Federal Reserve

As I noted on Blogtalk a couple of weeks ago, Representative Watt is doing his level best to derail the "Audit The Fed" bill and amendments introduced by Representatives Grayson and Paul.

Representative Watt's "alternative", however, doesn't open The Fed's books - it further snaps them shut!  It not only leaves all the existing restrictions against an audit in place and refuses to mandate audits it also places four new restrictions on any such audit activity.

The most outrageous new restriction is that an audit, under Watt's proposal, may not examine the loans or liquidity arrangements that The Fed enters into or the impact of those deals on the reserves, balance sheet or financial condition of either a Fed-regulated bank or The Federal Reserve itself.

It isn't hard to figure out why Watt would want such blanket secrecy.  One need only look at his heavily-gerrymandered district, which happens to contain the corporate headquarters of Bank of America.

This gives new meaning to "kneel before Zod."

The Dishonorable Representative Watt must resign - there have been ridiculous and outrageous claims made in the past, but any representation that his amendment would somehow "open the books of The Fed" is an outrageous lie, and further, it appears to be intentionally designed to protect one of the very "too big to fail" banks that likely has caused The Fed to get in trouble in the first place - Bank of America.

Does anyone remember my ranting at Paulson when he was talking about his "Bazooka"?  Here is what I said:

This joins the list of other "dead wrong" statements you've made, of which I am keeping a running copy and sent them around on the 19th of July. 

How many times do you get to be wrong as Treasury Secretary Hank before you resign in shame?

And now I must ask again - is that really a Bazooka in your pocket, or an empty launcher?  I'm not the only one that's curious you know; the bond market seems to think it smells like BS, and so does the stock market.

Fannie and Freddie collapsed, remember?

Paulson was proved - and rather quickly so - to be completely full of crap.

Bernanke's comments today may have just provoked a dollar catastrophe - a collapse move that may have just begun.  Witness this chart:

The market took about 10 minutes to discern that Bernanke's "concern" was BS, and now has pushed in the chips - "all in" - breaking key support below 75 - and still going.

The carry traders have redoubled their bets and obviously intend to force Bernanke to either put up or shut up.

The problem with Paulson's claim is that when the market called the bluff he wound up sticking the taxpayer for up to $400 billion, of which more than $100 billion has now been dissipated.

It appears the FX market intends to force Bernanke (and Geithner) to either defend the dollar or allow it to collapse.  The violence of this move and the concurrent "ramp job" that accompanied it in the S&P 500 makes clear a few points though.

• The "efficiency" of transmission between this move down and the move up in the stock market is lower than the previous moves have been, although the correlation remains intact.
  
  
• The FX markets will press this bet incessantly as they did when Geithner last mouthed the "strong dollar" mantra.

The Fannie and Freddie game wound up bankrupting both firms and forcing the government to bail them out.

Who is going to bail out the United States Government if and when the FX markets and carry traders cause a disorderly collapse in the dollar?

Just as with Paulson's idiocy I'll bet not one person in Congress or The Administration will stand up and put a sock in Bernanke, despite the fact that we are again seeing the "ALL IN!" game when the person doing it is holding 2-7 off-suit.

But this post, if Bernanke has indeed provoked a collapse of the dollar, is one I will be printing as a full-page advertisement in USA Today - if there still is a USA Today, or for that matter any other national newspaper to which one can freely insert material, in a couple of years.

I just gotta.....

When I last spoke at the Economic Club of New York a little more than a year ago, the financial crisis had just taken a much more virulent turn. In my remarks at that time, I described the extraordinary actions that policymakers around the globe were taking to address the crisis, and I expressed optimism that we had the tools necessary to stabilize the system.

I had a load in my pants, but put saran wrap over my underwear so you couldn't smell it.  It worked too, didn't it?

Today, financial conditions are considerably better than they were then, but significant economic challenges remain. The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible. Nevertheless, I think it is fair to say that policymakers' forceful actions last fall, and others that followed, were instrumental in bringing our financial system and our economy back from the brink. The stabilization of financial markets and the gradual restoration of confidence are in turn helping to provide a necessary foundation for economic recovery. We are seeing early evidence of that recovery: Real gross domestic product (GDP) in the United States rose an estimated 3-1/2 percent at an annual rate in the third quarter, following four consecutive quarters of decline. Most forecasters anticipate another moderate gain in the fourth quarter.

