Tag Archives: Dollars

>Brazil – prepare for devaluation


>Brazil – prepare for devaluation
Guest post By Thierry Apoteker, CEO and chief economist at TAC

TAC quantitative models show that the BRL is currently overvalued by about 25 to 30 per cent. The IMF index for the BRL real effective exchange rate suggests a 50 per cent overvaluation. With a combination of slower growth, higher external deficits, large speculative inflows and difficulty in cyclical management, the question is now not if the currency will depreciate, but when and by how much.

Guest post: Brazil – prepare for devaluation

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>Higher Rates Likely to Keep Euro Rising – WSJ.com


>

Higher Rates Likely to Keep Euro Rising – WSJ.com 
NEW YORK—Currency investors’ scramble for yield is likely to lift the euro against the dollar this week, but rising concerns about the euro-zone’s sovereign-debt crisis could curb the common currency’s gains.

Zuma Press

The European Central Bank, headed by President Jean-Claude Trichet, right, is expected to keep raising interest rates in the months ahead as the Federal Reserve leaves rates near zero.
The European Central Bank is expected to continue raising rates in the months ahead while the Federal Reserve leaves U.S. rates near zero for the rest of this year, a prospect that is boosting the euro.
The euro hurdled $1.45 for the first time since January 2010 last week, before pulling back slightly, while some big foreign-exchange banks have raised their forecasts for the common currency. Deutsche Bank and Citigroup now both expect the euro to rise toward $1.50 in coming months.
“The biggest driver for two months now has really been interest rates, interest rates and, of course the third thing being, interest rates,” said Jonathan Wetreich, a currency strategist with Brown Brothers Harriman.
As worries grew last week that Greece will eventually need to restructure its debt, and as Moody’s Investors Service downgraded Ireland’s credit rating on Friday, the euro retreated against the dollar, but only to the $1.44 area, still among the strongest levels it has seen this year.
Late Friday, the euro was at $1.4427 from $1.4494 late Thursday. The dollar was at ¥83.08 from ¥83.45.
Interest-rate differentials will likely push the euro even higher in the week ahead, analysts said.
“It’s really a question of whether the euro is getting to a valuation where it’s harder to keep going, but I think it will keep going,” said Adnan Akant, head of foreign exchange and managing director at money manager Fischer Francis Trees & Watts, a New York unit of BNP Paribas. The money manager is still betting on the euro to rise, though it’s not an “overemphasized” position, he said.
“If you clear your head and think about what’s going on, it’s still an interest-rates story,” he said.
The spread between the euro and dollar two-year swap rate touched its highest level since 2008 on Friday, and if it continues to widen, it will be euro-supportive, said Ron Leven, a strategist with Morgan Stanley.
Deutsche Bank raised its euro forecast Friday, projecting the euro will rise to near $1.50 in the next three to six months. The bank had previously expected the euro to trade within a $1.25 to $1.40 range against the dollar throughout 2011. Citigroup now expects the common currency at $1.50 over six to 12 months, up from a previous forecast of $1.45.
Meanwhile, J.P. Morgan Asset Management, one of the world’s biggest asset-management firms, has abandoned its bet on a decline in the euro against the dollar, said Robert Michele, global chief investment officer for the New York, London and Asia investment teams of J.P. Morgan Asset Management’s Global Fixed Income Group, in a phone interview Friday.
However, the euro-zone debt crisis still poses a risk for the euro, analysts said.
If Greece is forced to restructure its debt, it “is likely to send a shockwave” through the euro zone and its currency, said Brian Dolan, chief currency strategist at Forex.com.
In addition, Finland, which is the only euro-zone country that requires bailouts to be approved by parliament, held parliamentary elections Sunday. The anti-bailout True Finns Party appeared to make a strong showing, according to exit polls, and that could raise fears about whether the results will undermine a planned rescue for Portugal.
Investors continue to view Spain as the real tipping point, though it seems to be on solid ground for now because of headway on reforms and fiscal austerity measures. But market analysts are keeping a close eye on the shaky Spanish housing market, the country’s high jobless rate and its vulnerable savings banks.
If such sovereign-debt jitters still weigh on the currency this week, it could mean a mild rebound for the U.S. dollar, Mr. Dolan said.

