Bernanke Poised To Set Printing Presses To 'Monster QE Overdrive'; Internal Fed Printing Limit Revealed
This can't be a surprise to astute readers. Guess the internal Fed QE limit as leaked to Ambrose Evans-Pritchard and published this afternoon. Also, who said the following in 2002:
- "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."
His name is Chairman Bernanke and the answer is $5 trillion, context is below.
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VIDEO: I've added a short clip at the bottom of the story -- only 2 weeks ago Bernanke was telling Congress that QE had ended.
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Two sources for this story, and you should read them both by Ambrose Evans.
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And you should aslo see this short Bernanke Speech from 2002:
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Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.
The speech is best known for its irreverent one-liner from Bernanke:
- "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."
Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system.
He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).
Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.
- "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.
Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".
A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.
Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely:
- "The Fed is soon going to have to the pull the lever on monster quantitative easing (QE)."
The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.
It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?
Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.
Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.
Video: Zimbabwe Ben before Congress -- June 9, 2010
Read more about it here:
Jun 28, 2010 at 12:57 AM
Reader Comments (6)
http://money.cnn.com/2010/06/08/news/economy/Bernanke/
http://www.outsidethebeltway.com/national-debt-projected-to-hit-19-6-trillion-in-five-years/
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7857595/RBS-tells-clients-to-prepare-for-monster-money-printing-by-the-Federal-Reserve.html
Ben Bernanke needs fresh monetary blitz as US recovery falters
Federal Reserve chairman Ben Bernanke is waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral
Read more: http://www.businessinsider.com/rbs-tells-clients-prepare-for-monster-money-printing-by-bernanke-2010-6#ixzz0s7k1gSGw
Deflation: Making Sure "It" Doesn't Happen Here