Tag Archives: Ben Bernanke

Ben Bernanke’s April 25, 2012 Press Conference – Notable Aspects

On Wednesday, April 25, Ben Bernanke gave his scheduled press conference.

Here are Ben Bernanke’s comments I found most notable, in the order they appear in the transcript, although I don’t necessarily agree with them.  These comments are excerpted from the “Transcript of Chairman Bernanke’s Press Conference“(preliminary)(pdf) of April 25, 2012, with accompanying economic projections (pdf).

Bernanke’s responses as indicated to the various questions:

Thank you Mr. Chairman, Darren Gersh, Nightly Business Report: Some of your critics, I’m sure you’re not going to be surprised think that you’re still being too cautious that unemployment is still high, the economy may be slowing, inflation is subdued, but I know you just talked about the balance sheet. But given that, is the Committee now any closer to QE3 than it was at its last meeting?

Chairman Bernanke: Well first, the Committee has certainly been bold and aggressive in terms of easing monetary policy. We’ve maintained the Federal Funds Rate close to zero since late 2008. We’ve had two rounds of so-called quantitative easing. We’ve had a Maturity Extension Program which is ongoing. We have offered a guidance about the Federal Funds Rate that goes into at least late 2014. So we had been very accommodative and we remained prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target. So in particular, we will continue to assess, you
know, looking at the economic outlook, looking at the risk, whether or not unemployment is making sufficient progress towards this longer run, normal level, and whether inflation is remaining close to target.  And if appropriate and depending also on assessment of the costs and risks of additional policy actions, we are–remained entirely prepared to take additional balance sheet actions if necessary to achieve our objectives. So those tools remain very much on the table and we will not hesitate to use them should the economy require that additional support.

Continue reading

Ben Bernanke’s January 25, 2012 Press Conference – Notable Aspects

On Wednesday, January 25, Ben Bernanke gave his scheduled press conference.

Here are Ben Bernanke’s comments I found most notable, although I don’t necessarily agree with them.  These comments are excerpted from the “Transcript of Chairman Bernanke’s Press Conference“(preliminary)(pdf) of January 25, 2012, with accompanying economic projections (pdf).

Bernanke’s responses as indicated to the various questions:

Opening Remarks:

from page 5 :

The longer-run projections shown…represent participants’ assessments of the rate to which each variable converge over time under appropriate monetary policy, and in the absence of further shocks to the economy.

from page 7 (with regard to the initial increase in Fed Funds target rate) : 

Six participants anticipate that policy firming is likely to commence in 2015 or 2016 while five others depict policy firming to commence in 2014. The remaining six participants judged that policy lift-off would be
appropriate in 2012 or 2013.

from page 8:

In particular, the Committee recognizes that hardships imposed by high and persistent unemployment in an underperforming economy and it is prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level or if inflation show signs and moving further below its mandate consistent rate.


from page 8:

Steve Liesman: Thank you. Steve Liesman, CNBC. Mr. Chairman, we’ve had several months of economic data that’s been stronger than most forecasters expected. Employment was over 200,000, unemployment rates come down 8 1/2 percent. But there seems to be very little mention of this recent strength in the statement. Do you and the Committee, Mr. Chairman, harbored doubts about the recent strength in the economy? And are you and the Committee baking in additional quantitative easing in order to achieve the growth rates that you’ve even forecast here? Thank you.

Chairman Bernanke: Steve, there have certainly been some encouraging news recently. We’ve seen slightly better performance in the labor market. Consumer sentiment has improved. Industrial production has been relatively strong. So there are some positive signs, no doubt. At the same time, we’ve had mixed results in some other areas, such as retail sales and we continue to see headwinds emanating from Europe coming from the slowing global economy and some other factors as well.  So, you know, we are obviously hoping that the strength we saw on the fourth quarter and in recent data will continue into 2012 but we’re going to continue to monitor that situation. I don’t think we are ready to declare that we’ve entered a new stronger phase at this point and we’ll continue to look at the data. We will, as I’ve said in my statement, and as we have in fact in the FOMC statement, you know, we continued to review our holdings, our portfolio holdings, securities, and we are prepared to take further steps in that direction if we see that the recovery’s faltering or if inflation is not moving towards target. So, that’s something as an option that’s certainly on the table. I think it would be premature to say definitively one way or the other, but we continue to look at that option and if conditions warrant, we will certainly consider using it.

