance?cid=983582
(hope this link works)
Everyone's happy.
At some point, when someone is too much of a sack of sh*t, you bury them.
Lets see what happens to the U$S now.
It went down one cent for just 5 minutes after 2.15. I think it will hit 1.40 today.
U$S dollira ?
Got help us. I'm off to find a good wheelbarrow while they are still less than million.
I'm flexible ;)
BAILOUT!: The Fed Caves to Pressure from White House and US Financial Markets
The Fed announced Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25 percent to 4.75 percent.
In addition to cutting the federal funds rate by a half point, the central bank also reduced its discount rate, the interest it charges in making direct loans to banks, by a half-point as well.
Former Federal Reserve Chairman Alan Greenspan has sharply criticized President George W. Bush's administration and Republican congressional leaders for putting political imperatives ahead of sound economic policies.
Bernanke and the Fed just proved to the rest of the world they are NOT serious about addressing the problem of the US Dollar. If the US and the Fed will not address the problem, the world will address the problem to the detriment of the United States.
http://cid-yama.livejournal.com/38614.html
Marc Faber on Bloomberg today said a rate cut would be "suicidal" and "you cannot cure a condition by the same thing that caused it".
Are we looking at hyper-inflation? What kind of time frame?
Hyperinflation - Wikipedia
Inflation 1923-24: A German woman feeding a stove with currency notes, which burn longer than the amount of firewood they can buy.
http://en.wikipedia.org/wiki/Hyperinflation
No, we are not.
The Fed continues its gutting of the US economy according to plan, but inflation is not the way to do it. And as Mish explained earlier this week in Is the U.S. printing money like mad?, the printing presses are not anywhere near full speed.
The M3 increase comes from keystroke created money, not printing presses. Much of it will soon be gone, through losses in home values, stocks and derivatives. And you can't have inflation while most of the money vanishes from your economy, let alone hyperinflation.
The rate cut will further devalue the dollar, but the Fed will not make up the difference. The average American will simply have less money to spend.
We will have deflation.
End Game: Hyperinflation
by Robert Blumen
I previously contributed to this debate with an editorial on the so-called Dollar Short Squeeze theory. In the current piece, I will take on what I consider a few of the errors and more questionable arguments that have been appearing from the deflation side.
http://www.lewrockwell.com/blumen/blumen6.html
We will have deflation to the extent that lowering stock and home values and credit defaults cause the money supply to shrink as money essentially disappears from the economy.
BUT, we will have inflation to the extent that governments attempt to print their way out of the mess we're in AND as declining primary energy causes a contraction of the producible goods and services in relation to a given supply of money.
I think in this case the irresistible force of inflation will win out over the immovable object of defaults and declining market values.
Its a bit funny in a sense. The timing of peak oil and rate of decline will determine when peak oil destroys our economy. The financial games joust to either destroy us with hyper-inflation or deflations are just plain broke no matter how you denominate it. And global warming threatens both oil supply and crops with the population straining all resources.
Maybe I'm a nut and I hope some of our writings survive since I think historians will find the battle over how the oil economy ended funny.
We are toast but is it burnt toast and are we going to land butter side up ?
We are so screwed. Seriously.
It would be wonderful if the Fed operated intelligently, but I don't see it happening.
My prediction is a 25 bp cut.
The Fed needs to calm the markets. Anything other than a cut will increase the panic in the market.
Even the Fed doesn't know the full impact of the credit woes, so they also need to buy some time. The PPI dropped in August, which gives the Fed some room on inflation.
I think it would be shocking if there was not a small cut to soothe fears in the market.
Claptrap. The dollar is propped neither by the strength of US economy, nor even by the interest rates.
It is ultimately propped by the need of reserve currency and the fear of China and Japan they could ruin their own economy if they sell their dollars.
Bernake's "We have the balls" statement was entirely predictable. Which risk is worse? The US financial sector falling into a death liquidity trap or foreigners committing financial suicide? With FED privately owned by the same banks whose pants are shaking now, which side would Benny be willing to take? I don't remember even a single case when the market did not "predict" (actually demanded) Ben to the the proper thing. For them. Since the music is already ordered it costs nothing for him to pay some lip service to maintaining dollar value and still do what he's ordered. And weak dollar is great for the US economy. It's the Chinese who will be paying this bill.
25ppc rate cut. At least.
