More Background Noise From Ben Bernanke


Yesterday we wondered whether Federal Reserve Chairman Ben Bernanke, in his speech to Congress, would come out in support of his colleagues (and the banks) or whether he’d speak with one eye on his legacy. Turns out he’s managed to do both!

We’re not going to dwell too much on Bernanke’s remarks today. After all, there’s the collapse of Australia’s mining boom to reckon with.

But given his utterances determine the ‘wealth’ of investors around the world, it’s worth looking at just what he said. If the Federal Reserves job is to inspire confidence, and confidence creates liquidity, then Ben Bernanke’s speech last night didn’t do the job.

As you can see in the one-day chart of the S&P500 below, it sold off soon after the market digested his prepared comments, which the Federal Reserve released at 10am. That market analysis has come to dissecting the words of a central planner to gauge the stock market’s reaction just goes to show how broken our system of finance is. It is sad and embarrassing. Not for Bernanke though.

S&P500 — Not Happy With Bernanke

His prepared remarks really were laughable when you read and have a good think about them. To paraphrase, here’s what he said:

‘Ultra-low interest rates are not good for an economy. More normal interest rate levels signify a healthy economy. Our aim to is to get the economy healthy and return interest rates to more normal levels. In order to do that we need to keep interest rates really low for a really long time.’

Really, that’s what he said. You can read the long version here if you like.

No wonder the market is losing confidence. Bernanke is trying to give the impression he’s concerned about the destabilising effects of low interest rates (legacy protection) while also trying to tell the market that low interest rates will be around for years.

Bernanke’s outta here in January 2014. He knows he’s leaving a ticking bomb for his successor…after all, Greenspan did it to him in 2006. Who will the successor be? If the banks have any say in it, we’ll be looking at Lawrence Summers or Tim Geithner. Janet Yellen, the Federal Reserves current Vice-Chairman, is the favourite, but there may be a surprise.

One things for sure, it won’t be an interest rate ‘hawk’. So whatever noises Ben Bernanke makes about ‘tapering’ or returning interest rates to normal is just that…noise.

Greg Canavan
for The Daily Reckoning Australia

Join me on Google+

From the Archives…

Multinationals vs. the Nation State
17-05-13 – Sam Volkering

The Federal Reserve Will Panic and Climb Even Higher
16-05-13 – Bill Bonner

Survival of the Most Capital Efficient
15-05-13 ­– Dan Denning

New Australian Home Buyers Aren’t Convinced
14-05-13 – Dan Denning

What Happens When Everyone in the World has Zero Interest Rates?
13-05-13 – Dan Denning

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.

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2 Comments on "More Background Noise From Ben Bernanke"

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deToke deVille
deToke deVille
3 years 4 months ago
Well, the benzelbub is a very intelligent guy, and the checks are in the mail. Personally, i would like to see him stay. I think he is the best demon for the job. Because he is smart enough to do a decent job. He has been the butt-boy of the ideologues. I don’t think he is near as much fun to tee up as Angela Merkel, but that is a personal choice. So i try to figure why he won’t stay and it seems he is a pretty good fighter. He’s got that George Foreman intellect, and nobody can beat… Read more »
3 years 4 months ago

Neither is the bond bubble but then again that is the cart before the horse isn’t it?

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