—Min Zeng contributed to this article

FT.com / China – Renminbi rolls out


Renminbi rolls out

Published: January 16 2011 19:33 | Last updated: January 16 2011 19:33

It is not yet a flood, but the trickles eroding the walls that keep China’s currency within the country’s territory are beginning to add up to something.
Already last year, the renminbi debuted as a currency for bond financing by multinational corporations (McDonald’s); trade credits (to an Indonesian group by the Industrial and Commercial Bank of China); and offshore deposit accounts (to the Bank of China’s personal banking clients in London, New York and other cities).
Last week, further holes were pierced in the dam of non-convertibility. Pharo Management, a hedge fund manager, announced it will offer renminbi-denominated shares in its funds. The city of Wenzhou launched a pilot project to lighten restrictions on its residents’ ability to invest money offshore. And a year and a half after Chinese corporations were allowed to settle cross-border trades in their own currency, permission has also been granted to use renminbi to acquire or found new operations overseas.
That many of these moves make it easier to ship renminbi out of the country does not change the redback’s natural and favoured direction. If Chinese authorities were relaxing restrictions on capital inflows as freely as on outflows, the renminbi would have appreciated by more than the 3.5 per cent it has risen against the dollar since last year.

Read more on FT.com / China – Renminbi rolls out

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Debt Factoids on Our National Debt Are Puzzling – And Scary – Seeking Alpha


If you’re interested in the subject of our national debt, there is a new must read report from the Congressional Budget Office (CBO) on the topic. It includes some odds and ends that I found interesting.
We know that there is a law called the debt ceiling. We also know that we will (again) hit that limit early in 2011. Many think that this will be a line in the sand fight with the new Congress. Phooey. According to the CBO report, suspending issuance of maturing cash management bills in the supplementary financing program will cost $200 billion; suspending flows and redeeming securities in government accounts, $124 billion; from the civil service retirement fund, “at least” $200 billion; from the exchange stabilization fund, $20 billion; and swapping debt with the federal financing bank, $15 billion. Total: $560 billion.

Conclusion: If there is to be a fight over the debt limit, it could be a long one.
The CBO is speaking with forked tongue in this report. A critical issue: How do we define what debt is at the federal level?

There are so many components to the puzzle. I give the CBO an A+ for this position:

CBO believes it is appropriate and useful to policymakers to include Fannie Mae’s and Freddie Mac’s financial transactions with other federal activities in the budget. The two entities do not represent a net asset to the government but a net liability — that is, their impact on the government’s financial position is a negative one.

So how does CBO actually account for F/F? It gets a D- for this:

Neither CBO nor the Administration currently incorporates debt or MBSs issued by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

That’s interesting. They say they “should” do it, but they don’t. Who makes that decision?

The Administration’s Office of Management and Budget (OMB) makes the ultimate decision about whether the activities of Fannie Mae and Freddie Mac will be included in the federal budget.

The White House decides which categories of debt are included when determining what constitutes debt? That is convenient. When did that happen? We are not talking chicken scratch here. The good folks over at the Fannie and Freddie have piled up $6 trillion in debt. We would blow out the debt ceiling set by Congress by over 40% if that came on the books. So it stays off the books. But the debt is staring us in the face. Funny system.
This also caught my eye:

Payments of interest from the FFB to the Treasury have been less than $1 billion annually in recent years but are projected to increase (to as much as $6 billion) because of higher loan activity (particularly by the Department of Energy’s Advanced Technology Vehicles Manufacturing program and the Rural Utilities Service). As of September 30, 2010, the FFB portfolio totaled $60 billion.