We let banks borrow at zero but you're going to pay 29.9% and like it.  Nobody has a job.  We're playing Wile-E-Coyote pedaling in air, having not stepped off the brink but gunned it and flew 400 feet off the end.  Oh, and the ground is 3,000 feet down.

As for "Real GDP" we count your wealth and output as having grown if you go to the bank and take a $20,000 cash advance on your credit card.  That makes you richer, right?

How the economy will evolve in 2010 and beyond is less certain. On the one hand, those who see further weakness or even a relapse into recession next year point out that some of the sources of the recent pickup--including a reduced pace of inventory liquidation and limited-time policies such as the "cash for clunkers" program--are likely to provide only temporary support to the economy. On the other hand, those who are more optimistic point to indications of more fundamental improvements, including strengthening consumer spending outside of autos, a nascent recovery in home construction, continued stabilization in financial conditions, and stronger growth abroad.

Absolutely - those $20,000 credit card cash advances are great - especially when the interest rate goes up to 29.9%.  This will absolutely promote a durable increase in consumer spending and go straight to the bottom line of corporations..... until you go bankrupt!

My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds--in particular, constrained bank lending and a weak job market--likely will prevent the expansion from being as robust as we would hope. I'll discuss each of these problem areas in a bit more detail and then end with some further comments on the outlook for the economy and for policy.

So long as we can sucker China into buying our Treasuries.....

I began today by alluding to the unprecedented financial panic that last fall brought a number of major financial institutions around the world to failure or the brink of failure. Policymakers in the United States and abroad deployed a number of tools to stem the panic. The Federal Reserve sharply increased its provision of short-term liquidity to financial institutions, the U.S. Treasury injected capital into banks, and the Federal Deposit Insurance Corporation (FDIC) guaranteed bank liabilities. The Federal Reserve and the Treasury each took measures to stop a run on money market mutual funds that began when a leading fund was unable to pay off its investors at par value. Throughout the fall and early this year, a range of additional initiatives were required to stabilize major financial firms and markets, both here and abroad.¹ 

All these banks are still broke.  We papered over the insolvency with printed money, but now we're hearing of people like Goldman changing priority of creditors on some of their deals.  Now now, don't sidle toward the door yet - that smell isn't really the curtains burning!

The ultimate purpose of financial stabilization, of course, was to restore the normal flow of credit, which had been severely disrupted. The Federal Reserve did its part by creating new lending programs to support the functioning of some key credit markets, such as the market for commercial paper--which is used to finance businesses' day-to-day operations--and the market for asset-backed securities--which helps sustain the flow of funding for auto loans, small-business loans, student loans, and many other forms of credit; and we continued to ensure that financial institutions had adequate access to liquidity. Additionally, we supported private credit markets and helped lower rates on mortgages and other loans through large-scale asset purchases, including purchases of debt and mortgage-backed securities issued or backed by government-sponsored enterprises.

We let people lie some more.  It worked so well during the 2000 era.  Home buyers lied about incomes, ratings agencies lied about safety, banks lied to everyone (including themselves and me) and I lied on a daily basis about how "house price appreciation reflects sound fundamentals."  Heh, can't change an unbroken record now!

Partly as the result of these and other policy actions, many parts of the financial system have improved substantially. Interbank and other short-term funding markets are functioning more normally; interest rate spreads on mortgages, corporate bonds, and other credit products have narrowed significantly; stock prices have rebounded; and some securitization markets have resumed operation. In particular, borrowers with access to public equity and bond markets, including most large firms, now generally are able to obtain credit without great difficulty. Other borrowers, such as state and local governments, have experienced improvement in their credit access as well.

We own it all - of course we can print up some more (worthless) currency to paper over whatever.  That's only going to happen for our friends though - you, the average American, are truly screwed.

