Fed chairman warns US lawmakers on impact of 'fiscal cliff'

 

US Federal Reserve chairman Ben Bernanke

Source: Press TV

http://www.presstv.ir/detail/2012/11/21/273685/us-lawmakers-alarmed-on-fiscal-cliff/

US Federal Reserve chairman Ben Bernanke has once again warned American legislators to ward off the abrupt and severe combination of legislated tax hikes and federal spending cuts, known as ‘fiscal cliff,’ due to take effect by the end of the year.

In a Tuesday speech at the New York Economic Club, Bernanke described fiscal cliff as a “substantial threat” to the country’s economic recovery and urged US lawmakers to put aside partisan political rivalries to avert the massive financial impact on the nation’s already slow economy.

‘‘Uncertainties about the situation in Europe and especially about the prospects for federal fiscal policy seem to be weighing on the spending decisions of households and businesses as well as on financial conditions,’’ he said, adding, ‘‘Such uncertainties will only be increased by discord and delay.’’

According to reported estimates, the impact of the scheduled federal spending cuts and the expiration of temporary tax breaks will take at least USD 500 billion out of the US economy, threatening to push it back into yet another recession.

Citing several outside economic assessments on the enormity of the ensuing tax hikes and spending cuts, Bernanke said ‘‘a fiscal shock of that size would send the economy toppling back into recession.’’

This is while the Obama administration and Congress are still negotiating over an agreement to reduce the government's massive budget deficit, which has exceeded USD 1 trillion for a fourth consecutive year.

The last time the debt limit was about to be reached, Republican lawmakers in the US Congress waited until the very last minute before deciding to raise the limit.

Saying "the deficit is on an unsustainable path," the Fed chairman further added, ‘‘As you will recall, the threat of default in the summer of 2011 fueled economic uncertainty and badly damaged confidence, even though an agreement ultimately was reached.’’

‘‘A failure to reach a timely agreement this time around could impose even heavier economic and financial costs,” he warned.

Currency war warnings follow US Fed’s “quantitative easing”

 

By: Nick Beams

Source: Global Research
http://www.globalresearch.ca/currency-war-warnings-follow-us-feds-quantitative-easing/

There are growing fears that the US Federal Reserve’s policy of “quantitative easing”—the process by which tens of billions of dollars are pumped into financial markets every month—is sparking international tensions over currency values.

One of the consequences of the Fed’s actions is to push down the value of the US dollar, thus worsening the competitive position of other major countries in international markets.

Following the latest decision, in which the Fed gave an indefinite commitment to purchase mortgage-backed securities to the tune of $40 billion per month, the Brazilian finance minister, Guido Mantega, repeated his earlier warnings of a currency war.

Interviewed by the Financial Times last Thursday, Mantega said the US move was “protectionist” and could have drastic consequences for the rest of the world. “It has to be understood that there are consequences,” he told the newspaper. The Fed’s latest move would have only marginal benefits, he said. There was already plenty of liquidity in the economy but it was not going into production. The real purpose of the measures was to depress the value of the dollar and boost US exports, he added.

Mantega pointed to last week’s decision by the Bank of Japan (BoJ) to intervene in financial markets with its own version of quantitative easing as another sign of global tensions. “That’s a currency war,” he said.

In a move clearly aimed at pushing down the value of the yen and lifting Japanese exports, the BoJ decided to add $128 billion to its program of asset purchases. It cited the effects of “financial and foreign exchange market developments” as one of the reasons for its actions.

Further evidence of the impact of global financial turmoil is revealed by Japanese trade figures for last month. These show that exports to Western Europe were down by 28 percent compared to a year ago, with exports to China falling for the third month in a row.

China is also concerned about the impact of the Fed’s actions. The head of the country’s central bank, Zhou Xiaochuan, publicly released criticisms he made last April of the “quantitative easing” program. He said the continued injections of cheap credit were not working and more targeted measures should be developed to get money where it was needed.

China has two concerns about the fall in the value of the American dollar. It tends to push up the value of the yuan, which impacts on Chinese export markets, and reduces the value of the more than $1.2 trillion of US treasury bonds that Beijing holds.

The US Fed’s rationale for its actions is that the injection of liquidity will lower interest rates and encourage investment, resulting in the creation of more jobs and a lowering of unemployment. But a recent Duke University survey of the chief finance officers of 887 large companies found that a lowering of interest rates would have virtually no impact on their decisions.