Hello, what is this? For interest to rise at the FFB from $1 billion to $6 billion, it would have to imply that there is at least a four- or five-fold increase in the balance sheet. This means that there is a plan to grow the FFB by $250 billion. Who is going to be the beneficiary of that? That is a hell of a lot of money. Is the FFB going to fund a solar build-out? The existing portfolio of Department of Energy loans:

Another (minor) data point of interest: The federal government has a number of trust funds that are used as accounting vehicles to store up IOUs from the government. The principal accounts and current holdings:

Social Security Trust Fund…….2.6t
Civil Service Retirement Fund…0.8t
Military Retirement Fund………0.3t
Medicare……………………….0.3t
All others…….…………………0.6t

Total:…………………………..4.6 trillion

These funds are all anticipated to grow over the next decade. One has a growth rate that is way out of whack with the others:

The Military Retirement Fund is growing at three times the rate of the others. The raw numbers are $282 billion for 2010 and $1.012 trillion for 2020. That’s a 10-year increase of $730 billion (a 350% increase). What is that about? Are we planning on a new war, or have we just not accounted for the retirement costs of the military properly over the past decade or two? I suspect (hope) it is the latter.
We have all seen a form of this chart elsewhere. It is nothing to be proud of. Yes, there are a few countries in worse shape than us. But Italy, Greece and Belgium are now making front-page news with their debt. And the U.S. will have a different outcome than Japan.

This chart of trust fund assets is central to our problem. Notice that these funds are scheduled to grow by more than $2 trillion. It sounds nice that the nation has trust funds where money is squirreled away someplace safe — money that can be used to pay bills (Social Security) when they come due over the next 20 years.

But there is no money in the trust funds. They have IOUs that obligate future taxpayers to come up with the cash when needed. The trust funds have nothing to do with “savings” in the traditional sense.
This has been going on since 1983, when Greenspan created the accounting gimmick and the huge surpluses that followed. The fact is we do have future liabilities, and there have been some savings set aside for that. But the money has been spent on funding past deficits. So, really, there are no savings.
I am not sure there is a fix to this problem. I do know that the bills on this are coming due in the next five years or so. I don’t think we will make it another 10 years without having to confront this problem.

Debt Factoids on Our National Debt Are Puzzling – And Scary – Seeking Alpha

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(BN) Copper Faces 2-Year Shortage, Peak Over $10,000, Trafigura Says


(BN) Copper Faces 2-Year Shortage, Peak Over $10,000, Trafigura Says
2010-12-07 09:29:56.282 GMT

By Claudia Carpenter
Dec. 7 (Bloomberg) — Copper supplies will lag demand for
at least the next two years, with prices peaking over $10,000 a
metric ton in the second quarter next year, according to
Trafigura Beheer BV, which considers itself the world’s second-
largest trader of industrial metals.
Copper will move from a balanced market this year to
shortages of 800,000 tons in both 2011 and 2012 at current
prices, Simon Collins, head of refined metals at Trafigura in
Lucerne, Switzerland, said in an interview yesterday. That’s
even before demand climbs as exchange-traded funds backed by the
metal are introduced, he said.
Such funds “will result in higher prices, which in turn
will affect price-sensitive demand and price-sensitive supply,”
Collins said. “Consumers are concerned about an ETF.
Inventories are already relatively low.”
Copper prices are up 21 percent this year, and reached a
record $8,973.50 a ton today, partly as manufacturers and other
buyers who anticipate shortages build inventories to meet demand
for next year, Collins said. Imports into China, the world’s
largest consumer, typically are strongest in the second quarter,
helping to boost copper prices and leading gains in lead, nickel
and aluminum, he said. Copper stockpiles tracked by the London
Metal Exchange have slid 30 percent this year.
In 2006, the copper market was also forecast to have a
large deficit when higher prices brought the market further into
balance than originally estimated, Collins said. If prices rise,
next year’s deficit may be only 400,000 tons, he said.
Copper Trading
Trafigura trades about 1 million tons of copper a year,
Collins said. Glencore International AG is the largest trader of
industrial metals, according to Trafigura estimates.
Trafigura is preparing for more metals demand by customers
and increasing its warehouse capabilities through its subsidiary
NEMS, with plans to expand in the U.S. next year for the first
time with storage facilities in Baltimore and New Orleans, as
well as in China, Collins said. He declined to give an estimate
of the investment.
Copper demand may rise if JPMorgan Chase & Co., BlackRock
Inc. and ETF Securities Ltd. start ETPs backed by the metal, in
line with plans announced by all three companies in October.