However, access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve's Senior Loan Officers Opinion Survey shows that banks continue to tighten the terms on which they extend credit for most kinds of loans--although recently the pace of tightening has slowed somewhat. Partly as a result of these pressures, household debt has declined in recent quarters for the first time since 1951. For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms.² The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

Remember when I said "you are screwed"?  Yep.  "You" includes all the little people.  Consumers, small businessfolk, you're all bus fodder and we're gonna back over you after running you down.  Gotta make sure you're dead, after all.  "Such a lovely house......"

To be sure, not all of the sharp reductions in bank lending this year reflect cutbacks in the availability of bank credit. The demand for credit also has fallen significantly: For example, households are spending less than they did last year on big-ticket durable goods typically purchased with credit, and businesses are reducing investment outlays and thus have less need to borrow. Because of weakened balance sheets, fewer potential borrowers are creditworthy, even if they are willing to take on more debt. Also, write-downs of bad debt show up on bank balance sheets as reductions in credit outstanding. Nevertheless, it appears that, since the outbreak of the financial crisis, banks have tightened lending standards by more than would have been predicted by the decline in economic activity alone.

There's a few of you who have figured it out and given us the bird, refusing to borrow and bankrupt yourselves.  The rest of you are bankrupt.  Is that "credit-worthy"?

Several factors help explain the reluctance of banks to lend, despite general improvement in financial conditions and increases in bank stock prices and earnings. First, bank funding markets were badly impaired for a time, and some banks have accordingly decided (or have been urged by regulators) to hold larger buffers of liquid assets than before. Second, with loan losses still high and difficult to predict in the current environment, and with further uncertainty attending how regulatory capital standards may change, banks are being especially conservative in taking on more risk. Third, many securitization markets remain impaired, reducing an important source of funding for bank loans. In addition, changes to accounting rules at the beginning of next year will require banks to move a large volume of securitized assets back onto their balance sheets. Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations.

Oh darn they're going to stop us from lying as much.  We'll screw you some more in retaliation for that.

The Federal Reserve has used its authority as a bank supervisor to help facilitate the flow of credit through the banking system. In November 2008, with the other banking agencies, we issued guidance to banks and bank examiners that emphasized the importance of continuing to meet the needs of creditworthy borrowers, while maintaining appropriate prudence in lending decisions.³ This past spring, the Federal Reserve led the Supervisory Capital Assessment Program, or SCAP--a coordinated, comprehensive examination designed to ensure that 19 of the country's largest banking organizations would remain well capitalized and able to lend to creditworthy borrowers even if economic conditions turned out to be worse than expected. The release of the assessment results in May increased investor confidence in the U.S. banking system. A week ago, the Federal Reserve announced that 9 of 10 firms that were determined to have required additional capital were able to fully meet their required capital buffers without any further capital from the U.S. Treasury, and that aggregate Tier 1 common equity at the 10 firms increased by more than $77 billion since the conclusion of the assessment.⁴ 

Colonial Bank was so-well "supervised" that their assets were worth nearly 40% less than claimed when they were finally taken over.  They're not alone.  Losses of 20, 30, 40 even 50% are not uncommon, but it's all ok - the FDIC ends up eating those.  We, as the penultimate bank regulator, rubber-stamp whatever Blankfein tells us to.  Ain't life grand when you can make someone else eat your screwups?

The Federal Reserve will continue to work with banks to improve the access of creditworthy borrowers to the credit they need. Lending to creditworthy borrowers is good for the economy, but it also benefits banks by maintaining their profitable relationships with good customers. We continue to encourage banks to raise additional capital to support their lending. And we continue to facilitate securitization through our Term Asset-Backed Securities Loan Facility (TALF) and to support home lending through our purchases of mortgage-backed securities. Normalizing the flow of bank credit to good borrowers will continue to be a top priority for policymakers.

They will lend all you're dumb enough to borrow at 29.9%.  See Citibank - the ultimate global bank that has your best interest in mind.

Really.

While I am on the topic of bank lending, I would like to add a few words about commercial real estate (CRE). Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks' books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans. In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.

We looked the other way and encouraged people to build commercial real estate that nobody really wanted or could pay for too, just like houses.  But unlike houses (we successfully dumped all that trash on you via Fannie and Freddie - and now the FHA!) we haven't figured out how to make you, the taxpayer, eat this one yet.

