Bernanke’s got NO powder.

So according to Tim Duy’s next post, the unicorns that I’d assumed were supposed to herald the rejuvenation of household formation, per the previous post here, first must goose the chairman of the Federal Reserve off the schneid, and then maybe the whole stimuthingy can get going.

A blessing of unicorns’ work is never done. (Meanwhile, unemployed youth of the beginning of the recession in 2007 are now likely to be never-employed young adults here in mid-2012, …)

The general principle: the failure of QE(n-1) paves the way for QE(n), which will also fail.

The Fed has no “dry powder”. It’s caught in a liquidity trap of its own making. Pushing on a string.

Get that weak-a$$ sh!t out of here.

The Fable of Moral Arithmetic

Something else he’s short of. They usually come in pairs.

MY understanding was there would be NO ALGEBRA on FDL anymore.

selling short-term maturities and buying long-term ones to try and reduce longer-term interest rates

The things that are going from short-term to long-term would be government debt, would it not. Locking in the current low interest rates. (Aside from other effects on the T-bill market)

That will affect calculations of the long-term debt prospects by the CBO, wouldn’t it?

What might the political benefits of that be?

The problem is neither financial nor economic; those are issues from a fundamentally political problem that shows itself both in national politics and the institutional politics of the Fed. Nothing is going to happen while that politics is frozen in place.

The fundamental fact in evidence for substantially longer than four years is that monetary tweaking alone will not restore the economy.

He isn’t keeping anything dry. QE was absolute kerosine for oil and commodity prices..The last thing we need is an oil and or food spike. Also QE is nothing but a mirage, a hopium for traders and they will be willing to walk to the brink, it is in the nature of those sharks to keep moving where ‘the market’ takes them.
Stocks and the market itself has nothing to do with investing any longer the verb is trading, and it is why the retail investor should stay away and not be goaded into a market for ‘return’. The bernank has said ZIRP will be in place till at least ’14. If, and that is more than likely, probably something will break before then and interest will spike and shares will tumble again. Stocks are a suckers game to the regular guy.
The Fed is a toxin to both the left and the right and can’t be perceived to be acting to be acting on behalf of the administration. If mittens is elected the bernank can’t be fired and likely won’t be rehired.

True, fiscal policy is far superior in a liquidity trap. But, you know, Congress and, so far as he could maybe do something, the President …

And I’m remiss in not checking —let me put that in the In box now— but I was under the impression that the last couple of round had some weak effect. Things are very bad now; weak beats nothing.

But what really gets me about the Fed is, “we” are supposed to be so much into signalling, and sending messages, and communicating and such these days, why so ploddingly literal all of a sudden with something that might indicate a government that thinks it should do something about an unemployment rate that is overall two or three times what it should be? Everything that is done can be used to throw into sharper relief what is not done, and those who insist on acting like millstones.

Ben has his orders from the Kings on Wall st. no stim. we want Willard in place by Jan.

Who will directly benefit more from another QE versus who indirectly loses more?

Who loses and who wins? Does “Joe & Jane Average” benefit more from QE by keeping or finding a job or do the Wall banker elite directly benefit more by creating a condition that forces more money into the stock market casino? Low interest rates have a big downside. They discourage saving and encourage taking on ever increasing debt. They eliminate secure investment options for pension funds and retirees.

Not since FDR has anyone discovered this economy works from the bottom up, not the top down; but that’s the way it works best for “corrupt” politicians to get money.

Bernanke is a Republican. After the election, if Romney wins, he’ll suddenly discover his new powers. Otherwise, the powder will remain plenty dry.

Bernanke created the poor housing market when he raised rates in 06. That was when the word “subprime” was being batted around. It was not his decision, it was “darthvaders” decision for reasons no one would believe even if I told them. Ben Bernanke was just doing as he was told.

The housing market is like one big long train stretching back and forth across the country. If I have a $25,000 house, and I want to buy a $100,000 house; I can’t buy it until I sell mine, and the guy working at burger king would buy it, if he could make the payments; but due to the interest rate, he can’t quite make it.

You want a $300,000 house, but you can’t get it because you can’t sell yours, and it’s all because the guy at Burger King can’t buy mine, in order for me to buy yours; and so it goes back and forth across the country.

It was not his decision, it was “darthvaders” decision for reasons no one would believe even if I told them.

Oh, Hell, go ahead and try us. ;-)

What might the political benefits of that be?

