Mike Shedlock

Bernanke is out of tools that make any sense even to him.

Seriously, what can he do he has not already done? Given that $1.6 trillion in excess reserves did not do a damn thing to spur lending or job creation, what possible good can another $1 trillion do?

The answer is none.

Yet Monetarist fools want more QE. Monetarist fools are also hoping for "Operation Twist", technically not QE but an attempt to drive down long-term rates by buying the long end of the curve and selling the short end.

Yield Curve Table

Duration U.S. Japan Germany UK
3-Month -.01 0.10 0.97 0.51
6-Month 0.02 0.11 0.56 0.59
12-Month 0.08 0.12 0.59 0.53
2-Year 0.19 0.14 063 0.59
3-Year 0.32 0.17 0.67 0.75
5-Year 0.93 0.34 1.20 1.36
7-Year 1.52 0.59 1.63 1.84
10-Year 2.18 1.04 2.14 2.49
30-Year 3.55 2.01 2.98 3.75


Seriously, what possible good can come from say, driving down 10-year yields to say 1.75% or even 1.5% from here. Mortgage rates are at record low yields, yet new home sales are at the 1963 levels.

Clearly something other than the yield curve is holding down sales.

So what else can Bernanke do? Monetize more debt? How about .....

The Invisible Bazooka Ploy

Bloomberg reports Bernanke Says Fed Still Has Stimulus Tools, Doesn’t Signal He’ll Use Them
Federal Reserve Chairman Ben S. Bernanke said the central bank still has tools to stimulate the economy without providing details or signaling when or whether policy makers might deploy them.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said in a speech today to central bankers and economists gathered at an annual forum in Jackson Hole, Wyoming. He said a second day has been added to the next policy meeting in September to “allow a fuller discussion” of the economy and the Fed’s possible response.
Translation: "I've got an invisible bazooka in my pocket and I will use it when I have to."

Bernanke is out of tools and he knows it. So does Kansas City Fed member Thomas Hoenig who says "Fed Can't Do It All, No Reason for Operation Twist to Work", Focus Should Shift to Fixing U.S. Fiscal Woes

Of course Bernanke cannot come out and say "I am out of tools".

When it gets serious you have to lie. This is serious, and his statement is a lie.

What else can he do but bluff?

He sounds like a 6-year old bragging about the size of his dog that will protect him against all evils, when the kid does not have a dog at all.

That does not mean Bernankle will not try something. Rest assured he will. I am not sure what, but it will likely be given a creative name hoping to dazzle us with the same misguided Fed policies that got us into this mess in the first place.

Bluff Working?

As of 10:00 Central the market is modestly higher. The S&P is up .8% and the Nasdaq double that. Is the bluff working?

Not really. I do not know a single person who thought today would be anything other than a sell the news event. Perhaps there is a sigh of relief that Bernanke is not doing anything, perhaps too many were looking for "down" and were already positioned that way.

Regardless, down will resume, just give it time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.