from page 24:

Darren Gersh: Darren Gersh, Nightly Business Report. Let me kind of follow up on Peter’s question, why shouldn’t somebody looking at these numbers from the outside say, “look, as aggressive as you say you’ve been, as aggressive as you have been, it doesn’t look like you’re meeting any of your goals the next three years on the economy, so, why isn’t the Fed doing more now?”

Chairman Bernanke: Well, again, as I said earlier, the Fed has been doing a great deal. Just since August we have put a date on our expected period of low interest rates. We undertook the maturity extension program which is still continuing. Today, we announced a further extension of the expected period of low rates by issuing these expected policy rate information, we hope to convey to the market the extent to which there is support on the Committee for maintaining rates at a low level for a significant time. So, you know, I don’t accept the premise that we’ve been passive, we’ve been actually quite active in our policy and in one respect, the low level inflation is a validation in the following sense that there were some who are very concerned that our balance sheet policies and the like would lead to high inflation. There is certainly no sign of that yet and it hasn’t shown up either in financial markets or in outside forecasters’expectations. Now that being said, as I mentioned earlier, if the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then more, our framework, the logic of our framework says we should be looking for ways to do more, it’s not completely straightforward because, of course, we’re now dealing with a variety of nonstandard policy tools, we can’t just lower the federal funds rate 25 basis points like in the good old days but your basic point is right that, you know, we need to adopt policies that will both achieve our inflation objectives and help the economy recover as quickly as is feasible and I would say that your question, actually and earlier question, shows a benefit of explaining this framework because the framework makes very clear that we need to be thinking about ways in which we can provide further stimulus if we don’t get some improvement in the pace of recovery and normalization of inflation.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1316.33 as this post is written

Ben Bernanke’s November 2 Press Conference – Notable Aspects

On Wednesday November 2 Ben Bernanke gave his scheduled Press Conference.

Here are Ben Bernanke’s comments I found most notable, although I don’t necessarily agree with them.  These comments are excerpted from the “Transcript of Chairman Bernanke’s Press Conference” of November 2 2011 (preliminary) (pdf), with Bernanke’s responses as indicated to the various questions:

from page 4 (Opening Remarks):

In short, while we still expect that economic activity and labor market conditions, will improve gradually over time, the pace of the progress is likely to be frustratingly slow. Moreover, there are significant downside risks to the economic outlook. Most notably, concerns about
European fiscal and banking issues have contributed to strains in global financial markets which have likely had adverse effects on confidence and growth.

from page 7:

Binyamin Appelbaum: Has the Fed discussed the idea of nominal GDP targeting and what are your views on the advantages and disadvantages of that approach?

Chairman Bernanke: So the Fed’s mandate is of course a dual mandate.  We have a mandate for both employment and for price stability and we have a framework in place that allows us to communicate and to think about that, the two sides of that mandate. We talked today–or
yesterday actually–about nominal GDP as indicators and information variable as something to add to the list of variables that we think about and it was a very interesting discussion. However, we think that within the existing framework that we have, which looks at both sides of the mandate, not just some combination of the two, we can communicate whatever we need to communicate about future monetary policy. So we are not contemplating at this at this time any radical change in framework. We’re going to stay within the dual mandate approach that we’ve been using until this point.

from page 14:

Neil Irwin: Neil Irwin with the Washington Post. Mr. Chairman this is the third straight set of economic projections released that have downgraded forecasts for growth and for employment. I wonder, is there some systematic error, some blind spot that’s behind these kind of overly optimistic forecasts? What are you doing internally to understand what you got wrong the last two projections?

