Dear All,
Since this blog's first post in 2009 I have been banging the table that the Fed is trapped into continuing its liquidity orgy until its members pass the baton to the next set of lucky governors, who will then scratch their heads and conclude that they too are mere bench warmers. In this December post, 'Contrived Exits' I emphasized in that in spite of its market moving rhetoric "[t]he essential truth about the Fed's exit strategy is that there isn't one."
Yesterday Federal Reserve Chairman Bernanke as much as admitted to being cornered by a financial system that will implode the second the central bank leaves the room.
"...I guess the final thing I would say in terms of risks of course is that we have seen some tightening of financial conditions, and that if, as I've said and as I said in my press conference and other places that if financial conditions were to tighten to the extent that they jeopardize the achievement of our inflation and employment objectives then we would have to push back against that."
The Chairman has simply reiterated what ought to have been obvious to Wall Street, which expends needless energy parsing and analyzing every utterance from Mr. Bernanke and his Fed water boys.
By "tightening of financial conditions" Mr. Bernanke is referring most specifically to the rise in interest rates that has occurred in spite of the Fed's $85 billion monthly mortgage and government bond buying and the Fed having morphed into becoming practically the entire bid side of the U.S. Treasury new-issue market.
Talk of tapering is derailing markets causing every such jawboning effort to now require damage control a short while later. The financial markets and banking system balance sheets are a noose around the central bank's neck. "Push back" as the Chairman calls it, is not the Fed's policy, it is its destiny.
The equity markets will likely continue to rise as a result of all of this. The dollar however will take this squarely on the chin, offsetting nominal stock market returns. Gold will be the real winner as physical market demand will boil over sending its price to new highs.
On a separate note, check out this interview with Russ Tice, the original (pre-Binney) NSA whistleblower. The broadcast is from RT's ('Russia Today') excellent show, 'Breaking the Set' with Gabby Martin. RT is one of the few sources of investigative journalism available to U.S. viewers. Note that Tice reveals matters not previously disclosed about the scope of NSA malfeasance.
Jeff