NP but The Confidence Man: Bernanke

[alice wellintown]

The Fed should have done more, and should have taken more agressive
steps sooner; this, of course, is the only critique available from
those who still think the Fed is looking out for the rich and ignoring
the rest of the country.

But what will Krugman & Co. say if these policies fail to do what
their models predict? Will they say, see....if he had acted sooner and
with greater force...

The Fed's strategies will push the stock markets to new highs. And
Krugman & Co. will complain because this will make the rich even
richer.

The Fed's policies may encourage a bit of hiring, but most companies
will simply stay lean and, as the global economy will continue to
flag, and as they will see slower earnings,  they will use free or
cheap money to buy back stock, retire higher interest rate debt, issue
debt at super low interest rates. The corporations will get lean and
rich, pay performance bonuses. Will they hire? Off-shore? Outsource?
They will do what is best for the corporation; this may include a
little bit of hiring here in the USA, but not much. Corporations are
in it for the profits. And this is not something the Fed can control.
It is up to the Congress to set poliicy to protect US workers. And, it
has been the Democrats who have traditionally taken the side of labor.
But take a look at Chicago, where the democratic president's
ex-right-hand-man is the mayor. The CTU has exposed the Obama position
on labor; they are against us now. They have decided that the
Republicans have a better message; blame those that have a pension,
healthcare, a decent contract collectively bargaigned.

The Fed has pumped 2.5 Trillion into this depressed economy. And it
will pump, with Twist and the QE3 95 billion a month, and even if
Twist ends (45 Billion a month), the MBS program (40 Billion a month),
will continue.

And the unemployment rate is still well above target, 8% or so, and
has been at elevated levels and remained there though the so-called
recovery, this, despite all the QE and Twist. So, will new measures
work? Slowly, but surely the economy will recover. But what are the
risks? We've listed a couple, like the corporate use of cheap dollars,
but here are some more:
1. Infaltion. While the greater risk is deflation, and the Fed has
been fighting the greater risk, all those Fed dollars may cause
inflation.
2. consumers do not spend the money as the Fed hopes they will. If
consumers leverage up again, buys cheap chinese goods, the economy
will not improve.
3. right now, despite the downgrades in ratings on debt, the usa can
sell its new debt as it buys back longer term debts and mbs, but
eventually the nFed will need to ssue debt in a more competetive
market, one where others will compete, and it will need to sell back
its purchases. A squeeze may occure as the usa can no longer auction
debt that is super-over-subscribed, at super low, even negative rates,
and it now needs to contine to issue its debt to run the nation,
service and retire debt, and sell debt from its huge portfolio of
purchased securities.
Who will buy it when the Fed shifts from a buyer and seller to a
seller and seller? Who will buy it when the debt of the nation is 125%
of gdp? Who will buy it when the credit rating is single A? When other
debt looks better? When the crisis in Europe is ended? So on....

So the risks are there, ignoring them is foolish. That goodness we
have Ben. He feels the pain of nation and, like Krugman, though not a
liberal, he has a conscience, but his conscience is not married to a
foolish bleeding heart.