“We don’t have a precise read on why this slower pace of growth is persisting,” the Fed chairman, Ben S. Bernanke, said Wednesday at a news conference. “Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought.”
That’s from the New York Times.
US Federal Reserve Ben Bernanke finally acknowledges to the “knowledge problem”, which again validates the knowledge theory of the great F.A. Hayek.
Of course, we’ve been saying that Ben Bernanke has had a string of inaccurate predictions.
Remember, Mr. Bernanke is backed by about 450 Federal Reserve economists, half of which are PhDs.
In essence, this is an admission of the grand failure of macroeconomics founded on econometrics.
Now for QE 3.0
Back to the same article, (bold highlights added)
Mr. Bernanke dismissed for now any possibility that the Fed would extend its efforts to stimulate growth, saying that the economy was moving in the right direction. The slow pace of the recovery justified the Fed in continuing its existing efforts, he said, but not more.
The Fed’s policy board, the Federal Open Market Committee, voted unanimously to maintain its two-year-old commitment to hold a benchmark interest rate near zero “for an extended period.” Mr. Bernanke said the language meant it would not raise interest rates for “at least two or three meetings,” pushing back to November the earliest moment rates could rise. Economists consider it likely that the central bank will hold interest rates near zero well into next year.
The board also voted to maintain the Fed’s portfolio of more than $2 trillion in Treasuries and mortgage-backed securities by reinvesting principal payments. The board did not indicate how long this policy would continue, a decision that Mr. Bernanke described as intentional. Fed officials have said that allowing the portfolio to dwindle is likely to be the first step when the central bank decides to begin the withdrawal of its aid programs.
Action speaks louder than words.
True, QE may not be immediate, as QE 2.0 has been activated five months after the completion of QE 1.0, but to maintain the $2 trillion balance sheet by ‘reinvesting’ principal payment for an indefinite period signifies transitional QE.
Given the current political institutional framework, QEs signifies a strong force in keeping this arrangement intact.
Besides for an economy that has been artificially propped up by a tsunami of liquidity, obviously a withdrawal or non addition would trigger a meaningful regression—the risk prospect of which, based on their guiding ideology, should be sternly avoided.
This means that the door for QE is wide open, (which I think is part of the mind ‘conditioning’ communication tools applied by the FED)...
Now the Fed is standing back again to see if the economy can grow without constant prodding. “A little bit of time to see what’s going to happen is useful in making policy decisions,” Mr. Bernanke said. He allowed, however, that the Fed could take additional steps, from declaring a longer period of near-zero interest rates to buying even more assets.
Ben Bernanke admits that the he and the rest of US Federal Reserve can’t read the economy, but then he believes that his set of tools works.
What a contradiction.
Finally because of some political backlash on the Fed’s polices, the asset purchasing (money printing) program may come in a different form and or under a name.
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