Posted By: Matthias Paul Kuhlmey
How do you fix a computer? Turn it off … and then back on. J How do you fix an economy? You cannot turn it off, that’s for sure – it only may have worked once, during the Great Depression, and the system did reset itself. Since Mr. Bernanke was recently declared a “hero,” we thought the “fixing-up” was complete. To be clear, we have no axe to grind and are most certain that our FED Chairman is attempting to do a very fine and thoughtful job; nevertheless, FED communication has been entirely confusing and, to a degree, misleading (at least for market participants that need stimulus money to make investment decisions).
This past Monday, Mr. Bernanke, during a clever publicity stunt, expressed his worries that the economic recovery could stall if the FED would end monetary stimulus too soon. So, things are not fixed? Here’s a shocker: According to “Hero B.,” the recent improvement of the unemployment situation may (only) have been reflective of “a reversal of the unusually large layoffs that occurred in 2008 and 2009,” with this process now in conclusion. Further, Bernanke told ABC news that “It’s far too early to declare victory” (on the economy, that is). Huh?
On the other side of the argument stands Charles Plosser, President of the Philadelphia FED, suggesting in an interview that he does not “think there will be any need for further accommodation, or further QEs.” Federal Reserve Bank of Dallas President, Richard Fisher, seems to agree, having stated in a recent speech that the “Federal Reserve has done its job” (in providing liquidity). But, wait, here comes San Francisco FED President, John Williams, carefully remarking that, “If the economy does need more stimulus, restarting our (the FED’s) program of purchasing mortgage-backed securities would probably be the best course of action.” His buddy, Federal Reserve Bank of Chicago President, Charles Evans, sums it up: “The central bank should step up record monetary stimulus even as the economy shows signs of gaining traction” (for a selection of other differing FED opinions, click here).
So, how do you really fix things? One idea is to agree on what has to be fixed – the economy and related unemployment, or the stock market (easy money has certainly taken care of that). Go on guys!