Thursday, June 27, 2013

Fed Chairman Bernanke Admits the Fed Has No Clue

More than a week ago, Fed chairman Ben Bernanke gave a press conference, where he answered questions from the controlled part of the press. Every once and awhile, truth seeps out at these affairs.  It did at this conference. I have waited just over a week to see if anyone else would point this out. The conference occurred on June 19 and there has been not a word on the very important fact that Bernanke admitted he had did not understand why rates were climbing to that point.

I quote the exchange as transcribed by the Federal Reserve itself (my highlight)

ROBIN HARDING. Robin Harding from the Financial Times. Mr. Chairman, you’ve
always argued that it’s the stock of assets that the Federal Reserve holds which affects long-term interest rates. How do you reconcile that with a very sharp rise in real interest rates that we’ve seen in recent weeks? And do you think the market is correctly interpreting what you think is most likely to be the future path of the Federal Reserve’s stock of assets? Thank you.

CHAIRMAN BERNANKE. Well, we were a little puzzled by that. It was bigger than
can be explained I think by changes in the ultimate stock of asset purchases within reasonable ranges. So I think we have to conclude that there are other factors at work as well, including, again, some optimism about the economy, maybe some uncertainty arising.

Got that? Bernanke is pretty much admitting that he did not understand why rates were climbing at that point (Note: This was discussion before the spike in rates that occurred after this press conference). Further, this means he is pretty much admitting that his asset purchase plan is not working.

Notice, he makes no note of the fact that money growth has slowed dramatically, which could very well be a factor in pushing rates higher. (In the EPJ Daily Alert, I point out that money supply growth has dropped from 11.4% earlier this year to 3.6% in recent months). Is Bernanke not watching this data? Is he not aware that money supply growth plays an important factor on the capital structure, including the stock and bond markets?

This is serious. We have a Fed chairman who is in the pocket of Wall Street operators, but has no idea how this ship is steered. Is it any wonder we have such volatile times? As Bernanke gets backed more and more into a corner, with higher and higher rates, how much more crazed and volatile will things get? What crazy new "tool" will he introduce to attempt to steer the good ship Economy of the USA? What will happen to the economy next because of Fed manipulations. It is perhaps time, as Joe Salerno suggests, that the as a first step, the Fed be defanged.


  1. Just an FYI Bob - Peter Schiff talked extensively about this and criticized Bernanke for being clueless on his radio show the day after the press conference. You're right that I don't think I've read any criticism on "mainstream" economics/finance websites though.

  2. It also was on Zero Hedge. And they regularly fault Bernanke for thinking it was about stock when it really is flow that matters for interestrates.

  3. Reminds me of a conversation I had with a Harvard economist. I asked him which of his equations told Ben to go from $45B to $90B in purchases. His answer: Several actually. Apparently we have some equations to update.