We will though - trust us.

Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their creditworthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that--absent other adverse factors--a loan should not be classified as impaired based solely on a decline in collateral value.⁵ 

Delay is important - we'll dump it all on you as soon as you recover from the violation you took over the last two years on consumer lending and residential real estate.  Until then we've told the banks to lie about valuations.

In addition to constrained bank lending, a second area of great concern is the job market. Since December 2007, the U.S. economy has lost, on net, about 8 million private-sector jobs, and the unemployment rate has risen from less than 5 percent to more than 10 percent.⁶ Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II.⁷ 

All this lying and scamming (which we countenanced and indeed practice ourselves) has led 8 million people to lose their jobs.

Don't worry, it will get worse.  A lot worse.

Besides cutting jobs, many employers have reduced hours for the workers they have retained. For example, the number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions. In addition, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period. These data suggest that the excess supply of labor is even greater than indicated by the unemployment rate alone.

I told you it was going to get worse!  Didn't you listen the first time?

With the job market so weak, businesses have been able to find or retain all the workers they need with minimal wage increases, or even with wage cuts. Indeed, standard measures of wages show significant slowing in wage gains over the past year. Together with the reduction in hours worked, slower wage growth has led to stagnation in labor income. Weak income growth, should it persist, will restrain household spending.

Work harder you slave, or you'll get fired!  Oh, and spend every last penny - it's important.  Especially if you don't have it - go see Citibank - they'll give you that 30% interest rate credit card. 

I promise.

The best thing we can say about the labor market right now is that it may be getting worse more slowly. Declines in payroll employment over the past four months have averaged about 220,000 per month, compared with 560,000 per month over the first half of this year. The number of initial claims for unemployment insurance is well off its high of last spring, but claims still have not fallen to ranges consistent with rising employment.

We're running out of people to fire.  I can't fire my driver, for example.  That would require that I drive myself.  Ditto for my butler.

But I can feed him dog food - heh heh heh....

Although economic pain is widespread across industries and regions, different groups of workers have been affected differently. For example, the unemployment rate for men between the ages of 25 and 54 has risen from less than 4 percent in late 2007 to 10.3 percent in October--nearly double the rise in unemployment among adult women. This discrepancy likely reflects the high concentration of job losses in manufacturing, construction, and financial services, industries in which men make up the majority of workers. From the perspective of America's economic future, the effect of the recession on young workers is particularly worrisome: The unemployment rate among people between the ages of 16 and 24 has risen to 19 percent--and among African American youths, it is now about 30 percent. When young people are shut out of the job market, they lose valuable opportunities to gain work experience and on-the-job training, potentially reducing their future wages and employment opportunities.⁸ 

The young are both stupid and weak.  We know they won't revolt - they have had a dozen years of government indoctrination and just finished up the mandatory part.  (Thank God this isn't France or those youngsters would have gotten the guillotine out from storage by now!)

Given this weakness in the labor market, a natural question is whether we might be in for a so-called jobless recovery, in which output is growing but employment fails to increase.

This is not a question.  The question is whether you will notice that we conspire with the government to simply lie about "output".  Witness the so-called "retail sales report" this morning, which we successfully cooked.  (As an aside that bastard Tickerguy caught us, but nobody reads him anyway.  Fortunately.)

Productivity is defined as output per hour of work. Thus, essentially by definition, a jobless recovery--in which output is growing but hours of work are not--must be a period of productivity growth. In the jobless recoveries that followed the 1990-91 and 2001 recessions, productivity growth was quite strong. It may seem paradoxical that productivity growth--which in the longer term is the most important source of increases in real wages and living standards--can have adverse consequences for employment in the short term. But, when the demand for goods and services is growing slowly, that may be the case.

Work harder or be fired!

