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Bernanke Has Gone Rogue

Written by Gary North on June 28, 2013

The Federal Reserve is in damage-control mode. Last week’s announcement by Bernanke unilaterally scrapped the official unemployment rate target of the Federal Open Market Committee (FOMC), which sets monetary policy. I reported on this on June 25.

He raised the target from 6.5% to 7%. This indicated that the FOMC has decided that it could stop inflating earlier than previously reported. This is what Bernanke said: QE3 may “taper off” this year.

His announcement sank stock markets around the world. It created a panic-driven crisis based on the idea that the FOMC might stop the printing presses early.

Mortgage rates are up by a third from last December, when the Federal Reserve adopted QE3. The FOMC said at the time that it did this to keep mortgage rates down. The policy has blown up in the FED’s face.

To the rescue comes the #2 Federal Reserve official, William Dudley, the president of the Federal Reserve Bank of New York, which is the most influential of the 12 privately owned regional FED banks. Before he was president, he was the chief economist for Goldman Sachs. In short, he is the #2 person of influence in the Federal Reserve System.

The Bloomberg headline said it well: “Federal Reserve officials intensified efforts to curb a growth-threatening rise in long-term interest rates, seeking to clarify comments by Chairman Ben S. Bernanke that triggered turmoil in global financial markets.”

Clarify, my foot. They are seeking to rein in Bernanke, who on his own authority changed the targets. Dudley is the Vice Chairman of the FOMC. They are trying to put out the interest rate fire that Bernanke’s comments last week produced in the bond market and mortgage market — the targets of QE3.

Bernanke has gone rogue. Dudley is trying to bring him under control. He is trying to persuade investors that QE3 is here to stay, and that the FED’s monetary inflation will continue to prop up the faltering U.S. economy.

Bloomberg reports that he insisted that any reduction of asset purchases would not represent a withdrawal of stimulus.

How’s that again? A reduction of money creation to buy government bonds and Fannie Mae/Freddie Mac mortgage bonds would not be a reduction in the stimulus? I am afraid I do not understand. The FOMC announced the program in December by announcing an increase in purchases. That is how the FOMC creates the supply money: by purchases of assets. If it ceases to purchase assets, it automatically decreases the stimulus.

Dudley also insisted that an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.” He said bond purchases — this is stimulus — will continue if economic performance does not meet the FED’s forecasts.

But what are these forecasts? He did not say.

He was joined by FED governor Jerome Powell and the Atlanta FED president Dennis Lockhart. Bloomberg said they “sought to damp expectations that an increase in the benchmark interest rate will come sooner than previously forecasted.”

The word “damp” means “put out fires.”

The FED is in damage-control mode. Bloomberg quotes Dudley: “Such an expectation would be quite out of sync with both FOMC statements and the expectations of most FOMC participants.” This is what I reported on June 25. Bernanke’s announcement was a unilateral scrapping of the FOMC’s official boilerplate statement, which it publishes word for word every six weeks.

The FED’s regional leaders are dealing with Bernanke, who is clearly preparing for his departure on February 1. Bernanke is asserting his independence. Dudley and others are trying to put out the fires until he departs.

Their approach is to say that the markets misunderstood Bernanke. The markets in fact heard Bernanke loud and clear. The FED officials are doing their best to pull Bernanke back into the pen. They are trying to make it look as though he has not gone rogue. A rogue Chairman would indicate dissent in high places. That would rattle the markets. So, they pretend that investors misunderstood Bernanke. It papers over what has happened.

We will now see who is in charge.

Continue Reading on www.bloomberg.com

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9 thoughts on “Bernanke Has Gone Rogue

  1. It does not matter who says what or whom is in charge….it is all a house of cards that is going to coming crashing to the ground. America has no stomach for doing what is right…..I'm so dumbfounded at this….math is math no matter how you try to say it is not! Helicopter Ben is out the door and setting his stage for departure.

  2. Bob Marshall says:

    Even since the Panic of 1907, the incident that was used to convince the American public that a central bank was needed to protect against this from reoccurring and in 1913 led to the Federal Reserve Act signed by President Wilson made debt slaves out of the majority of citizens. The creation of the IRS sealed the deal. Not only were the bankers protected against any losses but the taxpayers would be there to bail them out. One hundred years and the central banks still control our currency.

  3. Rabelrouser says:

    And our currency is false, has no value, is nothing more than an ledger mark that "represents" value, but has none. This form of manipulation is not by accident, and the FOMC is playing their supporting role in this "show"; their words are for public consuption so that "money" will flow. The commodities manipulation reveals that real value products are being "sucked up" in an effort to create more power and real wealth for the select few, while leaving the average person out to dry when the unsustainable Lending/spending spree stops. Which will happen in the not too distant future.
    100 years of an illegal and corrupt private banking system that runs this, and many other governments with the power of a super "loan shark mafia" that charges compound interest on all "loans" has brought us to this point.
    The average person does not care as long as they have what they want today, but given the enormmity of this system, and the actors roles, the average person is the one who will suffer. All because they refused to investigate when presented with the truth of the matter. Read: Creature From Jykell Island.

  4. Rabelrouser says:

    The worst part of an article like this is that it reveals the depth of the core problem of this nation, but is ignored because it is not "Political Sexy" enough to argue about.

  5. Bob…you have stated precisely why we are where we are today…..this has been the biggest scam on the people ever! We will doomed to this slavery until the Central Bank is dissolved and we return to the gold standard. Fiat printing of money has never worked and never will no matter how much they try to spin it! It is stunning to look back just in my lifetime to see this devaluation of my dollars….my first condo in Calif…$20K….my first new pickup…$3200….now, $200K and $30K…this is the middle class nightmare!!!

  6. Yeah, I used to fill my Datsun up for 3.50. Same size tank now, $35.00

  7. John…I forgot to conclude that the pay for carpenters today is actually less than in the 70's! So we get it from both ends! Isn't government great!

  8. Old School Repub says:

    Read "The Creature from Jekyll Island" by G.Edward Griffin.

  9. I don't believe Americans understand what the printing of 85 billion dollars each and every month has done or will do to our overall economy. Rumor has it that Bernanke is stepping down @ the end of this year. I believe he is bailing out of the sinking ship before it goes down. We witnessed the tremblors in the stock markets last week with talk of stopping the stimulus. They can't continue to print money. When it stops, be so prepared for a stock market nose dive and long term!