Cuts in the Fed Funds rate have not trickled to consumers, who everyday are taking in the shorts the pernicious effects of real and realtime inflation. The risk to the economy of inflation is greater than the risk of no-growth, because you gotta eat just to trend water or even keep from drowning.

Well, Ben has again shown us a few things about himself that we’ve known and feared: he mentally habits the 1930s and thus he mentally inhabits not only the wrong century but the wrong millennium; he has utterly no concern about either a dollar crisis or an inflationary commodity bubble of his own making; he is every investment banker best friend.

Have you tried the new improved burger on McDonalds dollar menu? Its delicious!

It’s dollar-icious !Soon I will be able to enjoy 600 of them.

TR you are right, but the fault is not Bernake’s. The fault is with the masses. We
live in a democracy and they refuse to take action. They
are content to post blogs on
forums like this and let it go at that. They do not give
a damn that the currency is being destroyed. Only when we
elect people who will give
weasels like Bernake their walking papers and put in men
like Volker will we have a chance of averting disaster.

So far the Fed rate cuts have benefited the banks and other financial institutions, but mortgage borrowers have not seen any benefits of the move. Additionally the Fed continues to fuel inflation and devalue the currency they are supposed to be defending. If you happen to be on a fixed income, you are in real trouble. We are headed quickly back to Carter era stagflation. FOMC - don’t worry about televised rants - do your duty to defend the USD and keep inflation in check.

i think Ben has done a fine job.

Boy, oh boy, oh boy those rate cuts have really helped the economy haven’t they? Plus, they are a real boon to people who want to save money and get a decent return on their savings. Right?

WSW,
where are you? Oh! right must be busy buying stocks on the fed rate cut. Yes please buy all you can.

The cuts are directed ONLY to the banks. Nobody else can borrow at those rates and no other rates are going down.

It is amazing how many people think that the fed controls rates.

seems most prime rate loans are lower than first mortgages.

that is healthy.

btw, tie the dollar to the dollar menu…

The financial institution representatives all seem to presume that the Fed’s primary concern has been the economy in its various forms (stock market, unemployment, etc.) in cutting rates. This means that the Fed can’t possibly be done. Perhaps, though, what has triggered the recent sizable decreases is more a fear of financial market instability. Given that the markets appear to be stabilized,the Fed may be very willing to keep rates where they are, or even raise them, and see the U.S. go through the usual pains of a recession that is not burdened with inflation. In a nutshell, I think these folks may be seeing what they want to see; but that may be my problem too.

Bernanke has no back-bone, his actions are reactionary, and the vice chair is just as bad. The academic picked by Bernake seems unable to anticipate events. He’s wall street’s lap-dog.

We have intellectuals running our economy, and it’s terrible for Main Street.

And yes, I have tried the new Micky-D burgers. They are really tasty.

The Fed WILL NOT raise rates until the market forces them to.

That is EXACTLY what happened in the 70s and this (surprise) is very similar.

The only difference is that back then the US could finance the deficit with American savings and now we NEED foreigners to buy treasuries.

Fed = Monetary Wimps

We drive a lot and in large cars and debase our currency in order to increase the wealth of the people who hate us.

Maybe I am just stupid

Time will tell how this panicky monetary easing of the Fed will work out… What is clear us that rates cannot be that low much longer… inflation explosion in commodities and dollar devaluation are bad! Both can still be corrected if interest rates go back to the 4 to 5% range within the next 2 years (preferably sooner). Today’s opinion article on the WSJ put it very well: keep interest rates are a predictable rate close to nominal long-term GDP growth (as it was in the ’80s and ’90s) and prices should behave. A healthy economy needs real positive interest rates, people!
I can only hope the Fed is willing to return to a normal monetary regime as soon as the risk of a systemic financial crisis is definitely past us. Let the recession works its way through… 1 or 2 years, it doesn’t matter… high inflation hurts working families even more, in my opinion.

It seems the Fed is feeling around in the dark. The current economic condition seems unprecedented considering the housing dilemma, food & gas prices, and the personal savings rate. It’s a wait and see position. Maybe saving for a “rainy day” isn’t such an old-fashioned idea after all.