According to the Duke University analysts: “CFOs believe that … monetary action would not be particularly effective. Ninety-one percent of firms say they would not change their investment plans even if interest rates dropped by 1 percent, and 84 percent said they would not change investment plans if interest rates dropped by 2 percent.”

In other words, so far as the real economy is concerned, the Fed’s actions are equivalent to pushing on a string. Indeed this is recognised within leading financial circles.

Addressing the Harvard Club of New York last Wednesday, Richard Fisher, a non-voting member of the Federal Opening Market Committee, which decided on the latest policy, said the Fed was sailing deep into unchartered waters. In a frank admission, he stated: “The truth … is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before.”

Former Fed chairman Paul Volcker has added his voice to those who insist that further quantitative easing will do nothing to boost the economies of the US and Europe. Speaking at a conference in Scotland over the weekend, he said: “There is so much liquidity in the market that adding more is not going to change the economy.”

The growing sense that the world economy is heading down again was reinforced by the latest forecasts from the World Trade Organisation. It predicted that the world economy would grow only 2.5 percent this year, down from its previous estimate of 3.7 percent.

While the Fed’s measures have almost no impact on investment and jobs, they do give a boost to financial markets. Since the collapse of September 2008, the Fed has followed a clear agenda. The banks and finance houses, whose speculative activities, some of them of an outright criminal character, triggered the crisis, have been given endless supplies of ultra cheap money. Profits are being made through the elevation of the price of financial assets resulting from the injection of more money from the Fed.

However, the stagnation and outright recession in the real economy means that this process cannot continue indefinitely and the house of cards must collapse. The interventions by the world’s three major central banks—the US Fed, the European Central Bank and the Bank of Japan—means that rather than being able to provide further bailout money, they will themselves be dragged into the maelstrom.

 

Federal Reserve announces QE3

 

Ben S. Bernanke (AFP Photo / Brendan Smialowski)

Source: Russia Today

http://rt.com/usa/news/federal-reserve-qe3-effort-079/

The Federal Reserve announced Thursday that they will spent $40 billion a month on bond purchases in an effort to kick-start the US economy, the Associated Press reports.

Federal Reserve Chairman Ben Bernanke is expected to make a public address later today to discuss the results of this week’s Federal Open Market Committee (FOMC) meeting, but in the FOMC confirms that it will keep interest rates "exceptionally low" at least through mid-2015, AP confirms, with the Fed failing to reveal and an end date to the effort at this time.

"If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed reports in a Thursday afternoon statement. The decision to issue the announcement was approved on an 11-1 vote.

Economists had predicted that the central bank would unveil plans for a third-round of a quantitative easing, or QE3, but the Fed has only hinted at plans for a bond purchasing program until now.

Last week, Goldman Sachs said, “With today’s August employment report showing a nonfarm payroll gain of 96,000 and an unemployment rate of 8.1% because of a drop in the participation rate, we expect a return to unsterilized and probably open-ended asset purchases at the September 12-13 FOMC meeting.”

Some critics, including noted investor Jim Rogers, have attested that previous rounds of quantitative easing did little to aid the faltering economy, and that a third attempt may be met with the same respojnse.

"QE1 failed, QE2 failed, so I'm not so sure they would announce QE3, because they'll look like fools again," Rogers told Yahoo this week.

Less than one month ago, Bernanke warned that QE3 was becoming more and more likely, saying, “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

 

Federal Reserve downgrades US economy assessment

A pressman checks uncut sheets of $20 bills on July 12, 2012, at the US Bureau of Engraving (BEP) in Washington, DC

Source: Press TV

http://www.presstv.ir/detail/2012/08/01/253945/fed-downgrades-us-economy-assessment/

The US Federal Reserve has downgraded its assessment of the country’s economy, saying the economic growth has slowed and US economy is losing strength.

"Economic activity decelerated somewhat over the first half of this year," the Federal Reserve announced after a two-day top-level meeting on Wednesday.

The interest rate-setting Federal Open Market Committee (FOMC) also said that it expected "economic growth to remain moderate over coming quarters and then to pick up very gradually."

"The unemployment rate will decline only slowly," it added.

The bank also downplayed glimmers of hope that the housing market is starting to rebound, saying "despite some further signs of improvement, the housing sector remains depressed."

