Jon Hilsenrath, the Fed mouthpiece at the Wall Street Journal is out with a piece this morning describing how Mr. Bernanke built a consensus on the FOMC to start another round of money printing. Hilsenrath is Bernanke’s go to man when he wants to pass information to investors between policy meetings. What was the purpose of this piece? Looks like Dr. B. might not be happy with the stock market response to his QE-Infinity program. As of this morning, the S&P 500 is only a few basis points above its level before the Fed unveiled the program.
So Mr. Bernanke is back to jawboning to prop up the market. We learned this morning from Mr. Hilsenrath that the activists on at the Fed “got what they most wanted: An open-ended commitment to buy mortgage bonds until the job market improved with the strong possibility of additional Treasury purchases later.” That should be interpreted as the Fed has every intention of ramping up QE-infinity in December when Operation Twist ends. $85 billion per month is our best guess—over $1 trillion per year and almost enough to fully monetize the U.S. deficit. Aren’t you proud to be an American?
The quote from the article that best sums up the Bernanke Fed in two sentences and goes a long way to explaining why the central bank is taking us down such a perilous path comes from Minneapolis Fed President Mr. Kocherlakota. We wrote about Mr. K’s dangerous advice on monetary policy earlier this week. Here is the quote.
“Mr. Bernanke’s ‘thinking is framed by data and models,’ he said. ‘It beats coming in there with just your gut.”
Ohhh right, the data and the models. They are so informative and reliable. I’m sure it was the data and models that led Dr. Bernanke to tell the American people in 2007, that the subprime crisis was “well contained.” And it was the data and the models that Wall Street used to create trillions worth of toxic securities (see here). Now you can breathe a sigh of relief knowing that Mr. Bernanke doesn’t rely on his gut!
I’m sure Mr. Kocherlakota and Dr. Bernanke are brilliant. Mr. K. graduated from Princeton with a degree in mathematics at 19 and earned a Ph.D. in economics from the University of Chicago four years later. But there seems to be a deficit of common sense and wisdom from the Bernanke Fed. If three years of the most aggressive monetary policy in the history of the Fed have done almost nothing for the economy, why do more?
There is another brilliant man you may be familiar with. He had an unusual amount of brilliance and wisdom. His name was Albert Einstein. Kocherlakota and Bernanke could learn a lot from this famous Einstein quote (it’s one of my favorites) “As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.”