Ben Bernanke
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How Ben Bernanke Is Destroying Your Retirement
Uncle Sam has an unfunded pension liability of $800 billion.
Corporate pension funds have an unfunded liability around $400 billion.
State and local pension funds have an unfunded liability in the tony neighborhood of $3 trillion.
That's over $4 TRILLION in UNFUNDED pension funds.
And if you're not lucky enough to be in a "defined benefit" pension plan (which fewer and fewer people are these days) there's undoubtedly an "unfunded liability" in your own savings - in other words, you haven't saved enough to retire.
It's a huge problem and it's getting worse. And there's one individual to blame for all that $4.2-plus trillion of money we need to find - Ben Bernanke.
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7 Reasons Not to Trust the Bernanke Testimony to Congress
As usual, the markets were hanging on every word of the Bernanke testimony to Congress today (Wednesday).
By now, everyone should know better.
In the years that U.S. Federal Reserve Chairman Ben Bernanke has been a member of the Fed - both as a member of the Board of Governors from 2002 to 2005, and in his two terms as chairman beginning in 2006 - he has been stupendously wrong time and time again.
Bernanke gave the markets what they wanted by hinting that his monetary easing policies won't change any time soon, pushing both the Dow Jones Industrial Average and the Standard & Poor's 500 Index up more than 0.5% in midday trading.
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Why We Can't Avoid Ben Bernanke's "Monetary Cliff"
When it comes to the Federal Reserve, an accurate "reading of the tea leaves" means paying attention to all of the fine print.
And while the markets cheered last week's FOMC meeting with yet another rally, a deeper look at Ben Bernanke's press conference left me with a slightly different take.
Sifting through the Fedspeak, it became obvious that the Fed is now lining up a "monetary cliff" that's bigger than the fiscal one we spent the last half of 2012 worrying about.
Let me explain...
Here's Where the Fine Print Gets Interesting
According to the release from last week's meeting, the Fed will continue to purchase $85 billion of Treasury and agency bonds every month. Doing so, Bernanke explained that at some point he does expect to reduce that amount. However, he also explained that the recent string of good unemployment data (five months above 200,000 new jobs) wasn't enough yet for him to make the change.
The Fed also stated that it expects a "considerable period" to elapse between the conclusion of the purchase program and raising rates.
Interestingly, that matched with the intentions of the 19 Federal Open Market Committee members. Only a few expect to raise rates before the end of 2014, compatible with the current Fed outlook.
But here's where the fine print gets really interesting: All but one of the members now expects to raise rates in 2015.
What's more, they said once they start, they won't be shy. In fact, the average opinion would put rates at 1.35% by the end of 2015. It may not seem like much at first glance but that's actually quite a big move from six-plus years at zero. And further on into the future, the consensus long-term goal was for rates to hit 4%.
Of course, with inflation around 2%, my goal for the Fed funds rate would be higher than 4% and a lot higher than 1.35% by the end of 2015. But alas, I'm not the Fed chief.
The point is that with the Fed expecting the economy to grow steadily between now and then, and no immediate sign of even a slackening in bond purchases, the turn by the Fed supertanker in late 2014 and 2015 is going to be pretty abrupt.
In fact, chances are it will cause a big wake, and drown quite a few people who have become used to current policies.
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There's More Than One Way for the Fed to End QE
The market has been looking ahead to the inevitable end of the U.S. Federal Reserve's quantitative easing (QE) program with considerable apprehension.
Most market observers expect the end of the Fed's QE asset-purchasing program to immediately result in a sharp sell-off in bonds and higher interest rates.
This is expected to hit the mortgage-backed securities (MBS) market, where the Fed has been very active, quite hard.
As part of a policy to communicate more openly with the markets, Chairman Ben Bernanke and the Fed have been regularly launching QE exit strategy trial balloons into the market to see how quickly they get shot down.
The latest exit strategy that has been gaining traction is the idea of "tapering" QE asset purchases so that there isn't a sudden halt to supply of money flowing from the Fed into the Treasury and MBS markets. The markets seem to be pretty sanguine about the tapering idea, although there has been no specific suggestion on timing.