Chairman Bernanke: Well, it’s a perfectly fair question. And, you know, we spend a lot of time reviewing those errors, the staff in particular presents us with information on –on forecast errors and on revisions, et cetera. And so we look at that very carefully. I think it’s clear that in retrospect that the severity of the financial crisis and a number of other problems including the dysfunction of the
housing market have been more severe and more persistent than we initially believed and that together with a number of other phenomena like deleveraging by the household sector and so on has slowed the pace of recovery. So, yes, we have again downgraded the medium-term forecast, evidently the forces–you know, the drags on the recovery were stronger than we thought. I would add, however, though that although I think it’s very important to look at the fundamental factors affecting the recovery, there’s been some elements of bad luck. For example this year, the combination of the natural disaster in Japan, which had global impacts in terms of growth; oil price
increases; the European debt crisis, which was not anticipated to be as severe and has created as much volatilities as it has in financial markets, all those things had been negatives for growth and they doexplain at least part of the–of the downward revision.

from page 15:

Michael McKee: Michael McKee with Bloomberg Television. Many Americans wonder what the Fed has actually accomplished with its monetary policy actions since about QE2. Fed officials like to talk about the effect they’ve had on interest rates but the economy seems insensitive to interest rates these days. Can you explain what you have managed to accomplish? Can you tell us whether you feel your mandate requires you to do anything you can think of on an ongoing basis until some targets are met? And can you explain to the average American why you’re doing what you’re doing? And do you think that you risk credibility if the average American doesn’t see some sort of improvement in the economy?

Chairman Bernanke: No, it’s a fair question. I would first say that our monetary policy is having effects on the economy and we’ve talked about the effects on asset prices but we have continued to analyze the effects of changes in interest rates for example on decisions like investment or car purchases. One area where monetary policy has been blunted, the effects have been blunted, has been the mortgage market where very tight credit standards have prevented many people from purchasing or refinancing their homes and therefore the low mortgage rates that we’ve achieved have not been as effective as we had hoped.  So, monetary policy maybe is somewhat less powerful in the current  context than it has been in the past but nevertheless it is affecting  economic growth and job creation. If you ask about the accomplishments, I would first of all mention a very important one which is that we have kept inflation close to 2 percent on average, which both has avoided the problems of high inflation but also very importantly has avoided the risk of deflation. And we have seen in other countries, in other contexts that deflation can be a very pernicious problem and very difficult to get out of once you are there. So, we have been able to achieve on average stable prices. With respect to growth, I think that our policies including the cutting rates to zero in December 2008 and the, the first round of–of asset purchases in the fall of ’08 and in the spring of ’09 were very important for helping to explain why the economy stopped contracting and began to grow again in the middle of 2009. I think there’s a lot of evidence that that did promote growth and job creation. I would
argue that we’ve also been successful with some of the later actions that we’ve taken, although it’s early to say for things like the maturity extension program. But we always face the problem of asking the question of: Where we would be without these policies? And our best estimates are that absent the support of monetary policy that the economy would be in a much deeper ditch and that unemployment would be much higher than it is. That being said, you know, again people rightly recognize that we have not yet gotten the economy back to where we want it to be and their dissatisfaction is perfectly understandable. Yes, I do think that with, you know, that we do need to do whatever we can to move the economy towards price stability and maximum employment. We’ll continue to do that so long as the tools that we have are efficacious and that they don’t have costs or risks or negative side effects that are worse than the benefits, we’ll always be making that evaluation.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1253.23 as this post is written

Ben Bernanke’s Jackson Hole Speech – Notable Excerpts

On Friday August 26 Ben Bernanke gave a speech at Jackson Hole titled “The Near- and Longer-Term  Prospects for the U.S. Economy.”

I do not agree with various comments in the speech.  However, here are a few excerpts that I found most noteworthy:

As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.


In the United States, a cyclical recovery, though a modest one by historical standards, is in its ninth quarter. In the financial sphere, the U.S. banking system is generally much healthier now, with banks holding substantially more capital.


