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: "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 ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.
The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.
Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely (http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm)
because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".
Please read my Guidelines For Comments before posting. They are mostly common sense. But as my grandmother was wont to observe, "sense" is not as common as it used to be.
Unless otherwise noted all written material on this blog is copyrighted by the blog owner. All rights are reserved except as stated below.
I generally have no problem with someone quoting Ad Orientem unless it's for commercial purposes or something that's copyrighted other than by me (in either which case kindly ask first). In all cases please be polite and include attribution and a link. Remember good netiquette.
A conscientious effort is made to respect the rights of others when quoting or displaying their work on this blog. As a general rule only excerpts are posted with a link to the original source. Common sense exceptions may include instances where it is believed in good faith that the content falls within the public domain or where the quoted content is so brief that excerpting is not practical.
No comments:
Post a Comment