ECONOMIC WARNING!

I said this a couple of days ago when I first noticed it. Precious Metals are tracking stock indices with a high correlation.  If you don't know what that means, it doesn't matter as long as you understand that PM is no longer moving opposite from stocks. When the market tanks this time, PM will tank with it.  There could be no bottom.

Bernanke just said that the economy is improving, which it is not; that the FED has more 'tools' to use if necessary, which it doesn't; and that it will deploy them if necessary, which it can't.  Despite Europe cratering, the US stock market actually went up.  Do not play in the market.  Get anything you have out of it NOW.

Hurricane Irene is bearing down on the east coast. If it causes any major damage at all, it may break the economy – there are no funds left to help Americans.

This is from Karl Denninger at the market-ticker.org.

Denninger is a genius who tells it straight.  Why he doesn't run for office is beyond me.  I doubt he is corruptible. 

 Now this is amusing….

Chairman Ben S. Bernanke

At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

August 26, 2011

The Near- and Longer-Term Prospects for the U.S. Economy

 

Good morning. As always, thanks are due to the Federal Reserve Bank of Kansas City for organizing this conference. This year's topic, long-term economic growth, is indeed pertinent–as has so often been the case at this symposium in past years. In particular, the financial crisis and the subsequent slow recovery have caused some to question whether the United States, notwithstanding its long-term record of vigorous economic growth, might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting?

Well, yes it might.  But then again, it always was, or at least for the last 30 years it was. C'mon Ben, certainly you're aware of this chart, seeing as it came right out of your own Fed Z1!

Uh, there's no growth at all, is there?  Only more and more borrowing to produce the illusion of growth.  That's a quarterly chart, incidentally – how many quarters from 1980 to the crash in 08 did we have in which there was more economic output increase than debt increase?

ZERO!

Do we really need to go over where the problem came from that we still face, given this fact?

I can certainly appreciate these concerns and am fully aware of the challenges that we face in restoring economic and financial conditions conducive to healthy growth, some of which I will comment on today. With respect to longer-run prospects, however, my own view is more optimistic. As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.

That's a true statement.  They sucked 30 years ago due to our policies and they still do.  We've added to it, of course, with illogical and unsustainable trade and tax policies, but the groundwork certainly wasn't altered by the last four years.  They were stupid then and they're stupid now – accumulation of debt cannot form the basis of economic prosperity.  Only capital formation and improved output through capital formation can achieve that goal.

PS: Entrepreneurship and capital formation are hard.  Borrowing to fake prosperity is as easy as a scribbling a signature.  Right?

It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. In the interim, however, the challenges for U.S. economic policymakers are twofold: first, to help our economy further recover from the crisis and the ensuing recession, and second, to do so in a way that will allow the economy to realize its longer-term growth potential. Economic policies should be evaluated in light of both of those objectives.

This morning I will offer some thoughts on why the pace of recovery in the United States has, for the most part, proved disappointing thus far, and I will discuss the Federal Reserve's policy response. I will then turn briefly to the longer-term prospects of our economy and the need for our country's economic policies to be effective from both a shorter-term and longer-term perspective.

No you won't, because you won't talk about how we really got here with your, and your predecessors, assistance and active involvement.

Near-Term Prospects for the Economy and Policy
In discussing the prospects for the economy and for policy in the near term, it bears recalling briefly how we got here. The financial crisis that gripped global markets in 2008 and 2009 was more severe than any since the Great Depression. Economic policymakers around the world saw the mounting risks of a global financial meltdown in the fall of 2008 and understood the extraordinarily dire economic consequences that such an event could have. As I have described in previous remarks at this forum, governments and central banks worked forcefully and in close coordination to avert the looming collapse. The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. But notwithstanding these strong and concerted efforts, severe damage to the global economy could not be avoided. The freezing of credit, the sharp drops in asset prices, dysfunction in financial markets, and the resulting blows to confidence sent global production and trade into free fall in late 2008 and early 2009.

And what (temporarily) stopped it?  The active acquiescence and expansion of fraud!  Balance sheet, Ben, balance sheets…. specifically BANK balance sheets.  Remember Kanjorski and his quaint little committee meeting?

We meet here today almost exactly three years since the beginning of the most intense phase of the financial crisis and a bit more than two years since the National Bureau of Economic Research's date for the start of the economic recovery. Where do we stand?

That's easy – at crush depth.  Shall we go for another 50' down?

