Bernanke Lip Quiver
Research for Online Investors

by John Dalt

12/06/10

Federal Reserve Chairman Ben Bernanke appeared on CBS 60 Minutes last night.  If you missed it, you missed great theatre.  After a rambling explanation about the concerns of inflation vs deflation, Scott Pelley asked how confident Bernanke was he could control inflation.  Bernanke’s lip quivered as he answered “100%.”  His lip quivered a lot during this interview.  You can see it here.  Bernanke could never play poker, he has too many "tells."

Bernanke’s interview comes after the announcement Friday from the European Central Bank (ECB) that they would double-down and expand buying debt from eurozone country’s banks.  ECB Bank President Jean-Claude Trichet said the ECB will keep offering banks as much cash as they want through the first quarter.  The loans can be for up to three months at a fixed interest rate, according to Bloomberg.

Bernanke said the U.S. lost 8.5 million jobs and it may take four of five years to get back to a more “normal” unemployment rate of five or six percent.  Scott Pelley asked if the Fed’s purchase of Treasury bonds could lead to inflation. Scott Pelley said, “Bernanke wanted to emphasize that these are the Fed’s own reserves.  It is not tax money.  It does not add to the federal deficit.

Our question:  What reserves does the Fed have, that they didn't print?

Bernanke said “We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.”  He said the Fed is concerned about inflation and they could raise interest rates in fifteen minutes if they had to.  “We've been very, very clear that we will not allow inflation to rise above two percent or less.”

Somewhere in here we have to insert some editorial content.  Bernanke walked the line of telling the truth if you didn’t know what he was talking about.  Of course the Fed is printing money.  The money supply is not increasing because it is not being loaned out…it has no velocity.  It is not being multiplied through the banks….just wait.  He also said the Fed would not let inflation rise over 2%?

Here is our quote from MarketToday on October 14, 2010.  It concerns Thomas Hoenig, Kansas City Fed Bank President.   Hoenig also rejects the idea of raising the Fed's informal inflation target above 2 percent.  "'I have to tell you it (QEII) horrifies me. It assumes you can fine-tune things like interest rates.  I have never agreed to an informal inflation target.  Two percent inflation over a generation is a big impact.”

Hoenig is criticizing the Fed having a ‘target’ of two percent (or higher) for inflation, not keeping it under two percent.  This is all so disingenuous.  Ben Bernanke is talking his book for the great unwashed.

With the European Central Bank on board and the Fed firmly committed to pumping money into the economy, is it any wonder precious metals are going through the roof?  How do you yell at your TV loud enough that they will hear you in Washington?

To the mailbag:
Probably QE 5 by this time next year.  These guys can't seem to get enough!!  It's a sickness for them...---paid up subscriber T.M.

John’s reply:  Do you think it will take that long?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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