The problem is neither financial nor economic; those are issues from a fundamentally political problem that shows itself both in national politics and the institutional politics of the Fed. Nothing is going to happen while that politics is frozen in place.

By law, the Treasury cannot directly borrow money from the Fed to pay its bills, but indirectly, the Fed can buy Treasury bonds on the “open market.” And that is what “Quantitative Easing” is all about. Basically it is turning Treasuries into freshly issued dollars (i.e., credit into accounts at the Fed).

Paul Krugman and Rick Perry think that Treasuries are less inflationary than dollars and (in normal times, per Krugman) monetizing our debt and/or paying the government’s bills with freshly issued money (e.g., trillion-dollar coins) debases the dollar. The MMTers, especially Scott Fullwiler, think otherwise and point out that when banks buy Treasuries they pay with freshly issued bank money and that anyone can take pawn their Treasuries with banks in exchange for freshly issued bank money.

In QE1 and QE2 the Fed bought up about about a trillion dollars of our national debt and now owns 10% of it. I say “bought up” rather than “paid off” because Treasuries owned by the Fed still count toward the debt limit. Note, however, that interest paid to the Fed counts as Fed profit all of which reverts to the Treasury at the end of the year (with a bit of overhead taken out).

But you probably knew all that already. ;-)

Wow! Thanks for that link to “The Fable of ‘Moral Arithmetic’”. Great stuff.

“Darthvader” was stranger than any fiction, and he ran the country for 8 years while “W” was reading comic books or doing something similar. This involved the commodity markets as so many orders “Darth” gave involved. When the interest rates go up, the value of the long bond goes down; and “Darth” wanted the price of bonds to go down. Why he wanted this gets even stranger; but it had absolutely nothing to do with housing, even when this was the most critical time for housing in my lifetime.

In regard to that statement, “The most critical time for housing in my lifetime”, Alen Greenspan has confirmed that in a conversation with Ben Bernanke.

Bottom line is that MANNER in which the Fed provides money is failing. The Fed makes it easier and easier for the same banks which crashed the world economy to get more money. Obama once used the example of taking the car keys away from the Republicans because they had driven the car into the ditch, well, the Fed “bailout” of the TBTF banks and Wall St is like buying a new Porsche for a guy which keeps driving it full speed into a brick wall. One of the reasons we’re in this mess was Greenspan providing cheap money to the banks all through the 00′s to pump up the Bush economy. To expect that providing more cheap money will revive the real economy without correcting the real problem (corrupt financial system) is extremely naive.

We cannot have a recovery of the real economy until these banks are removed from the economy or in some manner reformed, but that has not happen. Instead, we watch in horror as the banksters continue to rack up a horrendous bill, and give it to the US taxpayer. There has been no restructuring of the banks, no removal of the CEOs and CFOs that failed, and no criminal investigations of rampant fraud, forgery, collusion, and corruption. How the Fed expects to “fix” the economy by endlessly giving “free” money to the exact same people that crashed the world economy is right in line with one of the definitions of insanity: continually perform the same actions and expecting different results.

Amen, brother! Benny and the Jerks’ quivers are now devoid of arrows. And, the few they shot landed at the corner of Wall and Broad, in Lower Manhattan. As long as supply side is the absolute, unquestioned dogma of the markets and government, more “correct”/widely accepted than the fact that the planet is round, we ain’t goin’ nowhere. And, you damn well better believe, the MOTU will move Heaven and Earth to keep it that way.

Aha. This is the part that did not occur to me.

because Treasuries owned by the Fed still count toward the debt limit

Will it be enough to avoid another round of extortion?

Dean Baker and Ron Paul have both recommended that the Treasury repudiate debt owed to the Fed, which they insist is “part of the government.” I have my doubts about the economic and legal soundness of that approach.

I recommend that the Treasury purchase those bonds from the Fed with specially minted platinum jumbo coins.

Hell, we should all just quit our jobs, quit making things, quit growing food, etc, and just go ahead and start printing money from now on forever. We can use monetary policy to give us the good life. Prosperity for everyone and no need to work for it. Man that sounds so nice.

Damn it Ben, you have the technology called the printing press–why in the hell aren’t you using it already?!

In fact, he has printed seven trillion dollars and loaned it to the large banks at essentially zero-percent interest. The problem is that Helicopter Ben has been dropping money on bankers (who now collect interest on their reserves at the Fed) rather than consumers. And, thus, we are still in a liquidity trap.