Posts filed under “Think Tank”

Dennis Gartman, Ben Bernanke & Congress

Dennis Gartman’s letter today hit so many key points with an economy of words that I have excerpted it and scratched my own text on Bernanke’s testimony. Dennis doesn’t mention the changes in “velocity” which is too technical a subject for this missive. Maybe later. He does perfectly characterize our Congress.

Go, Dennis, go. Give me a chance and I will vote for you. Next year we will get you on the annual fishing retreat when your calendar is not so conflicted. For the rest of our readers, on Friday, August 7, CNBC will start in the early morning with Steve Liesman and a live truck at the annual fishing gathering at Leen’s Lodge in Maine.

Readers are encouraged to try the Gartman letter. The subscription is well worth the price. See:

On July 21, 2009, Dennis Gartman wrote:

“That having been said, we do indeed note that Dr. Bernanke is headed to “The Hill” today and this should make for very interesting testimony, firstly before the House Financial Services Committee and then tomorrow before the Senate Banking Committee [Ed. Note: We always look to the first “performance” for the real meat of what Dr. Bernanke…or any Fed Governor for that matter… shall say, for they repeat their comments almost entirely when before the other house of Congress the following day. However, we look especially forward to the House’ questioning of Dr. Bernanke today for we can never underestimate the sheer idiocy of House members when it comes to all things economic. We have an especially “warm” spot in our hearts for Ms. Maxine Waters (D. California), who is capable of the most fantastically idiotic statements at almost any time. One must always be alert when Ms. Waters speaks. One never knows what idiocy shall come forth.].

This shall be especially interesting testimony from Dr. Bernanke for the market is concerned that his position is somewhat in jeopardy, and an awkward appearance today and tomorrow could do damage to the odds of him being reappointed for a full term in office. Dr. Bernanke will update the Congress on the Fed’s macroeconomic views and will of course be asked how long the Fed expects the recession to last. The House members, unable to understand the seriousness of the situation, will likely ask the Fed Chairman his views on salaries on Wall Street, on the Madoff Affair, and other such effluvia, and Dr. Bernanke will try his very best not to appear angry or despairing as he answers these questions. Quite honestly, we do not know how he retains his honour and dignity at some of the questions, and does not leap over the table, grab one of the Congressmen or women who ask these idiotic questions by the neck and shake them from limb to congressional limb; but he does retain his composure and his answers will be measured a bit more seriously this time than previously.

The real debate, and the one we think shall not be made, is what the Fed can do and intends to do in withdrawing the excess reserves from the system when the time comes for that to be done. Firstly, we shall go on record and say that the time to withdraw these excess sums of money (and by “money” we mean the adjusted monetary base) injected forcefully into the system last autumn is not now, and it shall not be until such time as unemployment has begun to turn down rather than marching inexorably upward as it is at present. However, why this debate is so shrouded in obscure language is quite beyond us, for the Fed has several very clear tools with which to withdraw these reserves. It can sell Treasury securities, or Agencies, or whatever collateral it has accumulated back into the system through direct sales to Fed dealers, or it can withdraw the money via long term “reverse” repurchase agreements. We suspect that the Fed shall use both methods, for the former is a permanent change and the latter is a shorter term, reversible one that will allow the authorities to fine tune its actions.

All we do know is that the Fed seems already to have begun the process of removing those reserves for the monetary base has not grown since the turn of this year. The Base stood last week (as accounted for by the Fed St. Louis, the “keeper” of such data) stood at $1700 billion, and that is almost perfectly where it stood at the end of December. In other words, the Fed has clearly not increased the base, and that is the first step toward reducing it.”

We thank Dennis and his counsel for giving us permission to quote him today.

Category: Federal Reserve, Think Tank

All’s Not Well in Kindleland

Here’s an excerpt from my latest update on the slow transition from printed books to electronic books. The course of technological innovation never did run smooth: When it comes to ebooks, no one seems to be able to keep a level head. Publishers are in self-induced swivet; Amazon is being a shortsighted bully, and the…Read More

Category: Think Tank

Bernanke’s testimony

Bernanke in his speech is saying most of what we already know about the economy and specifies that its the household/spending outlook that is the “important downside risk” which we know is the disease of the credit crisis. He says the unemployment rate will remain elevated even as the economy recovers (we need to generate…Read More

Category: MacroNotes

Ben comes to the Hill

If the front page article of today’s WSJ is any indication, Bernanke’s testimony on the economy and monetary policy will be anything but boring. Bernanke lays the groundwork for some of what he’ll say in an editorial that lays out “The Fed’s Exit Strategy.” It sounds great but if the Fed gets the timing wrong,…Read More

Category: MacroNotes

Should the Fed be Responsibly Irresponsible?

This week I offer two short essays for your reading pleasure in Outside the Box. The first is from Ambrose Evans-Pritchard writing in the London Telegraph. He gives some more specifics about the situation in Europe I wrote about this weekend.

He ends with the following sober quote: “My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.” This is a must read.

And the second piece? Last week in Outside the Box we looked at an “Austrian” (economic) view of the inflation/deflation debate from my friends at Hoisington. This week we look at the 180 degree opposite with Keynesian aficionado Paul McCulley, who argues that the Fed should be Responsibly Irresponsible and target higher inflation. This essay has brought some rather heated arguments in print and from some of the people who will be with Paul and me at the annual Maine fishing trip. And you can bet I will put them all together with a little wine to see how the argument ensues. I will report back.

