New York Fed President William Dudley On Bernanke's Reappointment, MBS Purchases, Inflation & Quantitative Easing

CNBC's Steve Liesman had a 2-part interview (lovefest) this morning with New York Federal Reserve President William Dudley.  Dudley came to the New York Fed from Goldman Sachs, and his appointment to Treasury Secretary Geithner's previous position was incestuous and controversial, as detailed recently in the WSJ.  Even the reigning king of corporate cronyism, GE's Jeff Immelt (a NY Fed board member), was said to be unnerved by the appointment.

Warning: watching this clip will likely cause unrelenting indigestion.

See it anyway.

Part 1 (4:27)

Part 2 (4:42)

From CNBC:

Fears of inflation because of the Federal Reserve's massive quantitative easing measures are overblown, because the Fed has the ability to pull the liquidity out of the market fast enough to prevent price rises, William Dudley, New York Fed president, told CNBC Monday.

Since the onset of the financial crisis, the Fed has cut interest rates near zero and injected about $1 trillion in the markets to prevent credit from freezing up.  Many analysts have warned the measures carry a high risk of inflation and on Monday a survey of economists in the National Association for Business Economics showed that 41 percent of them believed the measures to be inflationary.

"My view is that we have tools to manage our balance sheet so that we'll not have an inflation outcome," Dudley told CNBC. "We're far along in terms of having the interest on excess reserves and, just in case, developing other means of pulling out the excess reserves."

"Some of the exit strategies are already happening," Dudley said, explaining that lots of liquidity facilities were introduced with penalty interest rates and as the economy is recovering, firms return the liquidity to escape the punishment of high rates.

The Fed is also looking into the idea of banks depositing excess reserves with the Fed on a term basis, and into that of launching repo operations – selling securities to the market and withdrawing liquidity that way, Dudley said.

But he said it was too early to speak about launching the exit strategy, as the economy still isn't growing fast and unemployment is high.

"My own personal view is, I think it's a little premature to be so confident that you want to pull all these things back right now," Dudley said.

"I'm totally committed to taking away the punch bowl at the right time," he said during the same interview.

It is possible that inflation could decline for a while because of the slack in economy and the banking system will take time to heal itself, Dudley added.

Comments

[DailyBail]

Fed Can Avoid Inflation Danger: NY Fed President
http://www.cnbc.com/id/32624655

[DailyBail]

WHEEEEEEEEEEEEEE!!!
There's no chance of this ending badly
http://www.eschatonblog.com/2009/08/wheeeeeeeeeeeeee.html

[DailyBail]

Huge NEWS...confirmation from Ron Paul on discussions with Barney Frank

Rep. Ron Paul said he has a commitment from the chairman of the House Financial Services Committee, Barney Frank, to advance the Texas Republican's legislation opening the Federal Reserve to broader federal audits.

http://online.wsj.com/article/SB125167261849670795.html

[James H]

I love how he just tosses out the Philips Curve (unemployment and inflation are inversely related) as if it's holy writ (1:40). Wasn't this dude alive in the 70's? Is he cribbing from his freshman econ book?

Oh, and did he just let the cat out of the bag that essentially the Fed is loaning money to the banks so they can prop up the Treasury market (3:10)? And this, like paying interest on those reserves, isn't "a subsidy to the banking system" as Steve Liesman asks?

It's ALL a freakin' subsidy to the banking system -- we've re-engineered our entire monetary and fiscal policy so that it helps out individual (large) banks. Tough stuff if you're a small, community bank -- no one is going to bail out your Fannie and Freddie shares, but the bondholders -- they get whatever they want. Plus, the govt isn't going to give you taxpayer money and call you "well capitalized," thereby reducing your FDIC assessment.

[Sell Short]

Congrats to The Daily Bail. You have now moved into the top 5,000 U.S. Websites measured by unique visitors.

http://www.quantcast.com/dailybail.com?userView=Public

Keep up the great showing, Steve!