In fact, productivity growth has recently been quite high, even when the economy was contracting. Output per hour in the nonfarm business sector is estimated to have risen at about a 5-1/2 percent annual rate so far this year, well above longer-term averages. One reason for recent productivity gains likely was the reaction of employers to the freefall in the economy that began in the second half of 2008. Normally, employers are slow to cut their workforces when the economy turns down. The process of finding, hiring, and training new workers is costly. Thus, if employers expect the downturn will be neither too severe nor too lengthy, they retain more existing workers than they need in the short term, rather than laying them off and replacing them when the recovery begins. However, in the recent downturn, employers were exceptionally uncertain about the future, some even fearing a second Great Depression. Moreover, tight credit conditions left little margin for error. Accordingly, to protect themselves against the worst possibilities, employers shed workers much more sharply than usual in recessions. Thus, the productivity gains this year generally reflected pronounced declines in labor input rather than greater output.

I SAID WORK HARDER AND GET PAID LESS OR BE FIRED!

Will the increases in productivity persist? It is likely that, in some cases, firms achieved their productivity gains by asking their remaining workers to provide extra effort. The additional gains that can be achieved in this way are limited and probably temporary. Although continuing uncertainty and financial constraints might make such firms hesitant to hire, if demand, production, and confidence pick up, they will find their labor forces stretched thin and will begin to add workers. However, other firms, facing difficult financial conditions and intense pressures to cut costs, seem to have found longer-lasting, efficiency-enhancing changes that allowed them to reduce their workforces; and some less-efficient firms, no longer able to compete, closed their doors. Again, improved efficiency confers great benefits in the longer term. However, to the extent that firms are able to find further cost-cutting measures as output expands, they may delay hiring

Employers will stop driving their slaves, er, employees, harder when they fall over dead in the fields.  Oh wait - that was so 1800s.  Or is it more akin to today?  (Let's hope nobody remembers the significance of April 25th, 1792!)

Other factors will affect near-term employment growth as well. Business confidence in the durability of the expansion, for example, will help determine employers' willingness to hire. The current prevalence of part-time work and short workweeks may slow job creation early in the recovery period, as employers may prefer to convert workers from part-time to full-time status and to add overtime work before turning to new hires. In addition, difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses. Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth. Overall, a number of factors suggest that employment gains may be modest during the early stages of the expansion.

The longer we keep lying about this the better the chance we can spool up the jet and get out to Paraguay.  Got JP-5?

I return now to the outlook for the economy and policy. As I noted, I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions. Additionally, the beneficial influence of the inventory cycle on production should continue for somewhat longer. Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years. Prospects for nonresidential construction are poor, however, given weak fundamentals and tight financing conditions.

By allowing banks to claim loans are good when they're not we're letting people live in homes where they haven't made a payment in over a year!  This is broadly supportive of consumer spending.  We'll deal with the homelessness later - when we're in Paraguay.

In the business sector, manufacturing activity has been expanding and should be helped by the continuing strength of the recovery in the emerging market economies, especially in Asia. As the recovery takes hold, enhanced business confidence, together with the low cost of capital for firms with access to public capital markets, should lead to a pickup in business spending on equipment and software, which has already shown signs of stabilizing.

China prints money better than we do.  Pay no attention to the empty cities they built, the buildings that collapsed with 3" of snow on their roofs due to shoddy construction, or the schools that collapse in minor earthquakes.  That's all good too - it means they have to spend more on construction!

I have discussed two of the principal factors that may constrain the pace of the recovery, namely, restrictive bank lending and the weak job market. Banks' reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually, as improving economic conditions strengthen bank balance sheets and reduce uncertainty; the fallout for banks from commercial real estate could slow that progress, however. Jobs are likely to remain scarce for some time, keeping households cautious about spending. As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.

Why is my nose 16" long?

The outlook for inflation is also subject to a number of crosscurrents. Many factors affect inflation, including slack in resource utilization, inflation expectations, exchange rates, and the prices of oil and other commodities. Although resource slack cannot be measured precisely, it certainly is high, and it is showing through to underlying wage and price trends. Longer-run inflation expectations are stable, having responded relatively little either to downward or upward pressures on inflation; expectations can be early warnings of actual inflation, however, and must be monitored carefully. Commodities prices have risen lately, likely reflecting the pickup in global economic activity, especially in resource-intensive emerging market economies, and the recent depreciation of the dollar. On net, notwithstanding significant crosscurrents, inflation seems likely to remain subdued for some time.