For Related News and Information:
Top commodities: CTOP <GO>
Top shipping: SHIP <GO>
Searches: NSE <GO>
Commodity curves: CCRV <GO>
–Editors: Dan Weeks, John Deane.
To contact the reporter on this story:
Claudia Carpenter in London at +44-20-7330-7304 or
ccarpenter2@bloomberg.net
To contact the editor responsible for this story:
Claudia Carpenter at +44-20-7330-7304 or
ccarpenter2@bloomberg.net

No, The Big Banks Have Not "Paid Back" Government Bailouts and Subsidies


No, The Big Banks Have Not “Paid Back” Government Bailouts and Subsidies

Source: zero hedge – on a long enough timeline, the survival rate for everyone drops to zero
Author: George Washington – Washington’s Blog

The big banks claim that they have paid back all of the bailout money they received, and that the taxpayers have actually made money on the bailouts.
However, as Barry Ritholtz notes:

Pro Publica has been maintaining a list of bailout recipients, updating the amount lent versus what was repaid.
So far, 938 Recipients have had $607,822,512,238 dollars committed to them, with $553,918,968,267 disbursed. Of that $554b disbursed, less than half — $220,782,546,084 — has been returned.
Whenever you hear pronunciations of how much money the TARP is making, check back and look at this list. It shows the TARP is deeply underwater.

Moreover, as I pointed out in May, the big banks have received enormous windfall profits from guaranteed spreads on interest rates:

Bloomberg notes:

“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”
The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.
The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.

Harry Blodget explains:

The latest quarterly reports from the big Wall Street banks revealed a startling fact: None of the big four banks had a single day in the quarter in which they lost money trading.
For the 63 straight trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) made money trading for their own accounts.
Trading, of course, is supposed to be a risky business: You win some, you lose some. That’s how traders justify their gargantuan bonuses–their jobs are so risky that they deserve to be paid millions for protecting their firms’ precious capital. (Of course, the only thing that happens if traders fail to protect that capital is that taxpayers bail out the bank and the traders are paid huge “retention” bonuses to prevent them from leaving to trade somewhere else, but that’s a different story).
But these days, trading isn’t risky at all. In fact, it’s safer than walking down the street.

Why?
 Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.

The government’s zero-interest-rate policy, in other words, is the biggest Wall Street subsidy yet. So far, it has done little to increase the supply of credit in the real economy. But it has hosed responsible people who lived within their means and are now earning next-to-nothing on their savings. It has also allowed the big Wall Street banks to print money to offset all the dumb bets that brought the financial system to the brink of collapse two years ago. And it has fattened Wall Street bonus pools to record levels again.

Paul Abrams chimes in:

To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives…for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer’s voice has entertained a packed stadium. No batter has hit a walk-off double. No “risk”has even been “managed”, the current mantra for what big banks do that is so goddamned important that it is doing “god’s work”.
Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.
Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.
And, stiff criminal penalties should be enacted for those banks that mislead the Fed about the destination of the money they are borrowing. Bernie Madoff needs company.

There is another type of guaranteed spread that allows the giant banks to make money hand over fist. Specifically, the Fed pays the big banks interest to borrow money at no interest and then keep money parked at the Fed itself. (The Fed is intentionally doing this for the express purpose of preventing too much money from being lent out to Main Street.)

The newly-released Fed data shows that the Fed also threw money at many of the big banks at ridiculously low interest rates.
And as I also pointed out, the government gave tax subsidies to the too big to fails:

The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies).

Indeed, the Wall Street Journal noted this week:

A series of tax relief measures is saving companies bailed out by the government billions of dollars at a time when concern over tax revenues has risen.

Although the Treasury Department first provided the tax guidance in the fall of 2008, the magnitude of the tax savings has become clearer in the past year ….

“The agencies are literally throwing gratuities at banks and other companies,” said Christopher Whalen, a bank stock analyst at Institutional Risk Analytics.

And as I’ve previously reported:

Too Big As Subsidy 
The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
***
The fact that the giant banks are “too big to fail” encourages them to take huge, risky gambles that they would not otherwise take. If they win, they make big bucks. If they lose, they know the government will just bail them out. This is a gambling subsidy.
The very size of the too big to fails also decreases the ability of the smaller banks to compete. And – since the government itself helped make the giants even bigger – that is also a subsidy to the big boys (see this).
The monopoly power given to the big banks (technically an “oligopoly“) is a subsidy in other ways as well. For example, Nobel prize winning economist Joseph Stiglitz said in
September that giants like Goldman are using their size to manipulate the market:

“The main problem that Goldman raises is a question of size: ‘too big to fail.’ In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information.”