Notwithstanding these more positive developments, however, it is clear that the recovery from the crisis has been much less robust than we had hoped. From the latest comprehensive revisions to the national accounts as well as the most recent estimates of growth in the first half of this year, we have learned that the recession was even deeper and the recovery even weaker than we had thought; indeed, aggregate output in the United States still has not returned to the level that it attained before the crisis. Importantly, economic growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment, which has recently been fluctuating a bit above 9 percent. Temporary factors, including the effects of the run-up in commodity prices on consumer and business budgets and the effect of the Japanese disaster on global supply chains and production, were part of the reason for the weak performance of the economy in the first half of 2011; accordingly, growth in the second half looks likely to improve as their influence recedes. However, the incoming data suggest that other, more persistent factors also have been at work.


Nevertheless, financial stress has been and continues to be a significant drag on the recovery, both here and abroad. Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling.


In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.


Notwithstanding the trauma of the crisis and the recession, the U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. Our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. And our country remains a technological leader, with many of the world’s leading research universities and the highest spending on research and development of any nation.

Of course, the United States faces many growth challenges. Our population is aging, like those of many other advanced economies, and our society will have to adapt over time to an older workforce. Our K-12 educational system, despite considerable strengths, poorly serves a substantial portion of our population. The costs of health care in the United States are the highest in the world, without fully commensurate results in terms of health outcomes. But all of these long-term issues were well known before the crisis; efforts to address these problems have been ongoing, and these efforts will continue and, I hope, intensify.


Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.


To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.1


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1197.48 as this post is written

Ben Bernanke’s Prepared Testimony July 13 – Notable Excerpts

Yesterday Ben Bernanke gave his testimony before the Committee on Financial Services as part of the Semiannual Monetary Policy Report to the Congress.

His prepared testimony didn’t seem to contain content significantly different from that he has previously stated.

However, in my opinion, his prepared testimony does serve as a convenient collection of various of his current thoughts and analyses.

While I don’t agree with various of the following excerpts, I do find them notable:

(note – these excerpts are in the order they appear in the prepared testimony)

In part, the recent weaker-than-expected economic performance appears to have been the result of several factors that are likely to be temporary.

In light of these developments, the most recent projections by members of the Federal Reserve Board and presidents of the Federal Reserve Banks, prepared in conjunction with the Federal Open Market Committee (FOMC) meeting in late June, reflected their assessment that the pace of the economic recovery will pick up in coming quarters. Specifically, participants’ projections for the increase in real GDP have a central tendency of 2.7 to 2.9 percent for 2011, inclusive of the weak first half, and 3.3 to 3.7 percent in 2012–projections that, if realized, would constitute a notably better performance than we have seen so far this year.1

 Long-term unemployment imposes severe economic hardships on the unemployed and their families, and, by leading to an erosion of skills of those without work, it both impairs their lifetime employment prospects and reduces the productive potential of our economy as a whole.

… many potential homebuyers remain concerned about buying into a falling market, as weak demand for homes, the substantial backlog of vacant properties for sale, and the high proportion of distressed sales are keeping downward pressure on house prices.

The Federal Reserve’s acquisition of longer-term Treasury securities boosted the prices of such securities and caused longer-term Treasury yields to be lower than they would have been otherwise. In addition, by removing substantial quantities of longer-term Treasury securities from the market, the Fed’s purchases induced private investors to acquire other assets that serve as substitutes for Treasury securities in the financial marketplace, such as corporate bonds and mortgage-backed securities. By this means, the Fed’s asset purchase program–like more conventional monetary policy–has served to reduce the yields and increase the prices of those other assets as well. The net result of these actions is lower borrowing costs and easier financial conditions throughout the economy.2 We know from many decades of experience with monetary policy that, when the economy is operating below its potential, easier financial conditions tend to promote more rapid economic growth. Estimates based on a number of recent studies as well as Federal Reserve analyses suggest that, all else being equal, the second round of asset purchases probably lowered longer-term interest rates approximately 10 to 30 basis points.3 Our analysis further indicates that a reduction in longer-term interest rates of this magnitude would be roughly equivalent in terms of its effect on the economy to a 40 to 120 basis point reduction in the federal funds rate.