Oil has doubled and Gold has screamed higher in recent months.  But trust me - there is no inflation.  Gas going from $2 to over $3, headed to $8?  Naw, that's not inflation.  Trust me.  (I already bought the aforementioned JP-5 I need to get out of here - suckers.)

The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

I'd love to lie about the dollar but it doesn't seem to work!  What the hell?  You mean there are people smarter than me, and my "jawboning" only works for 10 minutes?  Here, you sit on that spike - it'll feel great.  I promise.

The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Of course, significant changes in economic conditions or the economic outlook would change the outlook for policy as well. We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability.

We're gonna keep screwing 'ya, and you're going to like it.

Don't read up on April 25th, 1792.

Please.

Here's Bernanke's speech and what he said:

We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

That's a new one.  You are attentive to it eh?

Well then about this, Sir Jackass?

An EXACT correlation as soon as Bernanke's words were released - synchronized EXACTLY as to time.  Dollar spiked, the S&P 500 dropped.

The Fed has the lever to force this carry trade out of the system before it grows large enough to destroy our economy and productivity.  They need only raise rates - not a lot - just enough to make our markets unattractive.  2% should do it nicely.

Who can argue that 2% isn't "very accommodative" in terms of rates?

Bernanke claims:

My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely.

He's lying.  If he truly believed this The Fed Funds rate would not be at zero - but it is.

Bernanke "outs" himself by saying:

The demand for credit also has fallen significantly: For example, households are spending less than they did last year on big-ticket durable goods typically purchased with credit, and businesses are reducing investment outlays and thus have less need to borrow. Because of weakened balance sheets, fewer potential borrowers are creditworthy, even if they are willing to take on more debt.

Here's the most-recent Z1 credit graph:

Note that The Fed's "base money" is at present about $1.8 trillion, which is $1 trillion larger than the "normal" $800 billion.

But credit outstanding is some $53 trillion dollars.

Clearly, without credit expansion it is not possible for economic growth to occur.  But credit expansion requires economic activity that in turn allows the coupon payments - interest and principal - to be made.

Where is the evidence that this is, at present, possible?

It's absent because it hasn't happened, and that's a major problem.  By refusing to allow the market to take care of the imprudent, forcing the default of bad loans and thus clearing them from both the lender and borrower's balance sheets, we have impaired any ability to return to economic growth, as the bad debt and its servicing requirements still exist.

Ben goes on to say:

With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.

These "loans" were made imprudently with dramatically-overstated expectations for rents and occupancy.  There is no solution to this problem that results in sustainable growth without foreclosure and the loss being taken, just as there is not in residential real estate and home mortgages.  Yet the policy of The Fed and government is to "extend and pretend", or worse, take all the trash onto the balance sheet of either The Fed or The Treasury, effectively hiding the losses - for a while.  But again, that debt still requires servicing no matter where it is, and that (once again) precludes safe and sound lending, as the debt-carrying capacity has been consumed.

Besides cutting jobs, many employers have reduced hours for the workers they have retained. For example, the number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions. In addition, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period. These data suggest that the excess supply of labor is even greater than indicated by the unemployment rate alone.

No, really?  You mean that having a McJob isn't as good as screwing together cars?  And further, that having your boss scream at you "work harder and faster or GET FIRED!" isn't good for consumer income - and morale?

Weak income growth, should it persist, will restrain household spending.

There is no income growth.  Intentional understatements of inflation - hedonic adjustments and the refusal to include actual house price increases, even though the majority of Americans own homes, mean that we have spent the last ten years watching the average American's real household purchasing power be destroyed.  Now we add outright job loss and ramping credit card rates to the mix, as if the deception by the government and The Fed was insufficient - kicking people after you've managed to shove 'em in the gutter has become the next great Bankster Sport.

The unemployment rate among people between the ages of 16 and 24 has risen to 19 percent--and among African American youths, it is now about 30 percent.

That's because currency and interest-rate imbalances have resulted in those front-line jobs, including especially manufacturing, all going over to China - where they will work for $2/day.  This will not go away without addressing the structural imbalances that The Fed, Congress and The Administration have intentionally created.

