BERNANKE IN WYOMING: BLIND MAN’S BLUFF

The Fed’s chief inflicted upon his audience a speech of obtuse indecision.

The head of the US Federal Reserve Ben Bernanke spoke today from a hole in Wyoming. As a result of this speech, the American S&P 500 rose 1.3% – a substantial increase in the current environment.

The Slog has devoted much of this afternoon (BST) to analysing the speech. I was primarily in search of something new; but failing that, something real would’ve done. My conclusion having read Ben’s address several times is that if it buoyed the markets, then it just goes to prove the old adage that survivors bobbing up and down on the high seas of globalist finance will clutch at any straw available – and take comfort in completely jargonised bollocks…..whatever size of engorged bollocks might be on offer.

I genuinely promise serious readers that this isn’t me playing clever-arse. The world is a complex place, and the global economy enough to make a grown astrophysicist weep. But Ben Bernanke is the boss of the American Federal Reserve, and he is supposed to know the answers. If you are in charge of the US money shop and you have any doubts at all about your ability to run the Universe, then you shouldn’t apply.

Allow me now to guide you through the highlights of Secretary Bernanke’s address. You will find it, in equal measure, amusing, surreal, confused, confusing and terrifying.

Ben’s remarks are in black, and mine are in red.

1. When last we gathered here, there were strong indications that the sharp contraction of the global economy of late 2008 and early 2009 had ended.

You’re going to have to enlighten me there, Ben. I remember lots of data-hailing by the media, but not the strong indications of lights and tunnels to which you refer.

2. Much of the work of implementing financial reform lies ahead of us.
No, all of it lies ahead. We didn’t do any yet.

3. Bankers alone cannot solve the world’s economic problems.

True, but they can sure as hell cause them.

4. When we last gathered here, the deep economic contraction had ended.
You know, it really hadn’t Ben. You sprayed some dollars over the multitudes and gave away some automobiles. That stops contractions: it doesn’t end them.

5. Private-sector employment has grown only sluggishly.
Or put another way, the only jobs on offer were government jobs.

6. The upward revision to the savings rate also implies greater progress in the repair of household balance sheets. Stronger balance sheets should in turn allow households to increase their spending more rapidly as credit conditions ease and the overall economy improves.

This is one of the truly weird assumptions of contemporary capitalism: that we exist purely to consume. Also you’ll have to expand on the bit about credit conditions easing and the economy improving: how and when it happens etc, with some background detail on why.

7. Home sales dropped sharply following the recent expiration of the homebuyers’ tax credit.
See statement 4. above.

8. Generally speaking, large firms in good financial condition can obtain credit easily and on favorable terms; moreover, many large firms are holding exceptionally large amounts of cash on their balance sheets….Bank-dependent smaller firms, by contrast, have faced significantly greater problems obtaining credit, according to surveys and anecdotes.
This is right on the money, Ben: there are literally billions of dollars available for half-witted mergers of fat multinationals that can only destroy jobs – but none at all to help new entrepreneurs create jobs. I’m surprised you didn’t comment on the dysfunctional nature of such lending. You could, for example, have said things like “What dumbassed jerk had that idea?”

9. Like others, we were surprised by the sharp deterioration in the U.S. trade balance in the second quarter. However, that deterioration seems to have reflected a number of temporary and special factors.
No, sorry – this one really won’t wash. The US negative trade balance has been broadening for quite a long time. This has produced something we top economists call a deficit. And if you want to call having outdated products that are too expensive a temporary thing, then I’m relieved: but I’d like to know when the competitive, cutting-edge products will be making an appearance.

10. Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place….Europe has reduced fears related to sovereign debts and the banking system there.
Well the EU may have reduced fears, but they haven’t removed any problems. Sovereign debt is largely unaudited: the stress test wasn’t taken seriously by anyone except Jean-Claude Trichet, and one bank manager in Netherhopping.

11. Stronger household finances, rising incomes, and some easing of credit conditions will provide the basis for more rapid growth in household spending next year.
As Ronnie used to say, “there you go again”. Rising incomes? Eased credit?

12. I will focus here on three [strategies] that have been part of recent staff analyses and discussion at FOMC meetings: (1) conducting additional purchases of longer-term securities, (2) modifying the Committee’s communication, and (3) reducing the interest paid on excess reserves. I will also comment on a fourth strategy, proposed by several economists–namely, that the FOMC increase its inflation goals.
Right, so that’s buying your own bonds, spin, making it cheaper for banks to fall upon your mercy – and printing money. Okey-doke.

13. We do not have very precise knowledge of the quantitative effect of changes in our holdings on financial conditions….uncertainty about the quantitative effect of securities purchases increases the difficulty of calibrating and communicating policy responses….A second policy option for the FOMC would be to ease financial conditions through its communication, for example, by modifying its post-meeting statement….An alternative communication strategy is for the central bank to explicitly tie its future actions to specific developments in the economy….At this juncture, the Committee has not agreed on specific criteria or triggers for further action.

Oh my God.

14. Although what I have just described is, I believe, the most plausible outcome, macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.
Er….plausible? What outcome? You just gave us four. And you’re uncertain, but that’s OK because there’ll be unexpected developments? I don’t follow.

If there is one thing that concerns me more than a bearded rabbit in the headlights, it’s adult male and female professionals taking this crap seriously. Bernanke’s speech today represented a lengthy overture of sightless denial followed by a cacophony of contradictory ideas – literally, a blind man stabbing at darkness he cannot see.

It’s a bank holiday in the UK. We should all relax: it will stand us in good stead in the coming months.