Bernanke is reiterating his goal with his new round of asset purchases and that to keep LT interest rates low. He talked about trade imbalances and emerging market dependence on export growth and thus low FX rates and implicitly pointed his finger at China over this. Of course the critique back from China towards the Fed is creating $2.3T out of thin air on top of short rates being basically zero is a grand manipulation of one’s currency. Bernanke also humanized the intent of the Fed by pointing out “on its current economic trajectory, the US runs the risk of millions of workers unemployed or underemployed for many years…As a society, we should find that outcome unacceptable.” I believe we can all agree on that, the issue however is how best to cure it. Rely on the price fixing of interest rates and printing of money or have faith in the wonders of capitalism and its ability to regenerate if the economic cycle is left alone.

After their market close, China again raised its reserve requirement for banks by 50 bps. This comes after Hong Kong announced the hike in down payment requirements for the purchases of homes above certain price levels. Hong Kong also initiated a tax on homes sold before the elapse of 6 months of ownership. Irish bonds are trading better for a 2nd day as the market has come to the realization that only the terms and amount of a EU/IMF deal is what’s left to decide.

Category: MacroNotes

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6 Responses to “Bernanke/China/Ireland”

  1. franklin411 says:

    You should preach your gospel about “the wonders of capitalism…if left alone” in front of an unemployment office in Detroit. Farewell, Boockvar…we hardly knew ye!

  2. radioman says:

    I don’t think the “wonders of capitalism” will work any more since our economy is too heavily based on government-owned mortgages, agricultural subsidies, bailouts, foreign wars, and building bridges to nowhere all funded by deficit spending of a fiat currency.

  3. phasor says:

    The economic cycle has NEVER been left alone. The Fed constantly intervenes trying to “manage” the economy. The idea of free markets is a hoax.

  4. I find it very surprising that the Fed Chairman commented on the U.S. debt monetization’s effect on the U.S. dollar ! Does anyone else not find that shocking or at least a bit surprising ?

    From the speech:
    “The resulting increase in emerging market interest rates relative to those in the advanced economies would naturally lead to increased capital flows from advanced to emerging economies and, consequently, to currency appreciation in emerging market economies.”

    I thought comments on the U.S. dollar were to be left to the Treasury….

    It also seems to be interesting that the Fed Chairman would call out those emerging markets seeking to manipulate their currencies lower when it seems that he is doing the same thing with the U.S. dollar….

    This whole episode is seemingly acquiring a political character as well….

    My full thoughts on the speech, comments appreciated, where am I wrong, what am I missing…?

  5. Estragon says:


    I think the fed has commented on FX in the past, generally in the form of something like “the external value of the USD is a treasury responsibility, but…”.

    In the current episode, they’ve described and defended QE primarily in domestic terms, but there are obviously external effects. Given that BB was speaking at an international event, it’s not all that shocking to me that he’d go into those external effects.

    As for it acquiring a political character, I think to some extent that’s unavoidable. The economics profession was, after all, originally called political economy. If he really wanted to be intemperate and political, instead of saying “

    Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home

    “, he might have said something more like “the ultimate purpose of economic growth is to keep politicians in power”.

  6. Estragon – interesting thoughts. It certainly seems as though Geithner is out of the picture in this, although there he is having an interview this weekend.

    This speech was primarily for foreign consumption; it should be very interesting to see how the Fed Chairman responds to broad domestic audiences. I would be surprised if comments to his domestic audience are not even more strident.

    Politically, he is sounding more like an administration official every day – unsupported promises of a certain number of jobs as a result of his policies, unsupported casual connection between money printing and jobs – these are really political acts which place him in the heat of criticism and reduce independence at the central bank….

    Even the basic premise that the unemployment and economic situation now is “like” the Great Depression is unsupported – yes the situation now is bad (as we all could personally attest), however, 9-% unemployment is not the same as 25% unemployment and a 20% contraction of GDP is not the same as a 3-4% contraction in GDP.

    Lessons from history and recently Latin America in the 1980s show us that governments will stop at nothing when faced with ‘crisis’ – all of this QE money printing is reminiscent of that.