Ed’s Daily Notes for September 19th   Leave a comment

Bloomberg: Bernanke Resets Fed Policy by Doing Nothing

The policy-setting Federal Open Market Committee yesterday refrained from reducing the $85 billion pace of its monthly securities buying, sending stocks to record highs and triggering the biggest rally in Treasuries since 2011 as investors repositioned for a more accommodative central bank. Bernanke said the Fed must determine its policies based on “what’s needed for the economy,” even if it surprises markets.

The decision to abstain from tapering bond purchases underscored Bernanke’s willingness to do anything to lower unemployment and pushed back expectations for a tightening of policy, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. Bernanke said he was concerned that market interest rates, driven higher by his own suggestion he would scale back so-called quantitative easing, would curb growth.

“The overriding message the Fed wants to send is that it remains completely committed to providing as much support as necessary,” Crandall said. “The Fed’s goal in surprising the market here was to really cement the credibility” of its interest-rate guidance by showing its primary concern is encouraging growth, he said.

Crandall had predicted the Fed would cut its bond buying yesterday, and said he now expects the central bank to do so in December, though it is “far from a done deal.” He said the Fed may continue the program into the third quarter of next year, up from a previous expectation of a mid-2014 end.

At this point, I would add one other possibility to the mix of predictions: The Fed may actually INCREASE quantitative easing at some point in the future. Consider this: What if the economy begins to contract while QE is running at current levels? The Fed, in its vast ignorance, will just do more of the same QE.

If you were looking for a time to be fully invested in the markets, now is it. I can’t promise you will find a lot of bargains though. However, George Soros put it best when he called it “rational” to invest at the start of a bubble. Stocks will only get more bubbly from here onward.

Fox News: House Republicans accuse Senate colleagues of caving on push to de-fund ObamaCare

House Republicans, in an unusually caustic intra-party squabble, are ripping their conservative colleagues in the Senate for what they see as an abrupt cave-in on the push to de-fund ObamaCare.

“They’re waving the white flag already,”one House GOP lawmaker said Wednesday.

The squabble started after House Speaker John Boehner earlier in the day announced he would agree to the demands of Tea Party-aligned lawmakers to tie a vote on de-funding the health care law to a vote on a must-pass budget bill.

The move would effectively condition the approval of the spending bill on ObamaCare being de-funded, or else risk a government shutdown when funding runs out at the end of the month.

While I agree with the Tea Party’s motives, there comes a point where reality has to enter their minds.

Speaking of the debt ceiling, President Obama gets the award for “Dumbest Quote of the Day” with this one (from CNS News):

“Now, this debt ceiling — I just want to remind people in case you haven’t been keeping up — raising the debt ceiling, which has been done over a hundred times, does not increase our debt; it does not somehow promote profligacy. All it does is it says you got to pay the bills that you’ve already racked up, Congress. It’s a basic function of making sure that the full faith and credit of the United States is preserved.”

Only in the most technical sense does raising the debt ceiling NOT raise the debt. But the fact, as he puts it, that the debt ceiling has been raised hundreds of times, and the debt has only increased to the level of the ceiling hundreds of times, tells you all you need to know. In Washington, the politicians will spend whatever they can.


Posted September 19, 2013 by edmcgon in Economy, Federal Reserve, News, Politics

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