Sunday, June 3, 2012

Is More Fed Easing Around the Corner?

On Friday, New York Fed chairman Bill Dudley delivered remarks at the bank's Quarterly Regional Economic Press Briefing.

Among the comments, he made were the following:
The U.S. economy is continuing to slowly recover from the after-effects of the housing boom and bust and the financial crisis. But the recovery has been disappointing...

Given our forecast of stable prices and a still slow path back to full employment, there is an argument for easing further. But, unfortunately, our tools have costs associated with them as well as benefits. Thus, we must weigh these costs against the benefits of further action...

As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs. But if the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing...

Under such circumstances, further balance sheet action might be called for. We could choose between further extension of the duration of the Federal Reserve’s existing Treasury portfolio and another large-scale asset purchase program of Treasuries or agency mortgage-backed securities.
Given the erratic economic data and the poor stock market performance in recent weeks, will Dudley and the rest of the Fed deem it appropriate to accelerate money printing?

In recent weeks, Bronco Ben has slowed money growth in dramatic fashion. Back in October 2011, Bernanke was pumping money out in huge quantities. The three month annualized money growth rate was 13.3%, at that time, the six month annualized rate was 14.5%.  This is what caused the manipulated boomlet we had.

Over recent weeks, Bronco Ben has fallen off his bronco and we are far, far from those October growth rates. As of March 2012 three month annualized growth has declined to 7.6% and, most dramatically, April 2012 three month annualized  growth came in at 4.0%. This is what is behind the earlier mini-boom in the economy and the sudden weakness. Bernanke has pulled the plug on money pumping (Most likely because of targeting of the Fed funds rate. at relatively high levels of money inflows into the U.S. )  Will he reverse again? He will at some point that's what central bankers do, but he is the roughest most stop and go, Fed chairman in history. It makes it exceedingly difficult for investors, and very difficult for businessmen to plan.


  1. I'm with Marc Faber/Jim Rogers, who seriously doesn't think it's going to be "QE" forever leading to a crack up boom?

    I just keeping buying silver and stay conservative in my business.

  2. Three (other as I'd count you as one also) Thoroughbreds have, this past week, been covering this as well.


    QE to infinity holding things together until 2014, gold at $3K.

    QE to infinity is more certain than death and taxes. See the video we posted here on today that gives you the worst case economic and social scenario for 2012, unless we go to full QE before the end of June 2012.

    Problems are reaching terminal velocity right now, here, today.

    QE to infinity might hold things together, in a sense, for 24 more months with gold above $3000. Those popular gold writers calling for much lower gold prices are simply out of their mind sand disconnected from reality.


    QE. Link to Jesse’s fine Cafe

    So why put out a weak number when one could have statistically justified a stronger number? Besides ‘sand-bagging’ now with an eye to the second half of the year?

    There are an important set of central bank decisions coming up, including the FOMC meeting shortly after the Greek elections at mid month. This weak Jobs number gives Bernanke the cards he needs to play in responding to the evolving crisis.

    And you know what that means.


    QE with a good chance of collapse vis a vis bank runs.

    As we’ve stated before, no matter what happens in the Eurozone, the absolute worst case scenario for the authorities is a bank run. It terrifies all involved, because they can spiral out of control faster than governments can react to stop them, save for the most Draconian measures.

    According to Ludwig Von Mises:

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion.

    The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

  3. Thanks for this update. "Boomlet"... I like that.

    Interesting how much this little paid-attention-to data tells us about the economy's direction. Seems like, if the Presidential election is all about the economy, we Austrians could make a killing over at Intrade in the months before the election.