And Paul ends with a great and what is a quite controversial line, “Yes, as Bernanke intoned, there are no free lunches. But no lunch doesn’t work for me. Or the American people. While it is true, as Keynes intoned, that we are all dead in the long run, I see no reason to die young from orthodoxy-imposed anorexia.”

And finally, this one last note on European banks: “European banks including Societe Generale SA and BNP Paribas SA hold almost $200 billion in guarantees sold by New York-based AIG allowing the lenders to reduce the capital required for loss reserves.” (Bloomberg). Want to think about the US taxpayer paying to bail out Europeans banks? Think that might be a tad controversial? This could be explosive.

John Mauldin, Editor
Outside the Box

Fiscal ruin of the Western world beckons
By Ambrose Evans-Pritchard

For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.

Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.

A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.

Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go….Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc….

No doubt Ireland has been the victim of a savagely tight monetary policy – given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.

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Category: Federal Reserve, Think Tank

Bulls Win Today; Watson’s Example is Timeless

Good Evening: U.S. stocks stretched their recent winning streak to six straight today, as some good economic news and some potential help for CIT combined to lift share prices. With more investors becoming convinced the worst is over for our economy, the major averages all tacked on gains of 1% or more. The S&P 500…Read More

Category: Markets, Think Tank

On the Economic Outlook and the Commitment to Price Stability

On the Economic Outlook and the Commitment to Price Stability

Dennis P. Lockhart
President and Chief Executive Officer
Federal Reserve Bank of Atlanta

Rotary Club of Nashville
Nashville, Tennessee
July 20, 2009

Photo of Dennis LockhartFor my remarks this afternoon, I’ll talk about how I see the economy at this juncture, the near- and medium-term outlook, and the growing concern about inflation. Let me add at this point my usual disclaimer that my remarks are my thoughts alone and may not necessarily reflect the views of my colleagues on the Federal Open Market Committee (FOMC).

It’s especially important that I mention this caveat the day before Chairman Ben Bernanke makes his semiannual monetary policy report to Congress. Tomorrow the chairman will speak for the Federal Reserve System. Today, I am speaking just for myself, informed by advice from my colleagues at the Federal Reserve Bank of Atlanta.

Current economy
Current economic conditions are mixed at best, but the economy appears to be in stabilization mode. Stabilization necessarily precedes recovery. A recovery has not yet taken hold but should begin before too long.

I’ll start with a look at manufacturing, which has been hard hit in this recession. Just last week we learned that manufacturing production was down 0.6 percent in June, month over month. In the past year, manufacturers have cut production by more than 15 percent, and the manufacturing capacity utilization rate dropped to about 65 percent, a record low.

Here in middle Tennessee, manufacturing accounts for about 12 percent of employment. The number of manufacturing jobs here declined by about 12 percent on a year-over-year basis in May, the most recent data available. I know that many of you here today have directly felt the troubles in this important sector.

Recent indicators of business investment are also down but are a bit less discouraging. Durable goods orders increased this spring and in May reached the highest levels in four months. On the other hand, the most recent data showed the liquidation of business inventories continuing, but the pace has slowed.

Consumer spending absorbs about two-thirds of economic output, and the recent picture in this area is mostly negative. After taking price changes into account, it appears that retail spending fell again in June. Restaurants, department stores, and building materials retailers all posted month-to-month declines. Overall, retail results are in line with the ongoing weakness in consumer spending we have been seeing.

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Category: Federal Reserve, Think Tank

Fed member Lockhart calling a mea culpa on Fed policy

I believe for the very first time, a Fed member is admitting that it was an artificially low fed funds rate that ‘helped create the housing bubble’ (I’m quoting Bloomberg). Voting member Lockhart just made the comment in a Q&A after a speech on the US economy. He took office as head of the Atlanta…Read More

Category: MacroNotes

Commercial and Industrial Loans

With CIT garnering headlines over the past week in terms of its own fate but that of many small businesses reliant on it, on Friday the Fed released its weekly balance sheet data for commercial banks for the week ended July 8th and we can see what the business lending trends are. Commercial and Industrial…Read More

Category: MacroNotes

Getting Full Value for Bailout Warrants

From a friend on the Hill:

Good news today. Some of you have noted that it is somewhat outrageous for the Treasury to privately price and sell warrants back to the banks that got TARP money instead of doing an open auction that will fetch the best price for the taxpayer. The Congressional Oversight Panel claims that the currently used secret process returns only 66 cents on the dollar to the taxpayer.

Mary Jo Kilroy, a freshman Democrat from Ohio, introduced a bill (HR 3232) to compel an open auction of these warrants with six cosponsors: Brad Sherman, John Boccieri, Betty Sutton, Jackie Speier, Marcia Fudge and Alan Grayson.

All of these members except Brad Sherman are in their first or second term in Congress, and all are Democrats. Sherman was the leader of the little noted but important ‘skeptics caucus’ that attempted to stop the $700B bailout in September.

There is also a hearing on the TARP warrant repayments on Wednesday. Many of you don’t have faith in Congress, but there are lots of crosscurrents and sometimes people here do show leadership.

Information on the bill is below.

PROFIT Act to Make Taxpayers, Transparency Priority in Bank Bailout Payback
July 16, 2009 4:21 PM

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Category: Bailouts, Politics, Think Tank