hyenergix
03-09-12, 07:12
Inflation (including on properties) will continue in Singapore. Unfortunate consequences for savers and lower income group in the next few years.
Bernanke flashes the big 'bazooka' in his bag
With dismal jobs growth, he makes a tacit QE3 guarantee
BYROB CURRAN
PUBLISHED SEPTEMBER 03, 2012
AT the annual central- banker conference in Wyoming last week, Federal Reserve chairman Ben Bernanke doubled down on his strategy of fending off recession via monetary easing.
While his speech from Jackson Hole did not contain an explicit plan for further easing as it had two years ago, it was still a monetary-stimulus manifesto.
Going into the speech, some traders had worried that some tidbits of positive economic data in the last few weeks would discourage Mr Bernanke from launching a third round of quantitative easing (QE3).
A more ambiguous tone in recent statements and the relatively modest "Operation Twist" suggested that even the world's biggest advocate of central-bank intervention believed the Fed had reached the limits of its power.
In the end, Bernanke stuck to his "bazooka".
He said the current rate of growth in the economy and labour market was "far from satisfactory". Next, he rebutted criticism of prior rounds of quantitative easing, arguing that they had helped the economy and that the costs to the Fed were manageable. Finally, he promised that the central bank would provide "further accommodation as needed".
It was a tacit QE3 guarantee. The subtext was: "Barring a sudden explosion of jobs growth, there is more stimulus on its way."
The reaction in the stock and bond markets was not dramatic, largely because traders had already placed their bets on Mr Bernanke saying something along these lines.
"I think QE3 is close to being fully priced into US equities," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.
By sticking to the easing strategy, Mr Bernanke was defiantly pushing back against increasingly vocal opponents. Some economists say the Fed is risking a spike in inflation or another credit bubble by attempting to flood the system with cheap money. Others argue that the stock and bond markets will crash once the artificial support of Fed intervention is removed. Likely encouraged by muted inflation data recently, Mr Bernanke argued that the risks of easing are still outweighed by the benefits.
"The argument (Bernanke) made, based on his own cost-benefit analysis, is to me remarkably demonstrative of an overconfidence bias," said Jeffrey Pavlik, head of hedge fund Pavlik Capital Management
"A US$3 trillion balance sheet (and growing) with no real avenue for exit still begs one to ask how he can be so remarkably confident about his ability to control growth, stock prices, interest rates, inflation and employment. Only time will tell if he can indeed deliver the benefit side of his operation without any of the known or - more importantly - unknown costs rearing their ugly heads."
In an unusual move, Republican presidential nominee Mitt Romney has explicitly promised to remove Mr Bernanke from the Fed chairmanship if he is elected. This is a nod to the fierce opposition to Mr Bernanke's policy from the Tea Party movement and other conservative factions. In this telling, Mr Bernanke's policies are not only counterproductive, but a blatant power grab. Ron Paul, the Republican congressman from Texas, summed up that movement's distrust of Mr Bernanke's exertion of greater influence on the markets and the economy with his "Audit the Fed" bill.
To a great extent, the progress of the US and world economy over the next 10 years will depend on whether Mr Bernanke is right - or his critics.
In his study of the Great Depression and Japan's 1990s deflationary spiral, Mr Bernanke concluded that the more liquidity a central bank could offer a consistently sluggish economy, the better. He earned the nickname "Helicopter Ben" when he half-jokingly endorsed a policy of "cash drops" that other economists had derided.
When the 2008 crisis hit, he persuaded Hank Paulson to respond with what the then Treasury secretary called a "bazooka" of bank liquidity. European Central Bank (ECB) president Mario Draghi is essentially following Mr Bernanke's lead by pushing bond- buying as the solution to Europe's sovereign-debt, currency and banking crisis.
The QE3 that Mr Bernanke all but promised at Jackson Hole is the latest experiment in the great laboratory of the world economy where Mr Bernanke and his supporters are testing his theory of monetary policy.