Despite the disappointing news, no measures have been taken by government officials so far, and the Federal Reserve shied away from launching a fresh economic stimulus package.

Ryan Sweet of Moody's Analytics described the Fed's decision not to provide more stimulus or extend the timeframe for low rates as "a bit of (a) surprise move."

"There was a strong case for changing the rate guidance," he said, adding that "the odds of the Fed launching a third round of quantitative easing in September are lower."

US Fed Chief warns on climbing deficit

Source: PressTV
http://www.presstv.ir/detail.aspx?id=123394§ionid=3510203


The US Federal Reserve chairman says the government needs a credible plan to address its gaping deficits in order to raise consumer confidence.

A realistic plan to reduce the massive fiscal imbalance could improve economic confidence while reducing long-term interest rates, said Ben Bernanke in a testimony before the Joint Economic Committee of the US Congress.

"Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance,” he said.

The Fed chief added that tackling the country's fiscal problems requires difficult choices, but delaying the action will only make matters worse.

The warning comes a day after the US Commerce Department said the country's trade deficit rose to around $40 billion in February.

Bernanke expressed particular concern about recent jobless data showing that 44% of the unemployed in March had been jobless for at least six months.

He said that a significant amount of time will be required to restore some 8.5 million jobs lost in the last two years.

Bernanke added that current projections show the government running an imbalance of 4 to 5 percent of the GDP through 2020, describing it as dangerous.

US Fed maintains secrecy on banks bailout

Source: PressTV
http://www.presstv.ir/detail.aspx?id=115933§ionid=3510203


The United States Federal Reserve is making an effort to block a court decision on divulging the government's trillion dollar program to save major US banks.

The US central bank has asked the Court of Appeals in Manhattan to refrain from revealing the 'secret identities' of the country's main creditors in a move against the Freedom of Information Act, Bloomberg reported on Monday.

In their appeal to the court, the Board of Governors of the Federal Reserve System wrote, “Confidentiality is essential to the success of the board's statutory mission to maintain the health of the nation's financial system and conduct monetary policy.”

“The board's ability to administer lending programs crucial to maintaining national financial and economic stability will be severely undermined” if banks refuse to go to the regional Federal Reserve Banks “for their funding needs, particularly in time of economic crisis,” Assistant US Attorney General Tony West and Fed lawyer Richard Ashton noted.

Bloomberg News sued the Federal Reserve under the Freedom of Information Act in 2008, after the central bank refused to disclose the banking documents.

“Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public's right to learn basic information,” Thomas Golden, an attorney for the company said.

The Fed stirred the media frenzy by seeking to block the details of the $2 trillion US economic stimulus program that kept banks afloat after Lehman Brothers liquidated in September 2008.

The world needs a breather from the US. And they'll get it sooner than many think

By: Mike Whitney

We're making this way too complicated. It's simple really.
The Fed has only one tool at its disposal; to create more money. Typically, the way the Fed adds to the money supply is by lowering interest rates. When the Fed lowers rates below the rate of inflation; they're basically selling dollars for under a buck. That's a good deal, so, naturally, speculators jump on it and trigger a credit expansion. What follows is a frenzy of market activity that ends in a housing, credit, tech or equity bubble. Eventually, the bubble bursts and the economy goes into a tailspin. Then, after a period of digging-out, the process resumes again. Wash, rinse, repeat. It's always the same.

The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherf**kers. It's as simple as that. That's why the wealth gap is wider now than anytime since the Gilded Age. The rich own everything.

The Federal Reserve is the policy arm of the big banks and brokerage houses. Period. Ostensibly, its mandate is to maintain "price stability and full employment". Right. Anyone notice how many jobs the Fed has created lately? How about the dollar? Is it really supposed to zig-zag like it has been for the last decade? The central task of the Fed is to shift wealth from one class to another. And it succeeds at that task admirably.

The Fed's "mandate" is public relations claptrap. Bernanke hasn't lifted a finger for homeowners, consumers or ordinary working stiffs. "Yer on yer own. Just don't expect a handout. That's socialism!" All the doe is flowing upwards...according to plan. The Fed is a social engineering agency designed to serve as the de facto government behind the smokescreen of democratic institutions. Did you really think a black, two year senator with no background in foreign policy or economics was calling the shots?

