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    Sunday, November 07, 2010

    Bernanke first Econaught

    Bernanke Defends Bond Purchases.

    Federal Reserve Chairman Ben S. Bernanke said the central bank must focus on the U.S. rather than overseas economies when trying to spur the recovery by purchasing an additional $600 billion in Treasuries.
    “It’s our problem as well if the U.S. is no longer certain that the old recipes don’t work anymore,” German Finance Minister Wolfgang Schaeuble said yesterday in Berlin. The Fed’s injection of $600 billion was “clueless” and won’t revive growth, he said.
    Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.” In China, Vice Foreign Minister Cui Tiankai said “many countries are worried about the impact of the policy on their economies.” He also said the U.S. “owes us some explanation on their decision on quantitative easing.”

    Best Week
    Stocks capped their best week in two months, with the MSCI World Index and Standard & Poor’s 500 Index up more than 3.4 percent each, after the Fed pledged on Nov. 3 to buy as much as $600 billion of Treasuries through June to boost the economy.
    “We are showing insufficient stimulus,” Bernanke said yesterday in his remarks, mostly in response to questions. Asset purchases have “the goal of reducing interest rates, providing more stimulus to the economy and, we hope, creating a faster recovery and an inflation rate consistent with long-run stability,” Bernanke said to students.
    Referring to the policy of so-called quantitative easing, Bernanke said, “we will be reviewing that regularly to see if it is working, to see how the outlook is changing.”
    ‘Dangerous Signs’
    The Fed’s support for asset values isn’t helping the “real” economy, and is creating “dangerous signs of a potential free fall” in the dollar and will be unsustainable, Burry said in an interview.

    The Federal Reserve move is suspect, this has never been done
    in these quantities. $600 Billion, to compare, the health care plan
    is $700 billion over 10 yrs, and the Billionaires tax break is also
    $700 billion.

    But what is the Fed doing exactly?
    Well one arm of the Government, the Treasury is selling Treasury bills on the
    open market, and the other arm of the Government the Federal reserve is
    buying $600 Billion of those same treasurys through the Central Bank.

    The Right hand is selling and the left hand is buying,
    no real ownership change, they just took the $600B Treasurys 
    off the market. With smoke and mirrors.

    But this will reduce the pressure on the Dollar.
    This looks bad for the Dollar.
    And suggests problems with the open market
    sales of Treasurys. Which doesn't instill confidence.
    If this is a near one time event, the markets should
    be able to understand and ride it out.

    Bernanke is dancing in a mine field.
    I hope this works but its unknown territory.
    This gives us some idea how serious the
    high US debt is.

    The Republicans want to kill a few thousand
    poor to help balance the Debt, rather
    than inconvenience a few Billionaires.

    Series 7 & 3.



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