Wednesday, February 10, 2010

More Nonsense From Ben the Bankster

Bernanke has again outlined steps to be taken to "withdraw the stimulus," with the predictable short-term effect on markets:

Bernanke said the Fed will likely start to tighten credit by boosting the interest rate it pays banks on money they leave at the central bank. Doing so would raise rates tied to commercial banks' prime rate and affect many consumer loans. Companies and ordinary Americans would pay more to borrow.

But in prepared remarks to a House committee, Bernanke indicated the Fed is still months away from raising rates or draining most of the stimulus money it injected to rescue the financial system. He said the recovery still needs support from record-low interest rates.

The Fed chief used his remarks to explain how the central bank will try to withdraw the stimulus money without tipping the economy back into recession.

Other measures for "withdrawing the stimulus" are mentioned later: reverse repurchases, "CD's for banks," etc. If the FED does this, the economy will "tip into recession." Right where it should be. It will be interesting/nauseating to see the circumlocutions that will be employed by the FEDs and their Keynesian apologists when the plan is either a) never implemented, because they suddenly realize what will happen if it is, or b) blows up in their faces when they actually try to implement it. Will they at last come to the proper conclusion: that that which is arbitrary is meaningless? That monetarist and Keynesian economic theories are only so much nonsense and wishful thinking? That central bankers and politicians are not gods who can conjure wealth from thin air? Never. Let the excuse making and yarn spinning begin. Addendum: An interesting train of thought occurred to me the other day concerning the tax deduction for new home purchases. Many buyers are considering making purchases in over the next month or so to collect the $8000 tax credit, which expires in April. It seems to me that this is not to their benefit in the slightest. Every buyer over these two months gets this "benefit," ensuring that they are able to bid up prices against one another for houses on the market. The primary beneficiaries are house sellers, not buyers, and particularly banks unloading foreclosed properties, as they are more likely to be bought since they are being offered at prices far lower than most sellers would consider. They are at the margin, so they benefit the most by seeing marginal prices bolstered. Normal sellers aren't even market participants at this point, skewed as their frames of reference are. In other words, when the credit expires, expect house prices to fall, oh, I'm guessing $8000. Potential buyer: What will it have benefited you to get the tax credit? Potential seller: you are competing against foreclosures. Plan accordingly. The banks are laughing at us.

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