Further, he says, “That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that’s why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you’re going to trade on behalf of others, if you’re going to be a commercial bank, you can’t engage in certain kinds of risk-taking behavior.”

The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets – making up more than 70% of stock trades – but which also let the program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See this, this, this, this and this. (This isfrontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).
Goldman also admitted that its proprietary trading program can “manipulate the markets in unfair ways”. The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government’s blessings.
In addition, the giants receive many billions in subsidies by receiving government guarantees that they are “too big to fail”, ensuring that they have to pay lower interest rates to attract depositors.

Derivatives 

The government’s failure to rein in derivatives or break up the giant banks also constitute enormous subsidies, as it allows the giants to make huge sums by keeping the true price points of their derivatives secret. See this and this.
Toxic Assets
The PPIP program – which was supposed to reduce the toxic assets held by banks – actually increased them, and just let the banks make a quick buck.
In addition, the government suspended mark-to-market valuation of the toxic assets held by the giant banks, and is allowing the banks to value the assets at whatever price they desire. This constitutes a huge giveaway to the big banks.
As one writer notes:

By allowing banks to legally disregard mark-to-market accounting rules, government allows banks to maintain investment grade ratings.
By maintaining investment grade ratings, banks attract institutional funds. That would be the insurance and pension funds money that is contributed by the citizen.
As institutional money pours in, the stock price is propped up ….

Mortgages and Housing
PhD economists John Hussman and Dean Baker (and fund manager and financial writer Barry Ritholtz) say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.

Many also accuse Obama’s foreclosure relief programs as being backdoor bailouts for the banks. (See thisthis and this).
 
Foreign Bailouts 

The big banks – such as JP Morgan – also benefit from foreign bailouts, such as the European bailout, as they are some of the largest creditors of the bailed out countries, and the bailouts allow them to get paid in full, instead of having to write down their foreign losses.

When all of the different bailouts and subsidies given to the big banks are added up, it is obvious that they have not come anywhere close to “paying back” what we gave to them.

Read more…

Bernanke on CBS’s ‘60 Minutes’ – Real Time Economics – WSJ


Need a Real Sponsor here

Bernanke on CBS’s ‘60 Minutes’

Federal Reserve Chairman Ben Bernanke appeared Sunday evening on CBS’s “60 Minutes” to discuss the state of the economy, the central bank’s controversial $600 billion bond-buying plan and the financial crisis. Following are excerpts from the interview with CBS’s Scott Pelley, as released by the network:
Q: The major banks are racking up profits in the billions. Wall Street bonuses are climbing back up to where they were. And yet, lending to small businesses actually declined in the third quarter. Why is that?

A: A lot of small businesses are not seeking credit, because, you know, because their business is not doing well, because the economy is slow. Others are not qualifying for credit, maybe because the value of their property has gone down. But some also can’t meet the terms and conditions that banks are setting.
Q: Is this a case of banks that were eager to take risks that ruin the economy being now unwilling to take risks to support the recovery?

A: We want them to take risks, but not excessive risks. we want to go for a happy medium. And I think banks are back in the business of lending. But they have not yet come back to the level of confidence that –or overconfidence –that they had prior to the crisis. We want to have an appropriate balance.
Q: What did you see that caused you to pull the trigger on the $600 billion, at this point?

A: It has to do with two aspects. the first is unemployment The other concern I should mention is that inflation is very, very low, which you think is a good thing and normally is a good thing. But we’re getting awfully close to the range where prices would actually start falling.
Q: Falling prices lead to falling wages. It lets the steam out of the economy. And you start spiraling downward. … How great a danger is that now?