Puh-leeese! Obama is a public relations invention who's used to cut ribbons, console the unemployed, and convince Americans they live in a "post racial" society. Right. (Just take a look at the footage from Katrina again)
The Fed has complete control over monetary policy and, thus, the country's economic future. Bernanke doesn't even pretend to defer to Congress anymore. Why bother? After Lehman caved in, Bernanke invoked the "unusual and exigent" clause in the Fed's charter and declared himself czar. Now he has absolute power over the nation's purse-strings.

The $13 trillion the Fed has committed to the financial system since the beginning of the crisis --via loans and outright purchases of mortgage-backed garbage and US sovereign debt--was never authorized by Congress. In fact, the Fed stubbornly refuses to even identify which institutions got the "loans", how much the loans were worth, what kind of collateral was accepted for the loans, or when the loans have to be repaid.

In truth, the loans are not loans at all, but gifts to the industry to keep asset prices artificially high so that the entire financial system does not come crashing down.

Check this out:
"In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. "

$20 trillion! How much of that feces paper--which is worth just pennies on the dollar-- is sitting on the balance sheets of banks and other financial institutions just waiting to blow up as soon as the Fed asks for its money back? And the Fed will never get its money back because the prices of complex securities and derivatives will never regain their pre-crisis values. Why? Because these derivatives are linked to underlying collateral (mortgages) which have already declined 33% from their peak and are headed lower still. Also, these toxic assets were sold as risk-free (many of them were rated triple A) and have now been exposed as extremely risky or fraudulent. Because these assets were heaped together in bundles to strip out their interest rates, they cannot be easily separated which means that they are worth considerably less than the 33% that has been lost on the underlying collateral (mortgages) The securitization markets are not expected to rebound for a decade or more, which means that the Fed will have to find other more-creative way to goose the credit system to avoid a downward spiral.But how?

Zero percent interest rates haven't worked because qualified borrowers are cutting spending and saving their disposable income, while people who need to borrow, no longer meet the banks' tougher lending standards. Bank credit is shrinking even though excess bank reserves are nearly $900 billion. When banks stop lending, the economy contracts, business activity slows, unemployment soars and growth sputters.
Presently, the economy is still contracting, but at a slower pace than before. "Less bad" is the new "good". All the recession indicators are still blinking red--income, employment, sales, and production--all down big! But it doesn't matter because it's a "Green Shoots" rally; plenty of cheap liquidity for the markets and a freeway off-ramp (for sleeping) for the unemployed.

The Fed's lending facilities are designed to pump liquidity into the system and inflate another bubble by generating more debt. Unfortunately, most people accept Bernanke's feeble defense of these corporate-welfare programs and fail to see their real purpose. An example may help to explain how they really work:
Say you bought a house at the peak of the bubble in 2005 and paid $500,000. Then prices dropped 40% (as they have in Calif) and your house is now worth $300,000. If you only put 5% down, ($25,000) then you are underwater by $175,000. Which means that you own more on the mortgage than your house is currently worth. (This is essentially what has happened to the entire financial system. The equity has vaporized, so institutions are using dodgy accounting tricks instead of reporting their real losses.) So Bernanke comes along and gives you $175,000 no interest, rotating loan to you so that no one knows that you are really busted and you can continue spending just as you had before. Not bad, eh? This is what the lending facilities are all about. It is a charade to conceal the fact that a large portion of the nation's financial institutions are insolvent and propped up by state largess.
But there's more, too.

Now that Bernanke has given you $175,000 no interest, rotating loan; you expect that eventually he will ask for his money back. Right? So your only hope of saving your home, in the long run, is to engage in risky behavior, like dabbling the stock market. It's like playing roulette, except you have nothing to lose since you are underwater anyway.

This is exactly what the financial institutions are doing with the Fed's loans. They're betting on equities and hoping they can avoid the Grim Reaper.
Here's how former hedge fund manager Andy Kessler summed it up last week in the Wall Street Journal: "By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market." (Andy Kessler, "The Bernanke Market" Wall Street Journal)

Only a small portion of the money that has gone into the stock market in the last 6 months (since the March lows) has come from money markets. The fed's loans are being laundered into stocks via financial institutions that are rolling the dice for their own survival. The uptick in the markets has helped insolvent banks raise equity in the capital markets so they don't have to grovel to Congress for another TARP bailout.

