CRASH 2: ‘NO QE3 A WARNING FROM BERNANKE, NOT A GREEN LIGHT’ – Sources
“I think he knows that Europe is out of control, and he’s sure that American politics will screw things up there too. He’s been consistent since last Spring on giving warnings and expressing doubts. He’s one helluva good barometer.”
And so, as Uncle Ben’s mice vote by 8-2 for no more QE, everything is in place for the Black Dude’s second term. The growth figures have been sexed up, the unemployment numbers deliberately misread, and now the Federal Reserve has confirmed that America is out of the woods: the vast majority of Fedders think QE has done its job, so it’s onwards and upwards. Well done Ben, you stuck to the script. Mitt Romney can be safely consigned to the footnotes. Hurrah for the liberal cause.
At least, that’s the received wisdom among the doubting classes. But this isn’t the feedback I was getting overnight.
There’s been no greater critic of Bernanke over the years than The Slog. Every time he drifts into a press conference, a study in sedated catatonia, I dread the Bernanke Drone. It is more understandable than the Greenspan Gobbledygook, but it has all the appeal of somebody intoning the special offers at Walmart.
Further, despite the mass of evidence strongly suggesting that the multinationals and bankers have used the Fed’s money to pay big dividends and underwrite job-cutting mergers respectively, for far too long after 2008 Ben the academic continued to trot out his regular bollocks about things improving slowly, disaster averted, and lots of bazookas in that bag down there beside me just in case it doesn’t work.
But if you analyse what BB’s been saying more recently, both the tone and the tack have changed. And in the view of those I rate on both sides of the Pond, these changes reflect the nature of the man.
More of that further down. In the meantime, I want to drill down into Ben’s beard a little, and give some thought to his sayings over the last year.
In April 2011, the Fed Reserve’s Chairman said that, “A moderate recovery is expected to continue through 2011, with a slight uptick in both 2012 and 2013…and a slight downgrade to the predictions made in January.”
Love him or hate him, that’s been pretty much on the money. But when the growth didn’t look enough to him (and most of us, to be frank) by August 2011, Ben was pretty straight, observing that “Economic growth has been very disappointing, but the FOMC expects growth to pick up in the 2nd half.”
So, lots of ‘slights’ and ‘disappointings’….but at this point, he also starts to hand out warnings for those willing to listen. He expresses “great concerns about the European sovereign debts”, and then adds – close to home (my emphasis as well as his):
“I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if–and I stress if–our country takes the necessary steps to secure that outcome.”
Now this was partly a biggish mud pie slung at Congress folks jerking around on the deficit ceiling; bit it was also more than that. With an election coming the following year, Bernanke told confidants at the time that he was seriously worried about the politicians. Says a Washington source:
“Bernanke had spent some time with Trichet and other Europeans. He didn’t think either Congress or the White House was learning the lesson about being decisive. Also at the time, [Rick] Perry [Republican Presidential candidate] was mouthing off about Bernanke being a traitor and how cut-cut-cut was the only answer. Bernanke saw an impasse coming, and he felt quite genuinely that it was his duty to say, you know, I’m not carrying the can so these guys can kick the can a little further down the road here”.
When this didn’t seem to have much effect, in November last year Bernanke opined, “there are significant downside risks to the economic outlook, including strains in global financial markets…”
Federal Reserve Chairmen talking about “significant downside risks” waves a black flag at older Fed-watchers brought up on Greenspan. A New York media source observes:
“By now, Geithner was pooping all over the place about the Europeans being headless and untutored in the ways of the markets. I think Tim had a big effect on him at that time. Also, Bernanke could see things getting worse in Europe for himself, and he knew Obama was already in re-election mode. The President would be photographed opening some new technology factory employing a couple of hundred workers. By Christmas, every time an energy future went up, the White House would be hailing a recovery.”
The US establishment media went to town during January 2012, making some outright silly extrapolations from extremely flakey jobs and purchasing index data. But Ben wasn’t having any of it. At the February FOMC, he talked of an improvement in employment, but described it as “far from normal”….perhaps his polite way of saying he didn’t buy the US Labor Department’s interpretation either. The Fed Chairman rounded off his piece by saying he believed “healthy job growth requires stronger economic growth, and currently I do not see job growth in line with the current trend in GDP growth.”