MICKYD,
Try Domino’s pizza. I could no longer tell the difference between the regular and thin crust. The regular one is just as thin. Why? the price of wheat has gone up and Domino is reducing cost.

The Emperor has no cloths Mr Bernake. Hyper Inflation is already starting in food and fuel even though the Fed doesn’t consider food prices when gauging inflation.

Stagflation started under Richard (price controls) Nixon and Gerald (Whip Inflation Now) Ford.
Why should Carter get the blame for the 1970’s stagflation? He appointed the best Fed Chairman we ever had - Paul Volcker - who raised rates to slay the inflation dragon. It may have killed Carter’s re-election chances in 1980, but it was the right thing for the country.

Actually Donna Dee there is a precedent for our current condition, there is even a term coined in the 70’s its called “stagflation”.

…just when I thought the Fed couldn’t be any more detached from reality, we get this brilliant statement of denial.

I mean no offense to the mentally handicapped, but these Fed “Yahoos” are retarded!

The whole crisis started in the real estate market. All Squack box and similar have done is to try to convince themselves that real estate only represents 5% of the market. Well it is not so: first because the rest of the market is cleraly affected, second because confidence is not in the 5%, but in the much higher percentage of people that are seeing their homes devalued if not lost. What is anybody doing to stop the dumping of real estate on the market. If we don’t close this fawcet, it will take years before the market digests the real estate inventory. Right, all for the banks, but what is done to for stop foreclosings. Where is this frozen 5 years interest rate to prevent homeowners from dumping homes in the market. I believe the fault was with the banks and the irresponsible borrowers, but what about the majority that did not overextended themselves, but more importantly, what about the homeowners, especially the elderly, who did nothing, and yet they see the home value down the drain. If Bear & Stearn had to be helped to prevent catastrophy, well what is done to prevent this catastrophy for years to come until the market has digested the heavy inventory of homes. And let’s not forget that we are spending trillions of $ to protect Iraq, and even granting refuge to the poor Iraquenis, but is it posssible that America cannot protect the value of the property of millions of homeowners and, by stopping the real estate devaluation, provide the real cure for its economy.
By the way I agree that with the tax incentive we can soon eat at least 600 dollar-icious Macs.

I’ve posted a translation of the Fed statement at my blog:
http://alhambrablog.blogspot.com/2008/04/fed-speak.html

Rate cuts take time to trickle down and help the economy. You can’t stop a moving train in a second. It slowly changes direction, just like our economy. The Fed will always be criticized. I say good job Ben. As for commodities, that bubble will eventually end. C’mon Walmart and Costco cutting sale of big bags of rice. That sounds like a top to me.

1973 - 1982 inflation averaged 7 percent per year. No one had a solution. Stagflation was a mystery or so it was posed. Carter called it a malaise. The solution was well known but not politically acceptable. This round will go on until the voters wise up and conduct their affairs with less debt. May take 10 years.

The US is no longer 45% of world GDP. Reduced US demand for commodities, including oil, has less effect on the world price. So a US recession won’t reduce those components of US inflation as much as it used to a few decades ago. Though US interest rates impact the exchange rate and hence commodity prices.

Bravo, Salvatorre! He is the man that the people want and the people will get what they want (deserve).

Helicopter Ben has just co-authored another chapter in the forthcoming “Decline and Fall of the American Empire.”

The FED or Administration as a whole needs to start looking at the GLOBAL picture not the today in the US picture. Other economies don’t rely on us like they did before.

Hey revisionist:

This is from Wikipedia - “Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze… If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed’s history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar’s value. By early 1980, inflation was running at 14 percent.”

PsychologyoftheCall
For source trades~

Watch what they do not what they say.

The Fed is dancing at too many weddings. stopping the credit crunch can only be accomplished by printing up money that would cover the interest and principal payments - which neither allows for dollar strength in forex nor in purchasing power.

The second alternative is to let the crunch continue and let the debt be cancelled via bankruptcy and foreclosure. The consequence here is that foreigners holding the cash printed up over the past decades (2.3 trillion in CBs, over 4 trillion in sovereign and state owned enterprise coffers)will be able to buy up US assets at super distressed prices. this would amount to a giveaway that is politically unacceptable.