I think 50 bp is most likely.
Nah, they are also humans and have their fears.
The recent oil run-up and the simultaneous dollar drop should have rang some bells. I would put it 70:30 for 25 vs 50bp
Congratulations. I think you're the only one who guessed correctly.
Leanan: IMHO, I think people underestimate how difficult Bernanke's job is. It is a totally different ball game from when Volcker was in charge. The level of debt in the US economy in relation to the size of the economy servicing the debt puts a ceiling on the level of interest rates- a ceiling which is getting lower each year. Persons who say raise rates to protect the US dollar do not understand that at this point raising rates will not protect the value of the US dollar because the US dollar will not hold its value while the US economy crumbles around it. Bernanke is caught in a rip tide and he is just trying to survive.
But you can also make the counter argument.
Everyone agrees that the problem is one of a lack of confidence.
The Fed just indicated that they have no confidence in the economy.
http://www.treas.gov/press/releases/hp560.htm
Net foreign investment in long-term US securities is $19.2 bn when $90 bn was expected.
Net foreign acquisition - $3.0 bn. Negative, not only did they not invest, they dumped $3 bn. And this is before the rate cut. Fasten your seat belts, this is like the mark telling the Soprano's payments will be cut. LOL.
From the same link:
[Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $66.6 billion.]
666, the sign of the devil and apocalypse. How appropriate.
On the upside, at least September's numbers won't be posted until mid-November.
Confidence is nothing but a lag in time between fundamentals and perceived value, an intermediate, if you will. It can manipulate perceived value, but not forever. If the fundamentals are down, so will be the perceived value.
And everyone savvy knows that the fundamentals were bad two, three years ago.
Also, a FED that continuously tells you that everything's ok has no value at all, because you can't trust it. It has to give some of the times.
BrianT:
Just think, in the good old days priests examined the entrails of a sacrificed sheep to determine the future. Now, we've got the repayment rate of sub-prime borrowers as translated by the oracles of Ben Bernanke and Alan Greenspan.
What's that, god? What do you mean there's no difference...
That's the little divine revelation I had in my morning meditation today !
Bob Ebersole
Ha! :)
I hope you're right, but I have a hard time believing he won't succumb to the markets (look at Greenspan's 'irrational exuberance' speech--he folded immediately to market and political pressure). But Bernanke does face a major difficulty in that he believes in loose money in the face of recession/depression but has the issue of keeping foreign investment interested in U.S. treasuries which are already declining in value as the dollar devalues.
Could this be Alan Greenspan's (and "Helicopter Ben's") theme song?
I'm Forever Blowing Bubbles, a popular song which debuted in 1918 and was first published in 1919:
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.
landing on Wall Street today
and asking,
"Why are you humans celebrating?"
Which one of us is elected to tell the alien,
"We just discovered we can keep borrowing from the future as if there is no end to tomorrow"?
Congratulations for being one of the few to understand that ANY rate cut will flush the US$ down the toilet.
Francois is right that an increase is actually needed to truly protect the dollar. Maintaining neutrality would at least guarantee a slow and steady decline in value, though.
Forget any speculation about a rate increase, though. Given all the speculation about as much as a 50 bp cut, there is no way that they are going to spring a surprise of that magnitude on the markets. Were they seriously considering it, there would have been some trial baloons floating.
I wish I could share your optimism about the FED holding steady. Just like generals always fighting the last war, Ben Bernake is still fighting the Great Depression. If he makes a mistake, it will be on the side of easing too much.
We'll know in just a few minutes now.
50 basis points. Ouch!! Well, it will make the markets happy, but it will be interesting to see what happens to the economy overall.
The markets will get drunk with the news today and wake up tomorrow with the hangover of nothing more to look forward to and nothing solved.
Good thing I got all my money out of treasuries and deposited in Nortern Rock.
Anyone watched the release? The news are silent still.
As I'm watching the dollar/euro trade - USD dropped to 1.397 (the lowest value EVER) but regained to 1.393 in just a couple of minutes.
I'm assuming this means 50 bp cut... Helicopter Ben lives to his name.
So far today the loonie has hit a peak of $1 CAD = $0.9807 USD.
It would appear that the powers that be have decided to continue encouraging the housing and discretionary spending binges and ultimately trash the dollar and us peons along with it.
Hooray! Not!
Latest .9831
I've seen it up to 0.9865