There have been some positive developments over the past few years, particularly when considered in the light of economic prospects as viewed at the depth of the crisis. Overall, the global economy has seen significant growth, led by the emerging-market economies. In the United States, a cyclical recovery, though a modest one by historical standards, is in its ninth quarter. In the financial sphere, the U.S. banking system is generally much healthier now, with banks holding substantially more capital. Credit availability from banks has improved, though it remains tight in categories–such as small business lending–in which the balance sheets of potential borrowers remain impaired. Companies with access to the public bond markets have had no difficulty obtaining credit on favorable terms. Importantly, structural reform is moving forward in the financial sector, with ambitious domestic and international efforts underway to enhance the capital and liquidity of banks, especially the most systemically important banks; to improve risk management and transparency; to strengthen market infrastructure; and to introduce a more systemic, or macroprudential, approach to financial regulation and supervision.

smiley  This is the funniest load of crap I've heard in months.  If there's such macroprudential regulation and capital levels are so strong why is it that everyone seems to think that every single European bank is about to turn into a gigantic smoking hole where it once stood?

In the broader economy, manufacturing production in the United States has risen nearly 15 percent since its trough, driven substantially by growth in exports. Indeed, the U.S. trade deficit has been notably lower recently than it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has continued to expand, and productivity gains in some industries have been impressive, though new data have reduced estimates of overall productivity improvement in recent years. Households also have made some progress in repairing their balance sheets–saving more, borrowing less, and reducing their burdens of interest payments and debt. Commodity prices have come off their highs, which will reduce the cost pressures facing businesses and help increase household purchasing power.

smiley  Now we're into the realm of just pure fancy.  The trade deficit is still ridiculously high and the premise upon which everyone is clawing for more trade deals is laughable.  These deals on a historical basis never wind up helping the US trade balance – to the contrary, the add to the flow of capital the wrong way.  Households haven't done jack; of sure, they've cut back some of their borrowing among the adults, but student loans?  Oh my…  Incidentally you might want to remember that young people are the ones most-likely to raise hell when they realize how badly you have screwed them.  The political implications of that realization, when it occurs, should be most-interesting to watch.

Notwithstanding these more positive developments, however, it is clear that the recovery from the crisis has been much less robust than we had hoped. From the latest comprehensive revisions to the national accounts as well as the most recent estimates of growth in the first half of this year, we have learned that the recession was even deeper and the recovery even weaker than we had thought; indeed, aggregate output in the United States still has not returned to the level that it attained before the crisis. Importantly, economic growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment, which has recently been fluctuating a bit above 9 percent. Temporary factors, including the effects of the run-up in commodity prices on consumer and business budgets and the effect of the Japanese disaster on global supply chains and production, were part of the reason for the weak performance of the economy in the first half of 2011; accordingly, growth in the second half looks likely to improve as their influence recedes. However, the incoming data suggest that other, more persistent factors also have been at work.

No kidding. The government replaced more than 10% of economic demand with borrowing – that is, deficit spending.  But that's not real demand, and despite the claims that this was a “short-term” policy measure there's no evidence at the bar that this is in fact the case.  It wasn't true in 2003 (despite the claims to the contrary) and it doesn't look like it's true now.

Why has the recovery from the crisis been so slow and erratic? Historically, recessions have typically sowed the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of stimulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and household incomes and provides further impetus to business and household spending. Improving income prospects and balance sheets also make households and businesses more creditworthy, and financial institutions become more willing to lend. Normally, these developments create a virtuous circle of rising incomes and profits, more supportive financial and credit conditions, and lower uncertainty, allowing the process of recovery to develop momentum.

These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.

No they're not at work to “restore” anything.  There's been a mere $500 billion in aggregate debt load taken out of mortgages, yet Zillow and others report $9 trillion in losses.  Where's the rest?  Why it's sitting on balance sheets in the form of loans claimed to be good that are not.  This inhibits capital formation, lending and economic activity.  It is exactly what Japan allowed to occur and why they had two lost decades, and we're making the same mistake.

Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time–with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines–the rate of new home construction has remained at less than one-third of its pre-crisis level. The low level of construction has implications not only for builders but for providers of a wide range of goods and services related to housing and homebuilding. Moreover, even as tight credit for some borrowers has been one of the factors restraining housing recovery, the weakness of the housing sector has in turn had adverse effects on financial markets and on the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners “underwater” on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well. Financial pressures on financial institutions and households have contributed, in turn, to greater caution in the extension of credit and to slower growth in consumer spending.

Fraudulent balance sheets will do that.

I have already noted the central role of the financial crisis of 2008 and 2009 in sparking the recession. As I also noted, a great deal has been done and is being done to address the causes and effects of the crisis, including a substantial program of financial reform, and conditions in the U.S. banking system and financial markets have improved significantly overall. Nevertheless, financial stress has been and continues to be a significant drag on the recovery, both here and abroad. Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling. It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth. The Federal Reserve continues to monitor developments in financial markets and institutions closely and is in frequent contact with policymakers in Europe and elsewhere.