When we began this program, we certainly did not expect it to be a panacea for the country’s economic problems. However, as the expansion weakened last summer, developments with respect to both components of our dual mandate implied that additional monetary accommodation was needed. In that context, we believed that the program would both help reduce the risk of deflation that had emerged and provide a needed boost to faltering economic activity and job creation. The experience to date with the round of securities purchases that just ended suggests that the program had the intended effects of reducing the risk of deflation and shoring up economic activity. In the months following the August announcement of our policy of reinvesting maturing and redeemed securities and our signal that we were considering more purchases, inflation compensation as measured in the market for inflation-indexed securities rose from low to more normal levels, suggesting that the perceived risks of deflation had receded markedly. This was a significant achievement, as we know from the Japanese experience that protracted deflation can be quite costly in terms of weaker economic growth.

Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation. However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.

On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels. Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. The Federal Reserve could also reduce the 25 basis point rate of interest it pays to banks on their reserves, thereby putting downward pressure on short-term rates more generally. Of course, our experience with these policies remains relatively limited, and employing them would entail potential risks and costs. However, prudent planning requires that we evaluate the efficacy of these and other potential alternatives for deploying additional stimulus if conditions warrant.

The full Monetary Policy Report to the Congress (pdf) contains a variety of commentary and analyses as well as detailed economic forecasts.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1317.72 as this post is written

Ben Bernanke’s June 22 Press Conference – Notable Aspects

On Wednesday June 22 Ben Bernanke gave his scheduled Press Conference.  Overall, I found his remarks less notable than that of his April 27 Press Conference, which I commented upon in the April 28 post titled “Ben Bernanke’s April 27 Press Conference – My Comments.”

Here are Ben Bernanke’s comments I found most notable, although I don’t necessarily agree with them.  These comments are excerpted from the transcript (preliminary) (pdf), with Bernanke’s responses as indicated to the various questions:

from page 6:

Greg Ip: Mr. Chairman, the Committee lowered not just this year’s central tendency forecast but also 2012.  And, yet, the statement of the Committee attributes most of the revision forecast to temporary factors.  So I was wondering if you could explain what seems to be persisting in terms of holding the recovery back.  I did see the statement says in part to factors that are likely to be temporary.  Are there more permanent factors that are producing a worse outlook than three months ago?

Chairman Bernanke: Well, as you — as you point out, what we say is that the temporary factors are in part the reason for the slowdown.  In other words, part of the slowdown is temporary, and part of it may be longer lasting.  We do believe that growth is going to pick up going into 2012 but at a somewhat slower pace from — than we had anticipated in April.  We don’t have a precise read on why this slower pace of growth is persisting.  One way to think about it is that maybe some of the headwinds that have been concerning us like, you know, weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, some of these headwinds may be stronger and more persistent than we thought.  And I think it’s an appropriate balance to attribute the slowdown partly to these identifiable temporary factors but to acknowledge a possibility that some of the slowdown is due to factors which are longer lived and which will be still operative by next year.  You note that, in 2013, we have growth at about the same rate that we anticipated in April.

from page 6:

Bernanke, in response to a question about further easing, from Steve Liesman:

With respect to additional asset purchases, we haven’t taken any action, obviously, today.  We’ll be reviewing the outlook going forward.  It will be a Committee decision.  I think the point I would make, though, in terms of where we are today versus where we were, say, in August of last year when I began to talk about asset purchases is that at that time inflation was very low and falling.  Many objective indicators suggested that deflation was a nontrivial risk.  And I think that the securities purchases have been very successful in eliminating deflation risk.  I don’t think people appreciate necessarily that deflation can be a very pernicious situation where — could have very longlasting effects on economic growth.

