Collapse of the U.S. Economy

Key Banker Is Skeptical About Fed Plan

November 8, 2010

San Antonio Express-News/AP - The Federal Reserve's plan to rejuvenate the economy by buying $600 billion in Treasury bonds might be the "wrong medicine," the Fed's top official in Dallas warned Monday in San Antonio.

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, whose district includes Houston, said he could envision this second round of Fed purchases leading to a weaker dollar, "super ordinary inflation," financial speculation and accelerating the transfer of wealth to the rich "from the "poor and the worker and the saver."

"The remedy for what ails the economy is, in my view, in the hands of the fiscal and regulatory authorities, not the Fed," Fisher said in a speech to members of the Association of Financial Professional.

Fisher called on Congress to "incentivize" corporations to "take the kind of risk that expresses confidence in the future that will end up adding cap ex (capital expenditures) domestically and hiring more American workers." Congress needs to figure out the right tax and regulatory regime to accomplish that, he said later in an interview.

Fisher will not have a vote on the Fed's monetary policy until next year under its rotating system. Still, he said his views were given a thoughtful and fair view at the Federal Open Market Committee last week, when the decision was made to buy about $75 billion a month in long-term government bonds through the middle of next year. The plan is aimed at invigorating the economy by making loans cheaper to get people to spend. That's in addition to as much as $300 billion in purchases over the same period through reinvesting proceeds from its mortgage portfolio.

Fisher repeatedly has expressed doubts about the effectiveness of printing more money to spur hiring.

On Monday, Fisher said Congress and President Barack Obama "surely must understand that we are at the end of our line and time is of the essence," he said. "The (Fed) is taking a calculated risk. If the Congress and the (president) fail to deliver, I believe the FOMC will have to consider changing course."

Obama Monday voiced hearty support for the Fed.

Also Monday, Kevin Warsh, a Fed governor who has close ties with Chairman Ben Bernanke, expressed doubts the Fed's plan will have "durable benefits" for the economy.

Despite his reservations, Warsh was among 10 Fed officials who voted for the program. The sole dissent came from Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.

And a Chinese official said the Fed's move will bring greater volatility. The step will create new waves of cash sloshing in and out of countries in search of short-term profits, vice finance minister Zhu Guangyao said.

Bernanke Confirms That the Key Goal of the Fed, and QE2, Is to Boost Stock Prices

November 3, 2010

Zero Hedge - So much for the Fed's two mythical mandates of promoting "maximum employment" and maintaining "price stability." First, we had Bernanke's predecessor Greenspan confirming in late July on Meet the Press what everyone knows: namely that the primary goal of the Fed is merely to encourage higher stock prices:

"If the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here."

And now, courtesy of an Op-Ed by the current chairman, we get confirmation, again, just three months later, from the current chairman, that the Fed cares mostly about stimulating high stock prices, solely to create the completely artificial illusion of "wealth" for the few, the proud, the shareholders, and the banking oligarchy.

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

See, the thing is Bernanke is absolutely right... when it comes to a few hundred thousand "consumers" (out of over 330 million). One group of Americans whose wealth is tied into the equity value of any given company, typically insiders, are more than happy to take advantage of this massive surge in artificial stock valuations.

This last week, for example, they took over 660 million advantages worth. We repeatedly demonstrate that the ratio of insider selling to buying is now beyond grotesque. In the past week alone it hit over 400 (and was over 2,300 a few weeks ago) - see chart at bottom of post. So yes, those for whom Bernanke's "easing" is working, are taking advantage of it. As for the other group of beneficiaries, the ones who are going to receive over $100 billion in bonuses this year, well: they already literally own Bernanke, so we are not too worried about them either.

As for everyone else, tough luck. Since for 99% of America, surging prices will not be offset by any appreciation in their meager stock holding, nor will deteriorating employment prospects, declining home values, and a recessionary relapse in the economy provoke Americans to actually part with their increasingly meager capital as confirmed by the 26th sequential outflow from US retail mutual funds. In other words, the bulk of America has nothing to look forward to except encroaching poverty, and retirement fund balances substantiated by nothing than fraudulent, FASB-endorsed, stock valuations . . .