Again, fraudulent balance sheets and inadequate capital will do that.  But heh, it's good for the banksters, right?

Monetary policy must be responsive to changes in the economy and, in particular, to the outlook for growth and inflation. As I mentioned earlier, the recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting, and that temporary factors can account for only a portion of the economic weakness that we have observed. Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters. With commodity prices and other import prices moderating and with longer-term inflation expectations remaining stable, we expect inflation to settle, over coming quarters, at levels at or below the rate of 2 percent, or a bit less, that most Committee participants view as being consistent with our dual mandate.

Try reading for content on the Federal Reserve Act, jackass.  The word stable means “unchanging.”  But the black letter of the law doesn't matter to you, does it?  In point of fact I know it doesn't, for one simple reason: There is no penalty clause.

We need to bring back the original Coinage Act's punishment for intentional debasement of the nation's currency.

In light of its current outlook, the Committee recently decided to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, in the statement following our meeting earlier this month, we indicated that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.

In other words, after telling you that one of the reasons for the non-recovery is a lack of confidence we then told you that we think the economy is going to suck through 2013.  This, we believe, will enhance confidence in the economy.

In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.

I (Bernanke) said the economy will suck through 2013.

Economic Policy and Longer-Term Growth in the United States
The financial crisis and its aftermath have posed severe challenges around the globe, particularly in the advanced industrial economies. Thus far I have reviewed some of those challenges, offered some diagnoses for the slow economic recovery in the United States, and briefly discussed the policy response by the Federal Reserve. However, this conference is focused on longer-run economic growth, and appropriately so, given the fundamental importance of long-term growth rates in the determination of living standards. In that spirit, let me turn now to a brief discussion of the longer-run prospects for the U.S. economy and the role of economic policy in shaping those prospects.

Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if–and I stress if–our country takes the necessary steps to secure that outcome. Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it. Good, proactive housing policies could help speed that process. Financial markets and institutions have already made considerable progress toward normalization, and I anticipate that the financial sector will continue to adapt to ongoing reforms while still performing its vital intermediation functions. Households will continue to strengthen their balance sheets, a process that will be sped up considerably if the recovery accelerates but that will move forward in any case. Businesses will continue to invest in new capital, adopt new technologies, and build on the productivity gains of the past several years. I have confidence that our European colleagues fully appreciate what is at stake in the difficult issues they are now confronting and that, over time, they will take all necessary and appropriate steps to address those issues effectively and comprehensively.

They hell they will (businesses investing in the US); there's no reason for them to do so.  Both fiscal and monetary policy are decisively punitive toward capital formation.  If you want to understand this, read about it from the perspective of an entrepreneur, because until that changes my capital is not going to go into forming new enterprises and neither will that of many other people.  We're tired of the BS and empty words that are immediately followed by being serially violated.

This economic healing will take a while, and there may be setbacks along the way. Moreover, we will need to remain alert to risks to the recovery, including financial risks. However, with one possible exception on which I will elaborate in a moment, the healing process should not leave major scars. Notwithstanding the trauma of the crisis and the recession, the U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. Our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. And our country remains a technological leader, with many of the world's leading research universities and the highest spending on research and development of any nation.

Uh huh. Universities eh?  Now you're going to claim that there's no education debt bubble? smiley

Of course, the United States faces many growth challenges. Our population is aging, like those of many other advanced economies, and our society will have to adapt over time to an older workforce. Our K-12 educational system, despite considerable strengths, poorly serves a substantial portion of our population. The costs of health care in the United States are the highest in the world, without fully commensurate results in terms of health outcomes. But all of these long-term issues were well known before the crisis; efforts to address these problems have been ongoing, and these efforts will continue and, I hope, intensify.

No they won't.  My property taxes have gone up while the value of my house (as measured by the market) has gone down.  I'm not alone – this is true for most people.  We get crap results and it can't be fixed by Leviathan.  The correct solution is to end “free” public education and if the states wish, implement a voucher system that you can cash anywhere, or if you homeschool, keep – provided the kid learns.  But that would eviscerate the teacher unions, and so we can't have that.  We could have volunteer fire departments, but that would eviscerate the fire unions, so we can't have that.  We could have private airline security that was accountable when they blew it, but that would eviscerate the TSA, so we can't have that.  And we could have a Sheriff with citizen watches, an armed population that can carry concealed or openly as they wish without permits and yes, even posse when necessary but that would eviscerate the police unions, so we can't have that.  We could bar price-fixing, reimportation bans and cost-shifting in medicine, but that would put a stop to all the outright scams in the medical industry, so we can't have that.