In addition, growth in payrolls has actually picked up.  In the four months before the Jackson Hole speech in August, there was about an 80,000 per-month payroll increase.  So far in 2011, including the weak payroll report in May, the average is closer to 180,000.  So there has been improvement in the labor market, albeit not as strong as we would like.  As of last August, we were essentially missing significantly in both — on both sides of our mandate.  Inflation was too low and falling, and unemployment looked like it might be even beginning to rise again.  In that case, the case for monetary action was pretty clear in my mind.  I think we are in a different position today, certainly not where we’d like to be but closer to the dual mandate objectives than we were at that time.  So, again, the situation is different today than last August; but we’ll continue to monitor the economy and act as needed.

from page 20:

Bernanke’s response to a question about the timing of the growth rate of employment:

In terms of the unemployment rate, though, given that growth is not much above the long-run potential rate of growth — and we have in our projections an estimate of 2.5 to 2.8 percent.  We haven’t really done much better than that — it takes growth faster than potential to bring down unemployment.  And since we’re not getting that, we project unemployment to come down very painfully slowly.  At some point, if growth picks up as we anticipate, job numbers will start getting better.  We’re still some years away from full employment in the sense of 5 ½ percent, say; and that’s, of course, very frustrating because it means that many people will be out of work for a very extended time.  And that can have significant long-term consequences that concern me very much.

from page 21:

Akihiro Okada: Mr. Chairman, I am Akihiro Okada with Yomiuri Shimbun, a Japanese newspaper. During the Japanese lost decade in the 1990s, you strongly criticized Japan’s radical policies. Recently Barry Summers suggested in his column that the U.S. is in the middle of its own lost decade.  Based on those points with QE2 ending, what do you think of Japan’s experience and the reality facing the U.S.?  Are there any history lessons that we should be reminded about?  Thank you.

Chairman Bernanke: Well, I’m a little bit more sympathetic to central bankers now than I was ten years ago.  I think it’s very important to understand that in my comments, both in my comment in the published comment a decade ago as well as in my speech in 2002 about deflation, my main point was that a determined  central bank can always do something about deflation.  After all, inflation is a monetary phenomenon, a central bank can always create money, so on.  I also argued — and I think it’s well understood that deflation, persistent deflation can be a very debilitating factor in — in growth and employment in an economy.  So we acted on that advice here in the United States, as I just described, in August, September of last year.  We could infer from, say, TIPS prices and inflation index bond prices, that investors saw something on the order of one-third chance of outright deflation going forward.  So there was a significant risk there.  The securities purchases that we did were intended in part to end that risk of deflation.  And I think it’s widely agreed that we succeeded in ending that deflation risk.  I think also that our policies were constructive on the employment side.  This, I realize, is a bit more controversial.  But we did take actions as needed, even though we were to zero lower bound of interest rates, to address deflation. So that was the thrust of my remarks ten years ago.  And we’ve been consistent with that — with that approach.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1283.50 as this post is written

J. Eftin Frenett Quote On Bernanke

From time to time I post quotes from others regarding Ben Bernanke.

Here is one from this week’s Barron’s (June 4) “Mailbag” section.  It is a quote from J. Eftin Frenett.  While I don’t necessarily agree with (all of) it, I thought it was an interesting perspective and one that deserves contemplation:


To the Editor:
The Federal Reserve’s Ben Bernanke is like an engineer who fails to properly define system scope. While the models and simulations appear robust, real-world application leads to seemingly inexplicable failure. What Bernanke has failed to account for are the resources and circumstances out of his control.

The coming crash in U.S. financial markets will be triggered by failures overseas. Investors will suddenly realize that the appropriate risk premium for even top-tier assets is far higher than what they had previously believed.
J. Eftin Frenett
Spencerport, N.Y.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1289 as this post is written

Ben Bernanke’s April 27 Press Conference – My Comments

Yesterday, Ben Bernanke gave his scheduled Press Conference.

While there were few, if any, disclosures that would be considered “new,” I did feel as if many of his comments were notable.  While I could comment extensively upon his remarks of yesterday – as I partially or fully disagree with many of them – I will only address a few items.

His comments, as accurately as I can relay them, are seen in italics below:

@47:20 “…we have a lot of experience understanding how financial conditions…how they effect the economy…”

my comment:  While The Federal Reserve undoubtedly has immense collective experience, both on a direct (through observation) and indirect (through research of past economic events), the question I would raise is the following:  If our current economic situation is very dissimilar to previous ones, how does that change the value of this experience?  I think a very strong case can be made that our current economic situation is (vastly) dissimilar to those previous.

