As the head of the Federal Reserve testifies on Capitol Hill, all things seem to be perfect. According to Bernanke, there is no inflation, it will remain low for the next few years, growth will be great, the markets will continue to improve and it will rain gum drops and sugar plumb fairies will dance the night away. I cannot help but wonder how history will view him and Tim Geithner.
Treasury's TARP, AIG bailout Costs Fall to $30 Billion
President Barack Obama delivers his State of the Union address this evening with the hard pivot to the economy, jobs and financial reform on full display with a focus on tax credits for small business ... House Committee on Oversight and Government Reform holds much hyped hearing on federal efforts to bail out AIG with Treasury Secretary Timothy Geithner today.
Let’s talk about sentiment.
Last week was the worst market week since March 2009. Similarly, the three-day decline from Wednesday through Friday was the worst three days since March 2009. The market is now officially in the red for 2010. And the persons we’ve identified as market props (Bernanke, Geithner, etc) are now beginning to come under intense fire for their actions.
SEC Seeks to Ban Flash Trading - Is Goldman's Game Over?
It is becoming painfully obvious that the Fed, Treasury, and Administration's disastrous recovery plan hinges on the devaluation of the U.S. dollar. Their specious strategy stems from the belief that a falling currency can re-ignite exports and spark a recovery in manufacturing while putting a floor in U.S. asset prices. But just as the President's initials indicate, the plan stinks of B.O.
It is disappointing to discover that the Harvard- and M.I.T.-educated Ben Bernanke did not learn while attending school that long-term interest rates must be set by the free market. Belatedly, the Chairman of the Federal Reserve is about to learn this valuable and costly lesson because these rates cannot be manipulated lower by any central bank for a great length of time.
A bounce in the financial sector helped stocks regain part of Monday’s losses, as investors grabbed the low prices, driving the intraday session higher. Geithner also had an effect on the stock session as he mentioned during yesterday’s meeting that most of the banks have substantial capital and that the sector is slowly recuperating.
As he stated again clearly today, the Chairman of the Federal Reserve has deluded himself into thinking that when the time comes, he will be able to shrink the size of the Fed's balance sheet and reduce the monetary base with both ease and impunity. He also has deluded himself into thinking inflation will be easily contained.
It is very important that he does not fool you, as well.