Let's hope - for all our sakes - that he is eventually proved right.
http://www.businesstimes.com.sg/premium/top-stories/bernanke-flashes-big-bazooka-his-bag-20120903
Bernanke flashes the big 'bazooka' in his bag
With dismal jobs growth, he makes a tacit QE3 guarantee
BYROB CURRAN
PUBLISHED SEPTEMBER 03, 2012
AT the annual central- banker conference in Wyoming last week, Federal Reserve chairman Ben Bernanke doubled down on his strategy of fending off recession via monetary easing.
While his speech from Jackson Hole did not contain an explicit plan for further easing as it had two years ago, it was still a monetary-stimulus manifesto.
Going into the speech, some traders had worried that some tidbits of positive economic data in the last few weeks would discourage Mr Bernanke from launching a third round of quantitative easing (QE3).
A more ambiguous tone in recent statements and the relatively modest "Operation Twist" suggested that even the world's biggest advocate of central-bank intervention believed the Fed had reached the limits of its power.
In the end, Bernanke stuck to his "bazooka".
He said the current rate of growth in the economy and labour market was "far from satisfactory". Next, he rebutted criticism of prior rounds of quantitative easing, arguing that they had helped the economy and that the costs to the Fed were manageable. Finally, he promised that the central bank would provide "further accommodation as needed".
It was a tacit QE3 guarantee. The subtext was: "Barring a sudden explosion of jobs growth, there is more stimulus on its way."
The reaction in the stock and bond markets was not dramatic, largely because traders had already placed their bets on Mr Bernanke saying something along these lines.
"I think QE3 is close to being fully priced into US equities," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.
By sticking to the easing strategy, Mr Bernanke was defiantly pushing back against increasingly vocal opponents. Some economists say the Fed is risking a spike in inflation or another credit bubble by attempting to flood the system with cheap money. Others argue that the stock and bond markets will crash once the artificial support of Fed intervention is removed. Likely encouraged by muted inflation data recently, Mr Bernanke argued that the risks of easing are still outweighed by the benefits.
"The argument (Bernanke) made, based on his own cost-benefit analysis, is to me remarkably demonstrative of an overconfidence bias," said Jeffrey Pavlik, head of hedge fund Pavlik Capital Management
"A US$3 trillion balance sheet (and growing) with no real avenue for exit still begs one to ask how he can be so remarkably confident about his ability to control growth, stock prices, interest rates, inflation and employment. Only time will tell if he can indeed deliver the benefit side of his operation without any of the known or - more importantly - unknown costs rearing their ugly heads."
In an unusual move, Republican presidential nominee Mitt Romney has explicitly promised to remove Mr Bernanke from the Fed chairmanship if he is elected. This is a nod to the fierce opposition to Mr Bernanke's policy from the Tea Party movement and other conservative factions. In this telling, Mr Bernanke's policies are not only counterproductive, but a blatant power grab. Ron Paul, the Republican congressman from Texas, summed up that movement's distrust of Mr Bernanke's exertion of greater influence on the markets and the economy with his "Audit the Fed" bill.
To a great extent, the progress of the US and world economy over the next 10 years will depend on whether Mr Bernanke is right - or his critics.
In his study of the Great Depression and Japan's 1990s deflationary spiral, Mr Bernanke concluded that the more liquidity a central bank could offer a consistently sluggish economy, the better. He earned the nickname "Helicopter Ben" when he half-jokingly endorsed a policy of "cash drops" that other economists had derided.
When the 2008 crisis hit, he persuaded Hank Paulson to respond with what the then Treasury secretary called a "bazooka" of bank liquidity. European Central Bank (ECB) president Mario Draghi is essentially following Mr Bernanke's lead by pushing bond- buying as the solution to Europe's sovereign-debt, currency and banking crisis.
The QE3 that Mr Bernanke all but promised at Jackson Hole is the latest experiment in the great laboratory of the world economy where Mr Bernanke and his supporters are testing his theory of monetary policy.
Let's hope - for all our sakes - that he is eventually proved right.
http://www.businesstimes.com.sg/premium/top-stories/bernanke-flashes-big-bazooka-his-bag-20120903