Ron Paul, who is one of four remaining GOP candidates running for President, has returned to Washington D.C. to address Ben Bernanke of the Federal Reserve System. Inflation, budgets, deficits, and the US Dollar currency were topics discussed at the hearing of the House Financial Services Committee. Ron Paul consistently criticized the anti-free market US Financial and Monetary system throughout his 30 year political career in Congress. He is also the only Presidential Candidate who forecasted the housing bubble and the inflationary price actions as a result of the debasing of the currency by the quasi-private Federal Reserve.
With the markets in a steep downturn since the US credit downgrade announcement by S&P, many traders and investors carefully listened to the FOMC meeting in anticipation of an announcement that the Federal Reserve would interfere in the markets through credit injection. Bernanke didn’t confirm the much anticipated next round of Quantitative Easing. Instead the Fed chairman released a statement in which he admits that the economic recovery is not as strong as previously anticipated:
“Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates 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. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.”
With the FOMC meeting at 2:15pm the markets sold off rather rapidly as no announcement was made about QE3. Failing to confirm a capital injection in combination with the negative economic growth outlook resulted in new session lows for stocks. It wasn’t until the DJIA reached a session and week low of 10603 around 2:45pm that money flooded to the markets. Within the last 75min of market activity the DJIA gained 639 pts to close at a day high of 11,242. That begs the question, where did that injection of capital come from? The President’s Working Group on Financial Markets? Or did the “policy tools” to promote price stability by any chance include the next round of Quantitative Easing unannounced?
In February of this year we wrote an article about the overbought status of the stock market. In “Why Investing In US Stocks Or Treasuries Is A Bad Idea” we highlighted how companies benefitted during this artificial recovery that was made possible with accounting regulation changes, bailouts, foreclosure moratoriums, and massive infusion of newly created debt into the markets. It wasn’t a fundamental recovery but merely a re-inflating of the bubble.
Jim Rogers is talking with Maria Bartiromo about the state of the US Economy, the future of the US Dollar, the emergence of China and the recent US Stock market correction.
“The U.S. is the largest debtor nation in the history of the world. The debts are going through the roof. Would you keep lending money to somebody who’s spending money and not doing anything about it? No you wouldn’t.”
Under the Freedom and Information Act, Bloomberg reporter Mark Pittman initiated a lawsuit against the quasi-private Federal Reserve to release the details of its financial activities following the Lehman Collapse. Last summer Manhattan Chief U.S. District Judge Loretta Preska ruled against the Federal Reserve as the central bank “improperly withheld agency records” following Bloomberg’s request under the Information Act.
Ben Bernanke and other Federal Reserve officials voiced concern that public knowledge about the Fed discount window lending activity could create panic and reduce their efficiency as a lender of last resort. Former Federal Reserve vice chairman Donald Kohn stated:
“Having these names made public, or the threat of having them made public, could well impair the efficacy of a key central bank function in a crisis — to provide liquidity to avoid fire sales of assets — because banks will be reluctant to borrow.”
Since banks draw from the last resort lender in times of financial distress knowledge about the lending activity could result in loss of confidence in the financial institutions that borrow from the Fed’s discount window. Bernanke sees this as a potentially negative event as people could panic and withdraw their funds from those struggling institutions. WTF Finance makes the case that greater transparency would allow for better decision making as people could come to their own conclusion of whether it is financially safe to do business with a certain bank or whether they should withdraw their savings. Investors should also have the right to that information as this critical last resort activity could have a potentially serious impact on the performance of their holdings.
The Fed released the 29,000 pages of financial activity but given its operational secrecy who is to say that this information is accurate and reflects the lending activity that truly took place during the crisis? Bloomberg reporter Mark Pittman who initiated this lawsuit unfortunately is no longer with us as he passed away during this legal battle.
Jim Rogers is a Singapore based American investor who co-founded the Quantum Fund with George Soros in the 1970s. Author of numerous books, Rogers is an outspoken critic of the Federal Reserve System and an advocate of free markets.
The Breakout show with Matt Nesto and Jeff Macke hosted Jim Rogers for an interview to discuss the Federal Reserve System, Ben Bernanke and the manipulation of markets. Jim Rogers shares his views about the stock market and why he is short technology stocks through tech ETFs and why he is bearish US Treasuries.
“If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia.” – Jim Rogers