Bernanke Goes To The Statue of Liberty Play — Bank System Scores
Posted @ 9:10 pm - Filed under Economy
What I’m seeing as we travel around from region to region is like a one color puzzle with a thousand pieces. Lately it seems there’s a picture slowly coming into focus. There’s nothing absolutely supportable either way about the future of the real estate market. That said, there’s a gut feeling developing — coming from way deep. I can’t put my finger on it quite yet, but it’s been gnawing at me and growing the last couple months or so.
Numbers this time of year are notoriously unreliable as predictors. Up or down they don’t matter in the fourth quarter, except as a possible thread in the new mosaic slowly making itself visible. Numbers naturally fall this time of year, so ’sales are down’ might or might not be true, from year to year. There are too many wild cards at play in Holiday season to draw conclusions in the fourth quarter of any year.
What I’m feeling could be like what we’ve all seen in clouds at one time or another. A face, or a ship — something we might point out to someone, who most of the time doesn’t see what we see. Then the winds blow and it’s gone, making us wonder if we saw it at all, or imagined it.
I’m experienced enough to know economic puzzles can often appear to be anything we want before they’re completed. We make guesses based on hopelessly incomplete data, with the full understanding we’re using facts in evidence, but also with the realization those facts are but the tip of a very large iceberg. Finally, we realize it’s a futile game of gotcha, at least until the puzzle is nearly complete — giving us incontrovertible proof of the big picture.
Bernanke cut the Fed Funds rate 1/4% last Tuesday, and disappointed all the experts on Wall Street. They ’showed’ him by dropping the DOW on Wednesday by over 300 points, as if to say, ’see how much you hurt our feelings?’ I keep imploring readers to find and read what Bernanke has written on our economy and the Fed’s role in it. He’s no Greenspan — which irritates Wall Streeters no end.
Go buy “Essays on the Great Depression” a book he authored which was published in 2000. He’s now walking his talk, as recorded in that book.
“essays on the great depression” /> It’s my opinion he’s using Wall Street’s obsession with interest rates as a smoke screen to hide his real agenda. It’s so simple and elementary and brilliant.
See, Mr. Ben believes in his soul that rates can cause many things, including wild ups and downs. Wrong conclusions and/or bad timing by those viewing Fed rates as the be all end all, end up taking us from one economic extreme to another. Rates too low result in artificially cheap money. Too high in response and boom turns into bust, and a potentially damaging recession.
Ben Bernanke doesn’t think what he does with rates is paramount, but he knows most do. This fact gives him sufficient cover to do what he really wants, which isn’t, at least primarily, to control the economy through interest rate manipulation.
He believes money supply is the key. He believes it’s the key. Last Tuesday while throwing rate watchers a bone with his 1/4% rate cut with one hand, the other hand was increasing money supply by $64 Billion. The experts watching rates will, and have said since Tuesday that we’re 
all gonna die cuz Bernanke doesn’t get it. He’s totally ‘disconnected’. Some went so far as to say an economic depression is now on our menu.
He did this on Wednesday, amidst all the hand wringing and gnashing of teeth. The banking system sure likes it, and they seemed to understand it immediately. Their collective attitude changed in real time almost so fast you could’ve been watching for it and still missed it. They’re talking to each other now about lending money. ‘Dead deals’ are being quietly resurrected. Banks who just a day earlier had been in siege mode, are now back to ‘our doors are open’ for business. By waiting about 17-18 hours after he cut rates to pour this money into the system, Bernanke didn’t allow the ‘experts’ to spin it before it even occurred.
Bernanke pulled off his version of the Statue of Liberty play. While the complainers were still looking at his rate cutting hand, his other hand was creating much needed liquidity for the banking system. And not only here, but abroad also. The biggest players were again talking to each other, evidence of what is a potential sea change. Why? Banks know rates are secondary if the money supply is or has been mishandled.
If you’re bleeding out, you don’t need a sandwich, you need a massive blood transfusion. Duh.
As Bernanke wrote — the Great Depression might’ve been avoided but for the Fed’s decision at the worst time imaginable to actually contract our money supply when a tsunami sized infusion of cash was desperately needed.
My money remains solidly on Bernanke. The last 18 years of rates being lowered too far to fast, then reacting to the unintended consequences of those moves far too late and with too many rate increases, are over.
It’s time to serve some cheese to go along with all that whine.
From now on, if you believe anything, believe Ben Bernanke’s relative valuation of money supply over interest rates as the most effective tool at his disposal.
I’m a staunch money supply guy, and have been since forever.
Now we watch and wait to see how this all plays out.
I wonder how many times Wall Street will fall for the Statue of Liberty play? While they demean and insult Ben for his actions, banks are now acting like banks again.
Actions speak louder than whining every time.
This entry was posted on Monday, December 17th, 2007 at 9:10 pm and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