[Ain't Bullshittin']

This thing is about to pop. The stress and pressure being pumped into the markets...all of them...is reaching maximum overload. I am NO stock picker, pundit, or economist but I see regular college educated people hurting everyday and the games that are being played will end badly for both the commoners and the elite. The elite forgot that when they get finished eating all the poor...the only thing left is each other. I fear for my Country and pray for leadership and guidance governed by faith in GOD and the want to do what is just. There may be a murky definition of the word "just" in the higher levels of Gov't and Business..but the people of this Nation and the World know the difference between right and wrong. Knowing the difference does not require higher education....only a conscience...AB

[Wil Martindale]

If or when the Fed is audited and it is revealed that Benny B. is furiously buying U.S. Treasury paper vis a vis a central bank custody account shell game, then the massive monetization of debt will be revealed, the dollar crushed and Zimbabwe, here we come.
http://letthemfail.us/archives/1884
Bring on the Amero. By then, they'll have another name for sovereign default because "sovereign" simply will no longer apply.
-WM

[S. Gompers]

I am fortunate to live in the country and produce 80% of our own food, as well as food for many unemployed friends in my area. The only debt I have is my property, All vehicles and equipment are paid for. I have stated before that we better get ready to live on air, and I wasn’t joking. Even in the suburbs and cities, people can help alleviate some of the stress and burdens of our “new economy”, by coming together as communities and producing at least some of their own food http://en.wikipedia.org/wiki/Victory_garden . The more independent you become, the more worried the Government becomes. Do not trust that as things worsen, the stores will still be there with stocked shelves. Even if they are, you may not have money to eat.

I think everyone can see, except Gobias, that the ENTIRE Government is only interested in saving those who got us into this mess to begin with. As “they” are where the campaign contributions come from...

Prepare to “go to ground”, as things are poised to get ugly, because only the “poor, innocent, rich criminals, matter to our Government. You must trust yourselves not your leaders, you see who they represent.

Good post AB.

Good point on sovereignity Wil, this has been a long term Goal of the "in" crowd for generations. They will "create" the "problem" to make their "solution ","palatable".



"We hang the petty thieves and appoint the great ones to public office."

Aesop

[DailyBail]

If or when the Fed is audited and it is revealed that Benny B. is furiously buying U.S. Treasury paper vis a vis a central bank custody account shell game, then the massive monetization of debt will be revealed, the dollar crushed and Zimbabwe, here we come.
http://letthemfail.us/archives/1884

Wil.

At 2:15 of the clip Dudley admits the Fed is monetizing the debt...listen for yourself and there is the proof it's happening.

[James H]

"At 2:15 of the clip Dudley admits the Fed is monetizing the debt...listen for yourself and there is the proof it's happening. "

Is this the part where he says "We, might actually make money"? I was confused by that -- did he mean the banks, or did he mean FRBNY or what? I thought he meant that the banks were borrowing at next to zero and buying treasuries, but are you suggesting that the Fed is simply buying Treasuries outright (i.e. monetizing the debt)? I'll admit to being a newbie on the workings of the Federal Reserve system.

[DailyBail]

James...i screwed up...it's at 2:15 of the first clip below...i'll be adding these later...there are about 5 more clips from his interview...

http://www.cnbc.com/id/15840232?video=1233197344&play=1

http://www.cnbc.com/id/15840232?video=1233243210&play=1

http://www.cnbc.com/id/15840232?video=1233316264&play=1

http://www.cnbc.com/id/15840232?video=1233344749&play=1

http://www.cnbc.com/id/15840232?video=1235276396&play=1

[DailyBail]

And yes the Fed is also moneitizing...buying Treasuries directly with money (credit) created from thin air...

The problem is that we have no idea how much exactly they are purchasing in this manner...at least Dudley admitted its happening...

[James H]

Steve Lies. -- What about the charge that it was monetizing the debt?

Bill Dud. -- I don't think it was monetizing the debt... to any significant degree... We were trying to ease financial conditions.

This has all the reassurance of someone saying, "No, I wouldn't say I'm still smoking crack...to any significant degree... I'm just trying to ease some symptoms I've been having."

[James H]

Here's more on monetization (though not, I'm sure, to any significant degree):

FAQs: Purchasing Direct Obligations of Housing-Related GSEs
http://www.newyorkfed.org/markets/gses_faq.html

"What type of GSE direct obligations will the Federal Reserve purchase under the program?

The Federal Reserve purchases fixed-rate, non-callable, senior benchmark securities issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Prior to August 31, 2009, purchases were focused on off-the-run securities in that category. Going forward, purchases will include on-the-run securities in that category."

What's new here is that the securities purchased will be NEW issues rather than ones already sold into the market. Ostensibly there are technical reasons for doing this, but this is monetization nonetheless.

(ht: everyone's favorite purveyor of edgy caps and t-shirts)
http://www.zerohedge.com/article/fed-will-now-monetize-most-recently-issued-agencies