Yesterday, the overwhelming majority media view was to interpret the ditching of QE3 as ‘no longer necessary’. I don’t. Bernanke was very careful this time to keep his counsel: “There’s been little or no change, and so still no QE3,” was the Sun headline from where I’m sitting. An American analyst based in Germany this time:
“My take on this is simple….Bernanke thinks QE3 isn’t going to help, so why do it? He’s expecting nature to take its course. I’m sure he didn’t tell the Committee members that, but you know, he gets a bad press for nothing sometimes. I think he knows that Europe is out of control, and he’s sure that American politics will screw things up there too. He’s been consistent since last Spring on giving warnings and expressing doubts. He’s one helluva good barometer.”
I agree. I sense Ben Bernanke is a man who thinks about his place in history. And if he sticks with the current FOMC course, he can argue that he tried to tell people what was coming, but they didn’t listen. Many will disagree with that self-assessment, but it’s hard to if you look at his pronouncements this side of 2010.
And there’s another issue that shouldn’t be discounted: Bernanke is a Republican. But he is no Tea Partier, and no friend of Rick Perry’s out-on-a-limb ideas. The initial Washington source again:
“I don’t think Bernanke is set alight by Romney, but he sees him as safe. Ben Bernanke has no desire to see Barack Obama returned to the White House. There’s a large set here that sees Obama as likely to fold in a crisis, and I think Bernanke quietly belongs to that school. And though only a fiscal and or economic disaster could turf Obama out of the White House, I have the strangest feeling that the Federal Chairman’s private view is that’s exactly what’s gonna happen come what may.”
A senior Wall Street legal contact shares the view that Bernanke has no faith in the ‘recovery’, and points to the housing market – a hobby-horse of mine too:
“What we have here right now is the madness of crowds. The housing data is as bad as ever. Confidence just isn’t going to return until that takes an upturn, and equally it’s not going to climb in value until enough economically active people people really believe a recovery is under way. This is like when you’re on a plane and it’s taking too long to get off the ground….nobody wants to be the hysterical one who jumps up and yells ‘Let me out!’ But a lot of people think they really ought to.”
However, this person doesn’t claim to know the Fed Chairman’s plan – if indeed there is one.
“You know, not that many people running America are mad. They may be deluded into thinking they have more control over events than they do, but they’re not dumb. Nobody employed in a senior Fed position in either part of it really thinks the euro is going to come good without enormous loss of blood along the way. The Federal Reserve Chairman is very wisely avoiding false optimism, and when people wake up to that, it’s not going to do the President any favours. What does Bernanke think of Romney? I doubt if he thinks about him at all. He [Bernanke] remains an enigma to me. He’s a Conservative academic from a narrow background, I’m a europhile liberal lawyer with a passion for history. I suspect we both know there’s no easy way out of this mess, but for different reasons.”
As I’ve observed before, this is going to be a race against time. As always, the big unknown is when the kicked cans start falling over the cliff at the end of the road. But if I was a senior Obama campaign planner this morning, I’d be a worried man. Having for years looked like a lame duck President, Barack Obama’s team senses that, in Mitt Romney, they have nothing to beat. I have been told that, in the light of that, some advisors are telling Obama, “the worse is gets, the more people will cling to the Devil they know”. But that’s not a majority view: as we’ve seen before, President Obama fears an EU meltdown that gets into gear too long before next November. It would only take one intelligent Romney strategist to advise the challenger, “Tell the voters this is all down to deficits, and this is a spend-spend President.” That could, I suspect, turn things around alarmingly for the White House.
Is Romney good enough to get that across? Personally, I doubt it. But the bottom line of this piece is that there is both a woeful and wilful unwillingness at the minute to analyse properly what Bernanke is up to, and what he expects. America just entered Q2 with no QE in sight. I think the near-certain consequence of that, in time, is going to be a big dip in Wall Street stock values. And I suspect the real nature of this very tepid ‘recovery’ will add to that market pessimism without any QE2 to big things up any more.
The gold price has fallen further this morning GMT than it did the whole of last month. I’m eyeing this as a potential buy opportunity. What you do is your concern.