Bernanke's juggling act

JoeNoEskimo

So how does Ben dazzle us with....um.... "brilliance" on Weds?

Does he strongly hint at tapering purchases soon so that Yellen doesn't get slammed next year? His legacy is on the line, and so are our bloated markets.

Or does he just leave things status quo, and then have some of his Fed cronies drop hints over the next few months?

I'd be surprised if we get anything concrete on Weds, probably just more vague "hints".

Hogan

....I love investing in stocks when people still say "bloated markets". So is private sector bloat dumped on all the taxpayers who dont have a lobbyist more beneficial than public sector bloat that is the responsibility of all of us including those represented by lobbyists? Think of the economy as a barrel and fed policy as water. Since 2008 the fed has poured water in that barrel in a visible way and in my view that barrel was empty and needed as much water as possible. Many think the fed is pouring water into a barrel that is already full or the barrel is full of holes and the water just spills out. The fed policy up to now has softened the correction to our economy that is undeniable--are they able to taper without too much disruption to the economy? I don't know but the fed has done its job up to this point.

JoeNoEskimo

Reply to @Hogan: And now that the Fed's balance sheet has shot up to $3.6 trillion due to QE, what happens next? Government intervention might have helped short-term, but there might be some repercussions longer-term. You would think some of this has to be unwound at some point. Where will Ben be for that part of the plan?

hank

Reply to @JoeNoEskimo: To borrow a badly worn cliche - we really are in "uncharted territory." I believe they have so far staved off a complete meltdown - maybe a 30s-like depression, but we ain't out of the woods yet by any means. I agree, therefore, with Hogan that the extraordinary measures (QE and the like) were correct under the circumstances. I also agree with JoeNoE that extraction will be very difficult. Long run, the extraordinary measures should produce higher inflation - probably will at some point. On the other hand, U.S. demographics (aging boomers) along with substantial curtailments in government spending argue for economic contraction - even deflation. That (latter) possibility is what the Fed's fighting at the moment (and has been fighting).

What will Bernanke and cohorts say next? Good question. They keep a keen eye on the markets - both commodity and equity (more I think than under Greenspan). Watch which direction those take early in the week and it should give a clue to whether they decide to emphasize continued "accommodation" in their statements or continued "evaluation" of the need for accommodation. Whichever option they land with, rest assured there will be one or more Fed governors out there within a few days sending out contradictory signals.

Hope this settles everything

Hogan

I agree we are in uncharted territory. Most people just fall back on what they would personally do in a crisis and that is to stop spending money. What is not uncharted territory is a fed doing nothing or very little and a frozen banking system--that was going to happen. I realize, again on a personal level, our instincts are that we should just let people or companies who made bad decisions fail. The failure was going to be system wide--so what people should acknowledge is that there has always been what I call free market subsidies.

hank

Reply to @Hogan: I agree. ... If I understand here, it relates very much to Pogo: "We have met the enemy ..."

Investor

Reply to @JoeNoEskimo: Fed's balance sheet can stay large and can shrink over time as the bonds they hold mature. The fed has no urgency to shrink its balance sheet. It does not need the money tomorrow or any time soon. Concentration on the balance sheet is the carry over from gold standard times where Fed had constraints on money supply. Today it has almost no meaning...

Investor

Reply to @Hogan: I agree that people are all for letting that non-prudent neighbour fail until they realize when enought of them fail, they will bring down prudent neighbors along with them.

Another analogy, isolated fires can be dealt with easily but a few of them happening simultaneously can overwhelm the fire department and fires can spread.

What works at personal level does not necessarily work at national or global level. Critics of fed, politicians and common people unfortunately does not understand this.

JoeNoEskimo

So now we just bail out our banks whenever they screw up, flood them with cash (that they can then hoard instead of lending out) and continue to let them make a mockery of the mortgage/bankruptcy filing system. No oversight, for all intent and purposes.

I'm admit this isn't all on the Fed, but there should be a better overall game plan to FIX issues instead of applying band-aids. Nothing really changes here without better laws and regulation. Maybe the Fed needs to be given more power?

And despite the improving unemployment numbers we are being spoon-fed, I don't know that the job situation has really been improving much at all. Too many people falling out of the picture (calculation) who can't find jobs, or are "underemployed". The younger generation has been dismissed, overburdened with college loans, but are supposed to be our future. Meanwhile they still live at home with their parents at age 30 and put off having families.

There needs to be MORE than ZIRP and QE. I'm not sure why Ben hasn't gotten more help, but if this was his bazooka, he needs a new arsenal. ZIRP has hurt many savers, and the damage is irreparable. Don't funnel investors into stocks and bonds.

AndyJ

Reply to @JoeNoEskimo: On the employment situation, the Bureau of Labor Statistics reports a lot more than the headline rate; it's the fault of the "lamestream" media, IMHO, that it's the only major data point we hear about with any regularity. Look at all the data they released with the last full report.

I think you're absolutely right that the situation isn't improving much at all. The employment to population ratio has stabilized at the bottom, there's very little to no upward momentum, and it's been that way for nearly four years.

bee

10 y Treasuries should be closer to 3.4% without QE...article reviews this possiblilty:
the-bond-yield-gdp-excerpt