The “creative solutions” to the liquidity problem only bought short term quiet without solving any of the problems nor creating circumstances that would allow a structural resolution to the problem over time.

Bank writeoffs are not the problem, it is the self reinforcing downward spiral of asset prices falling below their debt service costs leading to a cessation of debt service, and distressed sale of the assets securing the debt. Writing down the debt securities already expected to fail is not a real damage, it is the cessation of debt service cash flows that follows that is. Writedowns are just legerdemain.

The key figure to look at in the banking system, is the reserve deficit: non-borrowed reserves are at -90 billion, about 150 billion below where they would normally be. i.e. the system is insolvent, not just illiquid.

The mortgage for treasuries swap facility is a precursor to defacto monetization of the mortgages as the Fed will swap treasuries for MBS and then buy the treasuries back.

As many have noticed, the 2 year that correlates to Fed target rates historically, was under the Fed funds rate till the swap facility was opened and allowed the fear premium out of the 2 year. The unquantifiable fear premium prevented the Fed from targeting for the 2 year rate, and thus prevented them from increasing the monetary base, which requires purchase of treasuries below market rates. Instead, it was shrinking for a few months in a row. That is the purest form of monetary deflation. In the meantime, M3 has been growing at accelerating rates, now just under 18% Y/Y.

The ECB too has been letting things go as they “fight inflation” with 12.5% growth in M3.

ORO,
That’s what I’m talking about… COOL!
“That is the purest form of monetary deflation.” Which will lead us to a Depression… the likes no one has every witnessed… YET! You think! YEP!
The OZ

Ben Bernanke is responsible for the dollar’s fall. He must defend America by defending our currency, nipping inflation in the bud, and restoring credibility to the Federal Reserve by completely eliminating the abuse of debt monetization.
.
If he fails in this task, I am on board with eliminating the Federal Reserve System and letting the free-market regulate interest rates via a return to the Gold Standard.

Basically, in this report Bernanke is saying to the banks “Look guys, I’ve done all that I dare do for you, for now. Don’t make me be the Chairman who causes the second great inflation of the last fifty years. Leave me some shred of self-respect.”

A truly disappointing day for the FED. Ben and his merry band of MUPPETS just told the American people to go to Hell!!! And inflation is just our imagination playing games on us…

Wage deflation + commodity inflation = current crisis.

Over the last 10 years, real wages have declined and prices have increased 300%…gas, utilities, insurance, health care, food….you name it, it’s tripled or more.

It doesn’t take a rocket scientist to figure this out….or maybe it does???

The solution. Stop spending trillions of $$$’s on killing and killing machines and focus on the domestic issues at hand.

From the beginning of civilization, we still haven’t figured it out! The enemy is not overseas but the enemy is hatred itself!

When we finally realize that we all came from the same place and we all return to the same place, life will improve for everybody.

Mr. Big building 30,000 sq ft mansions as a symbol of his ego while our brothers overseas are dying of starvation…there is something seriously flawed here.

Only a dramatic change in conciousness will save us!

Namaste

ORO,
Your second alternative can be prevented by passing a law to forbid foreingers from buying distressed US asset until we fully recover. We should let these banks fail and investors in these banks loose money so that their risk appetite will not run crazy. New banks will fill the void left by the failed banks. Moral hazard problem is solved. That’s the way in which market economy should work.

The Fed will continue to bailout the US financial system. If things get worse for Wall Street, the Fed will let the banks swap their junk paper for US Treasuries. If China or Japan were to stop buying US Treasuries, the Fed will take up the difference. Wall Street will also continue to short commodities and oil.
Where this crisis will spread is the emerging markets, then Japan, Australia and Europe.

Late during the… “Witching” hour last night in the USA precisely at 3 AM EST in the overseas markets… some one some where pulled the drain plug on GOLD and bought the US Dollars like the was a Blue Light Special for 1 hr only… you think… Rick the San Man… Knows see him this am in the Chicago Pits (CNBC)! You think! YEP! This game of floating (Pumping) the US Dollar will end abruptly… very soon now!
The OZ

Global Finance Subprime Bank Losses Reached $313 Billion over night and still going, going… and still are projected to go higher over the next six months! CITI leads this pack of dogs of the DOW by $45 Billion.
These #’s do not include Commercial Loses which is estimated at an additional… $185 Billion world wide due to defaults in purchasing and sales of “tranched” offers for sale that have led to the US Dollar Decline as of late. What was that # again… Hum… $600 Billion by the middle of 2009?
You Think! YEP!
The OZ

Consumers are hardly concerned with “core” inflation - I have yet to hear public outcry over price jumps in t-shirts, aspirin or movie tickets. The move will continue to sustain a devalued dollar while prices at the pump and sticker shock at the grocery market continue to stifle consumer spending.

