Ben Has a Big, Fat Zero

Bill Tatro
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Posted: Sep 21, 2011 12:01 AM

On Wall Street, the expression is “don’t fight the Fed.” 

However, a much older expression is “sound and fury signifying nothing.”

On the eve of a much ballyhooed Fed announcement following an uncharacteristic two-day meeting, I want to discuss the Fed’s next move. 

Most columnists would wait until after the announcement is made in order to discuss the pros and cons of the decision. 

Most significant, however, are the results the Fed’s actions will achieve. 

You should ask yourself these two very important questions:  Will there be more jobs created?  Will the housing collapse finally come to an end?  Everything else is simply fodder for the cable news networks. 

The most over-hyped tactic is using maturing short-term bond proceeds to purchase long-term treasuries (Operation Twist), which was unsuccessfully tried in the 1960s. 

This approach is designed to keep interest rates low to allow businesses to borrow in order to expand and ultimately hire more workers. 

Maintaining lower interest rates should also give incentive for consumers to buy houses with low interest-rate mortgages.  Yet, this theoretical Keynesian approach ignores the simple fact that the 10-year treasury note yield is already the lowest in at least 55 years, unemployment continues to rise, and housing continues to decline. 

Maybe, Bernanke will say (tongue and cheek) rates are just not low enough. 

Another over-discussed course of action is to lower the interest paid on reserves deposited at the Federal Reserve. 

Hooray! This will most certainly create more jobs and stimulate the housing sector!  I don’t know how, but it sounds good. 

I’m sure there are many other cash dispensing techniques Bernanke could use that are far beyond me. 

In fact, I wouldn’t be surprised if he reverts back to his original nickname “Helicopter Ben,” and started dropping $100 bills from aloft. 

Given the tactics employed by the Federal Reserve are, in fact, irrelevant, and that real results are all that matter, the question must be asked: Ben, how are you doing so far?

Once the Fed announcement is made and the financial markets respond with their customary enthusiasm, the cold hard reality will set in that maybe Rick Perry’s comment (treason) was on the mark. 

Well, maybe not quite treasonous, but the Fed’s actions are certainly extraneous, and Ben is definitely out of ammunition.

There will be a tremendous amount sound and fury, but remember, it signifies absolutely nothing. 


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