WOW: Perry Doubles Down On Bernanke "Almost Treasonous" Comment

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Texas Gov. Rick Perry says he is "not a fan," of Fed Chairman Ben Bernanke and stood by his remarks that printing more money would be "almost treasonous."

Perry called his comments "a statement of fact," drawing resounding applause from the friendly audience at the CNN-Tea Party debate debate.

His statements drew criticism from moderate Republicans, including Karl Rove and former Vice President Dick Cheney.

As Perry continues to cater to the conservative base, he raises questions with the party mainstream over whether he is electable. Expect to be hearing these comments again over the coming weeks and months again.

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The Huge Story In Washington: Fiscal Policy Rises From The Dead, As Bernanke Runs Low On Bullets

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Coming as it did on a busy day, Ben Bernanke's speech in Minnesota this past Thursday was probably overlooked, but it was hugely important.

Here you had the Chairman of the Federal Reserve barely touching on monetary policy (at a time when everyone is obsessed with the QE3 question) and instead talking mostly about fiscal policy, and the folly of premature retrenchment.

Then, perfectly, later that night, Barack Obama announced a brand new stimulus, which will be difficult to pass, though not totally impossible.

The bottom line is this: Whereas not long ago, it looked like all stimulus from now on would have to be from the monetary side, fiscal policy has come back from the dead, and is now back in the mix. Bernanke, whose efforts to goose the economy have been mixed (at best), has to be pleased.

And generally, this is a positive development for the economy. The bottom line is that when the private sector is as water-logged with debt as it is, making money cheaper to borrow does very little. Only the addition of new money (via more spending) has much hope of moving the needle.

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Bernanke Smiles And Actually Says Something Really Funny

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The Real Bernanke Bombshell: He's Going Short Monetary Policy

  x You have successfully emailed the post. Looking back over Bernanke's assessment on the economy, one thing really stands out: How much he talks about spending and fiscal policy.

By our count he says the word "fiscal" 16 times.

"Monetary" shows up just 6 times.

The whole speech is basically one long message imploring Obama and Congress not to go into austerity mood prematurely.

While he does talk about possible tools available to the Fed, he obviously doesn't think the options are that exciting, and in light of the balance sheet recession (which Bernanke now seems to grasp) this makes sense: nobody wants to borrow so lending money at a cheaper rate doesn't do much.

Anyway, the dollar is rallying post-speech, perhaps on this idea that Bernanke's zeal for more easing seems limited.

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GOP Candidates Want To Get Rid Of Bernanke

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The Republican Presidential candidates have soured on Fed Chairman Ben Bernanke — who was appointed by President George W. Bush in 2006.

During the NBC/POLITICO debate Wednesday night, Newt Gingrich and Mitt Romney joined the growing chorus of Republicans critical of the nation's lead central banker.

Former Vice President Dick Cheney criticized the GOP field earlier Wednesday — and particularly Perry — for their criticism of Bernanke.

Where they stand on the Fed Chairman:

Former Speaker of the House Newt Gingrich: "I'd fire [Bernanke] tomorrow"

Former Mass. Gov. Mitt Romney: "I'd be looking for someone new" adding QE2 didn't work and that Bernanke has "overly inflated the amount of money he has printed."

Front-runner Texas Gov. Rick Perry's position on Bernanke is infamous for saying it would be "almost treasonous" for Bernanke to print more money.

Rep. Ron Paul has repeatedly called for eliminating the Fed — even placing a dunk tank with a Bernanke look-alike at his tent during the Iowa Straw Poll last month.

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Bernanke Finally Admits Economic Realities And Still The Fed Does Nothing

One positive thing in Bernanke’s speech — I’m trying to look on the bright side — is that for what seems to me the first time he has more or less acknowledged that we are not, in any real sense, experiencing a recovery:

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.

Indeed. I usually illustrate the unrecovery using the employment-population ratio, but here’s an alternative, the ratio of real GDP to the CBO estimate of potential (which is the level consistent with stable inflation, not the absolute maximum the economy can produce):

Does that look like a solid if slow recovery? Of course not.

Ideally, the realization that the economy is not healing would spur the Fed to take the kind of action Bernanke recommended a decade ago when Japan was similarly in a long-term trap.

Not yet, however.

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In Case You Missed It, Bernanke Is Signaling An Announcement On September 21

I went to play golf this morning rather than listen to the Bernankster. After all, I knew what he was going to say. I read about the speech in the Wall Street Journal a day before.

I (and many others) have made note of the fact that the WSJ’s crack reporter, Jon Hilsenrath, is the mouthpiece for Big Ben. This is what Jon said had to say last night. Do you think he talked to Bernanke before he wrote this? (15 hours before speech time)

Federal Reserve Chairman Ben Bernanke isn’t likely to break much new monetary-policy ground in his Jackson Hole speech Friday

To be sure, a number of others who have a public view on Fed policy also commented that the speech from the Chairman would bring nothing new. But the consistency of Hilsenrath’s words and Bernanke's actions is no coincidence.

If you believe that Hilsenrath gets the whisper from Ben, then you might want to consider what Jon had to say after the speech was delivered:

Fed policy makers will be discussing their options at a September policy meeting which has been expanded to two days instead of one to explore whether the Fed should do more.

Jon then quotes from the speech:

“The committee is prepared to employ its tools as appropriate to promote a stronger economic recovery.”