Oro wrote:
The unquantifiable fear premium prevented the Fed from targeting for the 2 year rate, and thus prevented them from increasing the monetary base, which requires purchase of treasuries below market rates. Instead, it was shrinking for a few months in a row. That is the purest form of monetary deflation. In the meantime, M3 has been growing at accelerating rates, now just under 18% Y/Y.

The ECB too has been letting things go as they “fight inflation” with 12.5% growth in M3.
.
Please square the, “deflation of monetary” against “increase of M3″ (which is no longer published)?

ANON, now I see you have learned how to spell… “Deflationary Depression”… congrats A+!
The OZ

Burgerman: Yeah, Bernanke’s folks are academics. Then again, Volcker was an academic at Priceton before he was appointed. Don’t badmouth intellectuals or academics…badmouth intellectuals and academics who have no spines. :-)

Oz,
You’re confusing me with my idiot twin. I think Oro was suggesting that the money supply was actually shrinking
.
“The unquantifiable fear premium prevented the Fed from targeting for the 2 year rate, and thus prevented them from increasing the monetary base, which requires purchase of treasuries below market rates. Instead, it was shrinking for a few months in a row. That is the purest form of monetary deflation.”
.
But then stated that M3 was increasing.
.
And yes, “Oz Shrugged” still makes me laugh. Hysterical!

You still get an A+!

Deflations and inflations

They coexist.

Prices rise when debt is defaulting and thus shrinking. That is because defaulting debtors have freed up their cash flows from debt service, while the amount of cash in the system has not necessarily changed.

The cash flows from debt service are largely reinvested in financial instruments, while cash flows FOR debt service are at the expense of commercial and consumer discretionary expenditure. Hence default results in less investment and as much or slightly more discretionary expenditure. Hence stagflation.

In the meantime, the Fed cuts rates (to below market clearing rates) thus making borrowing at the bank more attractive than borrowing in the bond market. But only banks do business at Fed rates and only bank liabilities are cash. Thus overall credit may shrink, while money is expanding. What is growing is bank market share (at least for those who have decent books - not many of those around).

Furthermore, if the Fed is not seeing sufficient bank credit expansion to make up for lost open market credit, it can expand its book by purchasing bonds off the market or through bank repos for the same bonds. This increases the monetary base.

Thus we have a deflationary inflation. Deflation in credit - and formery leveraged assets, with rising prices.

OEO, then what exactly would you call the current situation that the US is headed into with out the intervention that is taking place today that supports the value of the US Dollar? Are we headed for a depression… if inflation is high and the US Dollar value is low and falling? Hum? I guess I have no idea now, where we are at and what direction we are headed in… Sound familiar? You think!
The OZ

ORO,
Thank you. (and thanks for distinguishing clearly between credit and money).
.
Can you advise which of the statistics in the below link is useful to understand the expansion of the monetary base, the obvious M2 at 12.6%, or something else?
.
http://www.federalreserve.gov/releases/H6/Current/

Next great challeng is fighting against rising prices of essential commodities.

Perhaps the emphasis should be put on reducing fuel and food prices and not on economic growth.

Like others have noted “You gotta eat just to trend water or even keep from drowning.”

Do you think Dow will rally from here afterwards or the recent rise is just temporary. If this is temporary, then a great opportunity for the bears to take profits on Dow’s losses

The Dow seems to rise lately on bad US economic news, especially when layoffs, scale-backs, and losses are reported.
Based on this, I believe the stock market is going to rise rise rise!

the fed has stated at every single meeting for two years now inflation would moderate even while it has accelerated. the fed is more concerned about the next three weeks than the next few years. inflation is only a talking point ansd when they finally realize it is the cause of the problems and not a consequence will be when there is a new fed chief.