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HomeBig Ben Will Leave His Credit Card So Wall Street Party Can Rock On
Posted by Larry Doyle on August 12th, 2009 11:10 AM |
It’s getting late but the party is going strong. The chaperone is growing weary and knows it is time for a graceful exit. The partygoers, however, are having so much fun; their youthful exuberance and enthusiasm is peaking after a difficult stretch. What is the next dance that will break out?
Welcome to the world of Wall Street and Washington, August 12, 2009. Today all eyes are on Ben Bernanke as the Federal Reserve wraps up their two-day meeting, with a Fed release at 2:15pm.
How will Ben thread the needle in the process of keeping the inflation hawks at bay while not spoiling the current Wall Street bash? ‘Fed-speak’ is carefully scripted and typically all encompassing. In so many words, Bernanke will highlight the progress made to date, while simultaneously invoking the need for continued support given underlying economic concerns.
From a practical standpoint, there is little doubt Bernanke will again reiterate his message of leaving the Fed Fund rates at 0-.25% for ‘an extended period.’ He will likely try to spin the expected end of the Fed’s quantitative easing program as purely a function of the ongoing economic recovery.
The concern, though, remains that Ben will let the party get overly rambunctious. Don’t think for a second that the Wall Street crowd is not already feeling ‘mighty good’ and ‘well lubricated’ looking forward to a quick return to those outsized bonuses thanks to Ben’s easy money policy.
In short, figuratively Ben will look to leave the festivities but will leave his credit card so the boys can rock on.
Where are the cops?
LD
Related Commentary:
Bernanke Promises to Keep ‘Punch Bowl’ Filled (July 21, 2009)
Fed May Recognize Faster Growth, Keep Rates ‘Exceptionally Low’
by Steve Matthews and Vivien Lou Chen
Bloomberg; August 12, 2009
How Would You Like to Earn -5% On Cash Deposits?
Posted by Larry Doyle on April 27th, 2009 1:12 PM |
Can you imagine putting money into a bank and agreeing to accept a minus 5% rate of interest? Well, the Federal Reserve believes the appropriate rate of interest for this economy is in fact -5%. The FT reports, “Fed Study Puts Ideal U.S. Interest Rate at -5%.”
The world is awash in a sea of debt. The debt is piled highest in Europe on a relative basis while in actual terms the debt in the United States outpaces all other parts of the world. As the deleveraging process continues, the demand for new money to spur growth is anemic. The paradox of thrift (excessive savings inhibits growth) is keeping our economy in a state of stagnation. The Fed and U.S. Treasury are utilizing all tools in their box to restructure debt and promote lending without risking default. Ultimately, all the Fed and Treasury programs will devalue the debt via inflation. Inflation, in which future dollars are worth less than current dollars, is akin to paying a negative rate of interest on money. (more…)