Final demand shows signs of strengthening, supported by the broad improvement in financial conditions.

How?  Without jobs how does final demand - with 70% of the economy being consumer spending - strengthen?  Yes, the government can (and has thus far) blow money it doesn't have, so long as China continues to allow it, and transfer that to people.  Is that sustainable? 

The outlook for inflation is also subject to a number of crosscurrents. Many factors affect inflation, including slack in resource utilization, inflation expectations, exchange rates, and the prices of oil and other commodities.

The Fed has directly caused the price of oil to more than double since this spring with its zero interest rates and the establishment of the dollar carry trade.  There is no evidence whatsoever that Bernanke gives a tinker's damn if your gasoline is north of $3/gallon, so I hope you're prepared for it to go to $5, $6, $7 or even $8 - because if this game continues, it will.

We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability.

Along with 30% unemployment, 29.9% credit card interest rates and destroyed futures for your children and grandchildren.

Bernanke, Geithner and the Administration all are trying to do the impossible - return to "economic growth" in a credit-based monetary system where the carrying capacity of debt has been effectively reached, WITHOUT forcing the removal of that bad debt by allowing the default of those poorly-underwritten and issued loans.

The immovable object has met the irresistible force.

PS: Oh, Bernanke just said he sees no problems with valuations in the US Stock market.  Really Ben?  A P/E of nearly 140 is just fine, right?  No valuation bubble there!

Yet more BS Fedspeak, this time in the mainstream media:

In separate speeches, Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.

That's because there is no real economic recovery at all.

So why is the stock market up so much?

More than happy to show 'ya.

Two charts should suffice:

That is an overlaid chart (as close as I can easily get them to register) on the dollar and The S&P 500 from the March lows to today.

Notice the near-perfect inverse correlation.  The Dollar goes up, the market goes down.  The Dollar goes down, the market goes up.

Now today, literally minute-by-minute:

Same correlation - near-perfect.

Folks, you don't have to engage in any sort of "conspiratorial" thinking on this whatsoever.  You only need examine the facts.

The rally in the market has exactly nothing to do with the economy and the outlook for it.  It is tied to one and only one thing - the decline in the dollar.  

A WEAKER, EVEN COLLAPSING, DOLLAR IS NOT COMMENSURATE WITH OR INDICATIVE OF A STRONGER ECONOMY.

You're free to believe in any thesis you'd like with regards to economic recovery.  But a strong economy is correlated with a stronger currency - that is, the underlying strength of America, along with her ability to support her currency via current and future production, which translates into the ability to raise tax revenues and thus cover debt.

Since March The Federal Reserve and Federal Government have in fact promulgated and prosecuted policies that do the exact opposite.  The stock market has responded not to forward economic prospects, as is often claimed, but rather to the "hot money" flows of foreign and domestic speculators and a dollar-based carry trade engendered by The Fed's zero-percent interest rates.

Yes, the stock market could go to all-time highs - for a short while - if this is allowed to continue.  But oil (priced in dollars) would be $300 and the dollar would be at 40 - everything you buy that is imported would literally double (or more) in price, and your standard of living, since energy is in everything, would be cut in half - or worse.

How well will the stock market do over the intermediate and longer term when the 70% of the economy that is consumer spending (that's you, dear reader!) is destroyed by ramping import costs - whether the government calls that "inflation" or not?

Japan tried this same game when they got in trouble 20 years ago and they failed to produce lasting economic growth and prosperity.  What they did produce was near-exact correlated market rallies and Yen devaluations, but 20 years later, despite huge rallies in the stock market as we have seen in ours, The Nikkei remains some 60% off it's all-time high, with no realistic prospect of reaching that high at any time in the foreseeable future.

The mainstream media will not show you the above charts, as they put the lie to any claim that the market is "foreshadowing" economic recovery in the next six to twelve months.

It is doing no such thing - it is responding to hot money flows that are being intentionally generated and, if you follow them as an investor (rather than as a minute-by-minute trader) you will be crushed, just as those who bet on recovery in Japan following their original collapse were.

Bernanke, Geithner and the other stooges in our government and media are intentionally misleading you.

Again.