August 11, 2010
Fisking the Federal Open Market Committee
From The Market Ticker - Karl Denninger Fisks The FOMC Announcement:FOMC Announcement - 8/10Spot on... Adding The Market Ticker to my daily reads. Posted by DaveH at August 11, 2010 2:46 PM
The FOMC Announcement:
(Their statement inset, my translation outset.)We never had a recovery. The Government borrowed a scadload of money and blew it to avoid recognizing what was a severe recession; as a consequence they reported at worst a 2% drawdown annualized, but this is fraudulent - the real drawdown has exceeded 10% now for more than two years.Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.Everyone's broke. Congratulations.Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.Business is broke too. That claimed "record balance sheet cash" is of course offset by debt, and coverage ratios are worse now in terms of assets than any time in the last 50 years. That's not improving either.Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.
We believe. Don't you?The economy is going through deflation and our attempts to stop it have failed.Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.There's no growth, the economy is contracting at 10% per year and is likely to continue to do so for the foreseeable future. We know this and we also know that at some point the government's ability to borrow and spend in order to fraudulently report "growth" will disappear. Of course we won't tell you that up front, because then Grandma will (correctly) surmise that her Social Security and Medicare will disappear (and she's rather likely to be unhappy.)The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.I said there is no recovery! We can't shrink the balance sheet but we can try to monetize Treasury Debt. Of course there is this tiny problem with that Fannie and Freddie paper - it's got huge embedded losses in it. We won't bother talking about the blatantly-unconstitutional act of allocating revenue that we just said we're going to do - and we hope Scott Garrett doesn't call us on it (again.)To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.We suck and we know it. Ain't it grand that you let us get away with this crap?The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.The criminal cabal.Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.And the one man with a brain.....Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee's ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's policy objectives.
PS: To Mr. Hoenig: Don't get in any private planes. Nor take any late-night walks. Nor go bird hunting with anyone named "Cheney." And for God's sake, don't stand up in the bathtub. (Yes, that's sarcasm, if you're incapable of understanding it as-written.)
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