House Oversight Committee Chairman Darrell Issa (R-Calif.) wrote a letter to Ben Bernanke and Ben wrote back. The WSJ’s Jon Hilsenrath covered the story (Link). Not surprisingly, Hilsenrath spins the exchange of letters as a triumph for Big Ben.
Bernanke defends the Fed’s efforts as well as he can. But in the absence of definitive information on the success of QE, ZIRP and Twist, the best Ben can do is argue, “it coulda been worse”:
“the Fed’s bond-buying of recent years has helped to promote a stronger recovery than otherwise would have occurred”
Really Ben? In the darkest days of 2008 and 2009 the Fed took actions that helped avoid a complete collapse. But there is very little evidence (if any) to support Bernanke’s claim since then.
There is one section in Bernanke’s letter that got to me. Issa asked if it were premature to consider additional monetary moves, Bernanke responded:
the Fed must make policy in light of a forecast of the future performance of the economy
Come on Ben, your economic crystal ball is cloudy. Want proof?
Issa questioned the risks the country faces when the Fed is ultimately forced to reverse its policies and begin to reduce the size of its balance sheet. Bernanke blows off those concerns with:
The Fed will normalize the size of its balance sheet through gradual pre-announced sales in order to ensure that markets have an appropriate amount of time to make adjustments.
This statement is a lie.
Bernanke has no idea what will happen to the credit markets once the Fed starts selling the trillions of bonds it has bought. The Fed has never done this before in history. How can Bernanke be so confident of something when there is no road map? To believe that it will be just as easy to sell bonds, as it has been to buy them, is just ridiculous. When the Fed does start selling, the capital markets (and the economy) will shudder. Bernanke knows this is true.
Bernanke is not going to be the head of the Fed when the selling of those bonds starts to happen. His term will run out before the pendulum shifts. He is setting this up so that the “next guy” has to clean up the mess.
And Ben is going to do more. From the 8/22 letter:
“There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery”
This talk means that Ben is going to up the stakes once again. He will undertake more emergency monetary measures. The “buck” that he is passing to the “next guy” is going to get bigger. Bernanke will be retired at Del Boca Vista when this blows up.
Republicans in Hot Water
Who was it in the Republican party that chose to have a convention at a seaport in Florida at the peak of the hurricane season? What were they thinking of?
The Tampa Bay Times Forum is where the Republicans are supposed to be spending Tuesday. Think of an auditorium filled will delegates wearing silly hats and waving state flags. This picture shows the location of this well-chosen venue. It’s right on the water, and yes, that’s an ocean liner parked nearby.
The good news for the Republicans (and the rest of the folks in Tampa) is that Issac appears to be drifting away from a direct hit. The bad news is that Isaac is going to strengthen quite a bit before it passes by.
The hottest ocean water at any location in American waters today just happens to be in Tampa Bay (89 degrees). The area from the Florida Keys north, is also very hot relative to the rest of the Gulf of Mexico.There’s plenty of fuel to make this storm grow.
If you’re left wondering why the deep thinkers in the Republican Party chose Tampa, consider this opinion piece in the local paper today. Have fun Republicans!
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