Everybody's elated with Bernanke's latest bubble except working people who have seen their wages slashed by 4.5%, their credit lines cut, the home values plunge, and their living standards sink to third world levels.

And the Fed's spending-spree is not over yet; not by a long shot. The next wave of home foreclosures (already 1.9 million in the first half of 2009) is just around the corner--the Alt-As, option arms, prime loans. The $3.5 trillion commercial real estate market is capsizing. The under-capitalized banking system will need assistance. And there will have to be another round of fiscal stimulus for ailing consumers. Otherwise, foreign holders of US Treasurys will see that the US can no longer provide 25% of global demand and head for the exits.

Bernanke's back is against the wall. The only thing he can do is print more money, shove though the back door of the stock exchange and keep his fingers crossed. The rest is up to CNBC and a small army of media cheerleaders.

There is some truth to the theory that Bernanke saved the financial system from a Chernobyl-type meltdown. But that doesn't change the facts. Accounts must be balanced; debts must be paid.

The Fed chief has committed $13 trillion to maintain the appearance of solvency. But the system is bankrupt. The commercial paper market, money markets, trillions of dollars of toxic debt instruments, and myriad shyster investment banks and insurance companies are now backed by the "full faith and credit" of the US Treasury. The financial system is now a ward of the state. The "free market" has deteriorated into state capitalism; a centralized system where all the levers of power are controlled by the Central Bank. If Bernanke's Politburo withdraws its loans--or even if he raises interest rates too soon-- the whole system will collapse.

The economy is now balanced on the rickety scaffolding of the dollar. As the Obama stimulus wears off, the rot in the economy will become more apparent. Household red ink is at record highs, so personal consumption will not rebound. That means US assets and US sovereign debt will become less attractive. Foreign capital will flee. The dollar will fall.

The world needs a breather from the US. And they'll get it sooner than many think.

_______

Read more from Mike Whitney at

The Smirking Chimp
http://www.smirkingchimp.com/thread/23166

Same Old Story, Same Old Money

By: Stewart Brennan

Ossama Bin Obama has a get-tough solution for Democrats...Invade a nuclear country like Pakistan where the very word "American" sparks riots of hundreds of thousands of people. Ya that’s a Democratic solution!

It would seem that the Democrats do not have the American people's thoughts and wishes in view either. Obama's solution to an exit strategy is to go from Iraq to Pakistan & back to Afghanistan in force. Hillary Clinton does not even comment on Bamma’s position. One might think that she is a closet supporter of War for big campaign dollars. The “Democratic House Speaker” Pelosi, does a 180 on Democratic position in Iraq withdrawal time table and leaves it up to Bush...is it me or does this seem a little bit like collusion with the Republicans?

Maybe it’s collusion, and maybe it’s just that both parties have the same old money masters who are all members of the "Council of Foreign Relations".

So now, how do you vote? Do you lay down and become sheeple or do you have a revolution and run for office under a third political party? The choice is really simple.

If you're still not convinced that the Democrats and Republicans are really the same group of idiots with the same group of idiots money then idiot propaganda has worked on you!

An exit strategy from Iraq belongs to the General in charge when his Commander in Chief so orders it. I do not believe that George Bush or any Democrat / Republican will actually remove the American Army out of the Middle East. The USA has a habit of occupying a country with its military for a long, long, long, long time. If the resolve were to exit then they would not be building 4 permanent military bases in Iraq. Nor would they be building the largest most fortified embassy in history. Face it! Complain all you want, but no matter what you think, they, the Democrats or Republicans, will never leave Iraq or the Middle East. Which means there will be a sustained War just like the old money masters want. If you are not sure what is meant by Old money, please look up Wikipedia under the name “Council of Foreign Relations” there is an abundance of information there and a list of members. If you do not believe the information that is in front of you, then you must also believe that the Rockefeller’s no longer have an interest in money…or how to make lots of it.

If you want to make a change in the direction of your country, then run for office but do so under a new political party! You will not need big business to support you because no matter what party you voted for in the last election, big business will only support war profits.

Mr. And Mrs. America will fund you though, and what’s wrong with that? All across the USA people are calling for change. Well change will not happen unless you run for congress or US President yourselves. Make the system work for you; don’t wait until the system decides to share your opinion, because that will never happen.

Paid for by, “The United Party”. (A total cost of 10 minutes.)

Regards,
Stewart Brennan
#123 456 789