A: I would say, at this point, because the Fed is acting, I would say the risk is pretty low. But if the Fed did not act, then given how much inflation has come down since the beginning of the recession, I think it would be a more serious concern.
Q: Some people think the $600 billion is a terrible idea.
A: Well. I know some people think that but what they are doing is they’re looking at some of the risks and uncertainties with doing this policy action but what I think they’re not doing is looking at the risk of not acting.
Q: Many people believe that could be highly inflationary. That it’s a dangerous thing to try

A: Well, this fear of inflation, I think is way overstated. we’ve looked at it very, very carefully. We’ve analyzed it every which way. One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re going to do.
Q: Is keeping inflation in check less of a priority for the Federal Reserve now?

A: No, absolutely not. What we’re trying to do is achieve a balance. We’ve been very, very clear that we will not allow inflation to rise above two percent or less.
Q: Can you act quickly enough to prevent inflation from getting out of control?

A: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Q: You have what degree of confidence in your ability to control this?

A: One hundred percent.
Q: Do you anticipate a scenario in which you would commit to more than 600 billion?

A: Oh, it’s certainly possible. And again, it depends on the efficacy of the program. It depends, on inflation. And finally it depends on how the economy looks.
Q: How would you rate the likelihood of dipping into recession again?

A: It doesn’t seem likely that we’ll have a double dip recession. And that’s because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can’t get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that’s the primary source of risk that we might have another slowdown in the economy.
Q: You seem to be saying that the recovery that we’re experiencing now is not self-sustaining.

A: It may not be. It’s very close to the border. — it takes about two and a half percent growth just to keep unemployment stable. And that’s about what we’re getting. We’re not very far from the level where the economy is not self-sustaining.
Q: [On calls to cut the deficit]

A: We need to play close attention to the fact that we are recovering now. We don’t want to take actions this year that will affect this year’s spending and this year’s taxes in a way that will hurt the recovery. That’s important. But that doesn’t stop us from thinking now about the long term structural budget deficit. We’re looking at ten, 15, 20 years from now, a situation where almost the entire federal budget will be spent on Medicare, Medicaid, Social Security, and interest on the debt. There won’t be any money left for the military or for any other services the government provides. We can only address those issues if we think about them now.
Q: How concerned are you about the calls that you’re beginning to hear on Capitol Hill that would curb the Fed’s independence?
A: Well, the Fed’s independence is critical. The central bank needs to be able to make policy without short term political concerns. In order to do what’s best for the economy. We do all of our analysis, we do all of our policy decisions based on what we think the economy needs. Not based on when the election is or what political conditions are.
Q: Is there anything that you wish you’d done differently over these last two and a half years or so?

A: Well, I wish I’d been omniscient and seen the crisis coming, the way you asked me about, I didn’t, But it was a very, very difficult situation. And– the Federal Reserve responded very aggressively, very proactively
Q: How did the Fed miss the looming financial crisis?
A: there were large portions of the financial system that were not adequately covered by the regulatory oversight. So, for example, AIG was not overseen by the Fed. … The insurance company that required the bailout, was not overseen by the Fed. It didn’t really have any real oversight at that time. Neither did Lehman Brothers the company that failed Now, I’m not saying the Fed should not have seen some of these things. One of things that I most regret is that we weren’t strong enough in in putting in consumer protections to try to cut down on the subprime lending problem. That was an area where I think we could have done more.
Q: The gap between rich and poor in this country has never been greater. In fact, we have the biggest income disparity gap of any industrialized country in the world. And I wonder where you think that’s taking America.

A: Well, it’s a very bad development. It’s creating two societies. And it’s based very much, I think, on– on educational differences The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is five percent. If you’re a high school graduate, it’s ten percent or more. It’s a very big difference. It leads to an unequal society and a society– which doesn’t have the cohesion that– that we’d like to see.
Q: We have talked about how the next several years are going be tough years in this country. But I wonder what you think about the ten year time horizon. Fifteen years. How do things look to you long term?

A: Long term, I have a lot of confidence in the United States. We have an excellent record in terms of innovation. We have great universities that are involved in technological change and progress. We have an entrepreneurial culture, much more than almost any other country. So, I think that in the longer term the United States will retain its leading position in the world. But again, we gotta get there. And we have some very difficult challenges over the next few years.
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Bernanke on CBS’s ‘60 Minutes’ – Real Time Economics – WSJ

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