Questions for you all:
This is a very important quote IMHO, it has bearing on how all our hard assets are going to fare. It is Bernankes view of how he is going to get out of all this... it could be easily overlooked, it was at the tail end of today's Bernanke hearing.
I am very interested in all your thoughts and ideas on this. This IMHO is the crux of the issue (other than that the money is bad). Will Bernanke be able to pull this off... and how?
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From todays Bernanke hearing:
mail.google.com
Time: 3.05.45:
Mr Jordan: The money supply. I didn't get a chance to ask you questions when you were in front of the budget committee, and I apologize;
A lot of people, a lot of sharp people are very nervous about where we are with the amount of money out there in the system right now. Talk to me briefly if you can about your concerns there and how we are going to deal with what I think allot of people believe is going to be real inflationary concerns in the not too distant future.
Bernanke: The money is not in the system in any real way. The money is electronic deposits from banks sitting in the Federal Reserve accounts. They are not being used, they are not being loaned they are not circulating, um - the key issue here is can we unwind this money creation and lower interest rates in time to head off inflation when the economy begins to recover. We have all the tools we need to do that, we believe we can do that, we will certainly remove that stimulus in time, we are committed to price stability and we will make sure that it happens.
[Hearing is then wrapped up by Chairman]
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Here are some ideas/questions to start the discussion or consider:
Firstly, I think Bernanke misspoke in the last paragraph. He meant to say "raise" interest rates.
Beyond this, I get into speculation and guesswork:
Secondly, is Bernanke right? Has the increase in the money supply been sequestered? Is this why he is paying interest on Fed bank deposits, to sequester the money? Certainly from a banks point of view, it is less risky to deposit it with the Fed rather than lend it out.
So, it appears, all the Fed is doing is giving the banks cash which they can count as assets (??) and make their books stronger (borrowed reserves??)... while the banks are not spending it, and therefore it has no inflationary impact?
Clearly Bernanke will raise interest rates at some point... will this be sufficient to reduce the outstanding pumped up money supply? Will this make deposits with the Fed more attractive, and therefore sequester more assets? Will he take other actions? What actions?
How do you all expect this to play out? |