Bernanke’s comments on the U.S. Dollar were interesting.  After earlier seeming to imply that the U.S. Dollar should be officially addressed by the Treasury Department, Bernanke then later made a few comments.

@ 49:30:  “We do believe that a strong and stable Dollar is in the interest of the United States and is in the interest of the global economy.”

@49:42:  “Our view is that the best thing we can do for the Dollar is first to keep the purchasing power of the Dollar strong by keeping inflation low, and by creating a strong economy…”

and this, said in response to the idea of a problematical weak Dollar:

@50:12:  “…I don’t think I really want to address a hypothetical which I really don’t anticipate.”

my comment:  Many thought that Bernanke’s comments on the Dollar indicate that the strength of the Dollar will “take a backseat” to that of efforts to promote a strong economy.  As for myself, I think that the weakening of the Dollar has already caused significant problems, and that the Dollar is highly vulnerable to a substantial decline – one that will prove exceedingly harmful to the economy and financial markets.  I have written of this situation extensively.

@54:00 there is a question as to the pace of the recovery, in which the “Reinhart and Rogoff book” is mentioned, as well as expectations placed on The Federal Reserve as far as its helping the economy to recover.

@57:03 “I do think that the pace will pick up over time. And I am very confident that, in the long run, that the U.S. will return to being the most productive, one of the fastest growing and dynamic economies in the world.

And it hasn’t lost any of the basic characteristics that made it the pre-eminent economy in the world before the crisis. And I think we will return to that status as we recover.”

my comment:  This question and answer largely had to do with the pace of the economic recovery, and the causes as to why the pace appears slow.  Much can be said about the conclusions being drawn from the Reinhart and Rogoff book, and how they are being applied to our current situation.

As for Bernanke’s claim that “I am very confident that, in the long run, that the U.S. will return to being the most productive, one of the fastest growing and dynamic economies in the world” and that The United States “…hasn’t lost any of the basic characteristics that made it the pre-eminent economy in the world before the crisis.”  – I would have liked to have heard more of his thoughts on this issue.  Time will tell if this comes about;  I will be addressing the issue more in future posts.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1356.78 as this post is written


A Look Back – Bernanke’s “Lessons from History” Speech

One year ago, Ben Bernanke presented a speech titled “Economic Policy: Lessons from History.”

I view this speech as highly noteworthy – epochal, even – especially in relation to the efforts made to “bring the economy back” from the depths of the Financial Crisis.

Here are some excerpts that I find particularly relevant:

“I draw four relevant lessons from the financial collapse of the 1930s; I will first list these lessons, then briefly elaborate. First, economic prosperity depends on financial stability; second, policymakers must respond forcefully, creatively, and decisively to severe financial crises; third, crises that are international in scope require an international response; and fourth, unfortunately, history is never a perfect guide.”


“In the current episode, in contrast to the 1930s, policymakers around the world worked assiduously to stabilize the financial system. As a result, although the economic consequences of the financial crisis have been painfully severe, the world was spared an even worse cataclysm that could have rivaled or surpassed the Great Depression.”


“That lesson brings me to the second one–policymakers must respond forcefully, creatively, and decisively to severe financial crises.”


my comments: In June of 2009, I wrote a four-part “Depression” series.  One part, posted June 22, was titled “Are We Avoiding a Depression?” In that post I discuss  the issue from a logical perspective.  It addresses many of the points Ben Bernanke spoke of in his aforementioned speech.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1333.51 as this post is written

“Don’t Fight The Fed” & Related Phrases

“Don’t fight the Fed” is a phrase that has been in existence for decades, and has been heard often, especially lately.

Other related phrases heard include “the Fed’s got your back.”  And, of course, “the Bernanke Put” and, while Greenspan was Federal Reserve Chairman, “the Greenspan Put.”  Many of these phrases seem related to the “That won’t be allowed to happen” mentality that I wrote of in the July 7, 2010 post.

Do these themes have credence, especially in today’s economic and investment environments?  Of course, time will tell.  But, I continue to believe that placing undue faith in such themes is exceedingly hazardous, especially at this juncture.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1332.75 as this post is written