Then Jon tips Bernanke’s next move:

it is worth remembering, when the Fed has said it is prepared to act during this long-running economic crisis, it generally has acted.

Bernanke is tipping his hand (via Jon) in order to prepare the market for what is to come in a few weeks. This is a heads up to the insiders that more monetary gas is in the works. The stock market’s first reaction to today’s non-event was to sell off hard. But after the word got around that this was just a delay (and a short one at that) stocks caught a bid. Basically, the plan by Bernanke to leak his intentions worked.

I think there are two reasons that Bernanke chose not to announce policy changes at Jackson Hole:

I) He wants it to look to the world (and a few Republican politicians) as if the Fed’s actions are being done only after deep deliberation and discussion. That is why the next meeting has been changed to a two-day format.

There will be a two-day circus of Fed Governors looking very serious. But that is just for the TV audience. This is Ben’s show. He has the votes. He is steering the ship. The decisions have already been made. Ben’s going to do something on 9/21.

II) Ben had to put off announcing more monetary oomph today because there is something that has to happen first. There has to be something that comes out of the EU before Bernanke makes his next move.

I’m not sure what happens next in Europe. I’m of the opinion that something needs to be done, and it needs to be done quickly.

There are a number of things that the ECB could do. They could (1) significantly expand their effort at QE (the number starts at E 1 trillion). They could (2) drop official lending rates close to zero. They could (3) agree to issue E bonds.

Some combination of those actions would buy some more time. The problem is that all of those steps have been discussed and pretty much firmly rejected. There is a fourth option. The strong hands in the EU could give in to the markets and let some of the PIIGS (starting with Greece) float on their own. This option has also been previously rejected.

I think it is time for serious consideration for this. I can’t think of a single person who has a voice in these matters that actually believes that Greece can be saved with more debt. We shall see, possibly as soon as Sunday night.

Yet another option is to get the US Fed into the picture with dramatic draw-downs on existing USD swap lines (Starts with $500 Billion). This is another possibility for this weekend or next.

My last point is one that I have made many times before, but feel obligated to repeat.

I flat out hate that this Fed is conducting monetary policy through leaks, a wink and a nod and innuendo. 

There is far too much at stake to make a circus out of the process. It feels like we should just put up a tent, because a three-ring circus is what we are getting non-stop. And Bernanke is the strong man in the middle ring.

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ROUNDUP: Here's What Everyone Expects From Bernanke At Jackson Hole

As Ben Bernanke's big speech at Jackson Hole Wyoming approaches, everyone has weighed in on whether he will hint at a third round of quantitative easing or other forms accommodation.

On one hand the U.S. recovery is slowing and global economic sentiment has worsened, but on the other inflation is higher than it was in 2010 when Bernanke launched QE2, and recent economic data hasn't been entirely terrible. Bernanke is also in a tough spot, since three regional Fed bank presidents voted against his decision to keep interest rates ultra low.

Back in June, Bill Gross co-CIO of PIMCO had said on twitter, "next Jackson Hole in August will likely hint at QE3 / interest rate caps."

But there has been a sea change since then, and now the predominant opinion is "don't get your hopes up."

In an editorial to the Financial Times, PIMCO's other chief Mohamed El-Erian argues that Bernanke should stave off another round of easing:

"...Rather than embark on another policy initiative (“QE3”) with questionable net benefits, it would be better for Mr Bernanke to use his Jackson Hole speech to reframe the national policy debate and, in the process, set the stage for President Barack Obama’s key economic announcements on September 5.

He should do so in three steps. First, acknowledge that the considerable headwinds undermining economic growth and jobs have important and growing structural elements. Second, explain why a sustainable solution must go well beyond Fed financial engineering and, specifically, incorporate co-ordinated structural reforms on the part of agencies responsible for housing, the labour market, public finances, infrastructure and directed credit. Third, and most delicate, caution that another round of unconventional Fed policies would only be effective if accompanied by these other policy initiatives.

Jim Paulsen of Wells Capital Management also argued against QE3:

"We have created a very bad precedent… The financial markets whine and policy officials jump. The Fed has become the Pavlov’s dog of the stock market, and this is a horrible precedent for policy makers."

Meanwhile John Silva chief economist at Wells Fargo said the economy needs structural changes (via Marketwatch):

“The Fed has shot the big cannons. They are now playing the game with smaller ammunition

Mick Levy chief economist at Bank of America followed in the same thread saying he hoped Bernanke would discuss that mere changes to monetary policy would be inadequate to boost the economy (via Marketwatch):

All the targeted counter-cyclical stimulus is not going to address the huge pocket of distressed properties… The slowdown is not the fault of not enough liquidity."

Earlier this month Nouriel Roubini said the Fed would announce QE3 (via WSJ):

He will announce at Jackson Hole even more quantitative easing… Some variant of additional monetary easing. Keeping the fed fund rate at zero is one step. Buying more treasuries is another one. Trying to target directly the long-rates is another one, price-level targeting, lengthening the maturity of treasuries there is a combination of policies. We'll have QE3, maybe QE4, maybe QE5 if we're in the long haul of near depression.

He also took to twitter to say QE3 had begun in Japan and Switzerland with their currency interventions. He added, "The Fed will eventually get to QE3 but it will be too little too late."

European Central Bank president Jean-Claude Trichet, MIT professor Esther Dufflo and Harvard University professor Dani Rodrik will also speak at Jackson Hole this weekend.

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