In short, none of what you talk about is going to happen, so the results won't either.

The quality of economic policymaking in the United States will heavily influence the nation's longer-term prospects. To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies.

Bah.  If you wanted to encourage productive investment as opposed to ponzi schemes, speculation and consumption you would immediately raise interest rates so that no part of the curve was negative against price inflation + economic output growth, and keep them there.

That's because the way you incent borrowing only for productive purposes is to make it cost money in real terms.  You're a liar Bernanke, as you've not done this, and that's a fact.

The Federal Reserve has a role in promoting the longer-term performance of the economy. Most importantly, monetary policy that ensures that inflation remains low and stable over time contributes to long-run macroeconomic and financial stability. Low and stable inflation improves the functioning of markets, making them more effective at allocating resources; and it allows households and businesses to plan for the future without having to be unduly concerned with unpredictable movements in the general level of prices. The Federal Reserve also fosters macroeconomic and financial stability in its role as a financial regulator, a monitor of overall financial stability, and a liquidity provider of last resort.

The Federal Reserve Act mandates stable prices.  Unchanging.  For 100 years your organization has repeatedly, serially and intentionally violated that mandate.  You have created and continue to promote the very instability you claim to dislike.

Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view–the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

Wage and environmental parity tariffs, either The Fair Tax or a flat tax with no deductions and no corporate income tax, kicking out all the illegal aliens and forbidding new ones from coming in (with strong enforcement under the law), ending the bogus medical abuse system that is bankrupting the country and a coherent energy policy.  All are needed and if implemented would resolve these issues, albeit not without serious pain first.  But the pain is unavoidable.  You advocate none of them. 

Go home you fraud.

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.1 The increasing fiscal burden that will be associated with the aging of the population and the ongoing rise in the costs of health care make prompt and decisive action in this area all the more critical.

Yep.

Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. Fortunately, the two goals of achieving fiscal sustainability–which is the result of responsible policies set in place for the longer term–and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

Wrong.  A debt spiral cannot be broken with slower spiraling.  You have to stop it and yes, it's going to suck.  That cannot be avoided.  You and your cohorts have run this line of crap for thirty years and it has been followed butnever worked

That's because it can't as it is a fundamentally bankrupt set of prescriptions.

Fiscal policymakers can also promote stronger economic performance through the design of tax policies and spending programs. To the fullest extent possible, our nation's tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. We cannot expect our economy to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face.

See above.

Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions. The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses. Although details would have to be negotiated, fiscal policymakers could consider developing a more effective process that sets clear and transparent budget goals, together with budget mechanisms to establish the credibility of those goals. Of course, formal budget goals and mechanisms do not replace the need for fiscal policymakers to make the difficult choices that are needed to put the country's fiscal house in order, which means that public understanding of and support for the goals of fiscal policy are crucial.

This is simple.  That which we as a population refuse to pay for with current taxes we cannot have.  That's the beginning and end of it.  Advocate and press for that or you're a fraud, as you're still trying to find a way to prop up the Ponzi.

There isn't one.

Economic policymakers face a range of difficult decisions, relating to both the short-run and long-run challenges we face. I have no doubt, however, that those challenges can be met, and that the fundamental strengths of our economy will ultimately reassert themselves. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability.

Riiiight.

The Bernanke speech.

I'll be asleep when he outs with the lies, but here is what will happen.  He won't announce QE3.  He'll say the economic indicators are all going up and we don't need it.

He won't say that the government is cooking the books to get the numbers up.  Based upon that nonsense, the market will take a ride up. It may last into next week.  Pretty soon, however, the sheeple will grasp that Bernanke has fired his big guns and has nothing left.  When that settles in, the market will tank yet again, but this time it won't stop at 10,800.

Bernanke will run out and make another speech, and maybe start QE3, but we now know that TARP, QE1 and QE2 did nothing to solve any of the problems and neither will QE3.  And then Europe will start dropping like dominoes and then so will we.  

We are already in Depression v2.0 – but no one is willing to admit it. 

Look again, guys!

Buffet's purchase of $5Bil of BAC a day after he visited the President isn't a validation that the economy is stabilizing or that B of A is a good buy.  It was a set-up.  Buffet got 6+% guaranteed when the best anyone else can get is 1%. – and got a guaranteed price for 700,000 additional shares of B of A for the next ten years at just over $7 if he wants them.  They go up a couple bucks and he's made ANOTHER billion.

The market is still going to tank.  Doesn't anyone 'get' that he just got paid a billion dollars to put on a show?  WTF!