Markets up, gold up. It’s been a while since that’s happened.
It’s all thanks to Fed Chairman Ben Bernanke of course. Last night he told the markets what they really wanted to hear. It was good old dovish Ben. The boss man came out and delivered a speech that wiped the floor with the Fed hawks…the ones that have recently expressed concern over the size and pace of the central bank’s monetisation program.
Here’s the key paragraph from Bernanke’s speech, with our emphasis on the key sentence:
‘Another potential cost that the Committee takes very seriously is the possibility that very low interest rates, if maintained for a considerable time, could impair financial stability. For example, portfolio managers dissatisfied with low returns may “reach for yield” by taking on more credit risk, duration risk, or leverage.
‘On the other hand, some risk-taking such as when an entrepreneur takes out a loan to start a new business or an existing firm expands capacity is a necessary element of a healthy economic recovery. Moreover, although accommodative monetary policies may increase certain types of risk-taking, in the present circumstances they also serve in some ways to reduce risk in the system, most importantly by strengthening the overall economy, but also by encouraging firms to rely more on longer-term funding, and by reducing debt service costs for households and businesses.
‘In any case, the Federal Reserve is responding actively to financial stability concerns through substantially expanded monitoring of emerging risks in the financial system, an approach to the supervision of financial firms that takes a more systemic perspective, and the ongoing implementation of reforms to make the financial system more transparent and resilient.
‘Although a long period of low rates could encourage excessive risk-taking, and continued close attention to such developments is certainly warranted, to this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation.’
And there you have it. ‘We’re sort of concerned that things could get out of control, but we’re not really. We don’t see any problems, so we’re not going to take away the punchbowl. Party on, hedge fund dudes!’
We’re tired of this monotonous focus on the world’s most powerful central banker. The lack of accountability in the role is enormous. He thinks he can wait for ‘signs’ of excessive risk-taking before doing anything about it. He thinks he has the ‘tools’ to shrink the Fed’s balance sheet and get things back to normal when the time is right.
But his track record on responding to ‘signs’ is abysmal. He didn’t see a housing bubble even though he helped inflate it. He even went on record as saying there was no housing bubble.
Well there was one…it burst and went on to change the course of economic history, throwing thousands of people into misery. Of course, his predecessor, ‘Sir’ Alan Greenspan was just as responsible. Yet here he is swanning around the world, earning millions and claiming some special insight into how the world works. What a fraud and a phony…
But the joke’s on us. We really are a dumb and sorry bunch. And one day in the not too distant future, we’re all going to pay big time for letting these psychopaths run the place.
So thank you, Ben, for coming down from the mountain to speak with us and impart your divine wisdom…
for The Daily Reckoning Australia
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