On August 27, 2010 in a much Ballyhooed Speech at Jackson Hole, Bernanke said
The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.
The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.
The FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favourable.
The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. Should further action prove necessary, policy options are available to provide additional stimulus. Any deployment of these options requires a careful comparison of benefit and cost.
In light of yesterday’s FOMC Statement inquiring minds are asking four key questions.
1. Did the economic conditions “deteriorate significantly”?
2. Is deflation a significant risk?
3. Does the Fed “have the tools”?
4. Did the Fed do a “careful comparison of benefit and cost” for further quantitative easing?
1A. Of course they did. You can see it in the Philly Fed index, in Housing, and in numerous other indicators. The only outlier was last month’s ISM. The problem is the Fed does not admit conditions have deteriorate significantly. Instead the Fed talks of a slowdown and uses words like “sluggish”. The Fed always pretends conditions are better than they are so as not to alarm the markets. In response, people rightfully accuse the Fed of telling lies.
2A. Deflation is not a risk per se. We are in deflation as measured by credit. Deflation is the result of piss poor economic policies by the Greenspan Fed, the Bernanke Fed, numerous banks and lenders, and Congress. The threat is not deflation, a much needed event. The threat is further insane policy actions by the Fed and Congress hoping to stave off the inevitable credit collapse.
3A. Clearly the Fed does not have the tools. If they did, we would not be in this mess in the first place! It’s hard to say if Bernanke’s statement is an outright lie or if he is delusional enough to believe the nonsense he is spouting. The safe action here is to assume Bernanke is a delusional liar.
4A. Clearly the answer is no.
Jackson Hole vs. Tuesday’s FOMC Statement
Let’s compare the key points above with select highlights from yesterday’s FOMC statement.
- “Household spending is increasing gradually”
- “Business spending on equipment and software is rising, though less rapidly than earlier in the year”
- “Bank lending has continued to contract, but at a reduced rate in recent months”
That does not look like rapid deterioration. That looks like slow improvement.
However, we do see this new statement thrown in out of the blue “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”
Skilled Translation of Blatant Lies
My friend “HB” is very skilled at reading between the lies. He offers this accurate Translation of the FOMC Announcement, September 21.
FOMC: “Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months.”
Translation: “As far as we can tell, the economy is still up sh*t creek without a paddle.”
FOMC: “The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.”
Translation: “We have no clue what is going to happen next.”
FOMC: “The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”
Translation: Translation: “We’ll keep our eyes fastened on the rear-view mirror, and stand ready to inflate even more at the drop of a hat. We already said that, but want everyone to rest definitely assured on that point.”
The mandate, the mandate…they’re mentioning it again here. The Fed has of course an impossible mandate – to keep the value of the currency stable and to keep unemployment low at the same time, all by tweaking a short term interest rate – it is patently absurd.
In reality, it can do neither the one nor the other – not to mention the fact that ‘price stability’ is not even a worthwhile goal. The price stability policy has enabled the biggest credit bubble in all of human history which in turn nearly destroyed the economy. It is high time it was thoroughly reviewed.
Reading between the lies is a fine art.
Please see the article for more select quotes and their true meaning.
By the way, there is someone else very adept at leading between the lies. I just happen to have a select quote handy.
Just yesterday I was asked
Mish, your comment about gold doing well in times of economic stress is exactly the opposite of Robert Prechter’s view. One of you is right and the other is wrong.
“Gold tends to be strong as long as the economy is expanding, per the study in the March 2008 issue of the Elliott Wave Theorist” Sept. 17th Elliott Wave Theorist, also Dec. 2003 EWT.
What do you say?
My response was “Who does it look like is right?”
Note that gold fell from 850 to 250 over a 20 year period with inflation every step of the way. Prechter is simply wrong.
Mike “Mish” Shedlock
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