Instead, the markets have been concentrating on how the Fed will get rid of all of the assets it has accumulated on its balance sheet during the QE program.
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Prepare for Years of "QE Forever' with Ben Bernanke at the Helm
When Ben Bernanke testified before Congress Tuesday and Wednesday, he staunchly defended his easy- money policies like quantitative easing, or "QE Forever."
"We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery," the Federal Reserve chairman said.
Bernanke added the central bank takes "very seriously" the excessive risk-taking its dovish policies could provoke and is watching markets carefully.
He maintained that the bank's accommodative monetary policy has "supported real growth in employment and kept inflation close to our target [2%]."
But some Fed officials are growing concerned about quantitative easing - the Fed's purchases of $85 billion in securities a month - and believe it would be prudent to slow or stop the buying well before the end of 2013. Esther George, president of the Federal Reserve Bank of Kansas City, is one of the biggest hawks in the Federal Open Market Committee (FOMC) this year, citing unease about economic stability and inflation.
"While I share the objectives [of the FOMC]," George said in a Feb. 12 speech at the University of Nebraska Omaha, "I dissented because of possible risks and the possible costs of these policies exceeding their benefits...While I have agreed with keeping rates low to support this recovery, I know keeping interest rates near zero has its own consequences."
Despite the increasingly anxious sentiment, as long as Bernanke remains at the helm, QE Forever will be the policy. Here's why.
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Ben Bernanke Testimony: We Have "Belts, Suspenders" to Unwind Balance Sheet
The two-day Ben Bernanke testimony before Congress continues today (Wednesday) as the U.S. Federal Reserve Chairman faces the House Financial Services Committee. Members will grill Bernanke for more information on the Fed's exit strategy from quantitative easing (QE) and its easy money policy.
While Bernanke did admit yesterday to the Senate Banking Committee that "there's no risk-free approach" to unwinding the $85 billion-a-month bond-buying program, he shed little light on how the QE measures would end.
In fact, Bernanke's vague answer to Sen. Richard Shelby, R-AL, when asked how the Fed will deleverage the balance sheet, was this: "In terms of exiting from our balance sheet... a couple of years ago we put out a plan; we have a set of tools. I think we have belts, suspenders - two pairs of suspenders. I think we have the technical means to unwind at the appropriate time; of course picking the exact moment to do, of course, is always difficult."
The buying is expected to continue until the Fed sees the unemployment rate fall to at least 6.5%, but Fed critics are concerned about the nearly $3 trillion balance sheet Bernanke has built up already. -
The 5 Worst CEOs of 2012 and Why They Should Be Fired
Among others, Mark Zuckerberg of Facebook Inc. (Nasdaq: FB), Brian Dunn of Best Buy Co. Inc. (NYSE: BBY) and Andrew Mason of Groupon Inc. (Nasdaq: GRPN) all had a rough year.
Money Morning's experts picked through the list of disappointing names and came up with the five worst CEOs of 2012.
Here are the finalists, along with our experts' reasons why these weak performers should be given the axe in 2013:
- Ben Bernanke, Chairman of the U.S. Federal Reserve - Picked by Chief Investment Strategist Keith Fitz-Gerald:
Bernanke is the CEO of the biggest private institution on the planet, the Fed.
Despite overwhelming evidence that the theories and methods he is using have not worked, are not working and have never worked since the dawn of recorded history, he continues to plow ahead with more of the same failed monetary and fiscal policy that got us into this mess.
In the process, he risks unspeakable damage to the United States and to the global financial system while only kicking the proverbial can down the road.
- Ben Bernanke, Chairman of the U.S. Federal Reserve - Picked by Chief Investment Strategist Keith Fitz-Gerald:
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Why Ben Bernanke Could Learn a Thing or Two From Mark Carney
Now that President Barack Obama has been reelected, Federal Reserve Chairman Ben Bernanke's easy money policies may well be with us for the next four years.
And even if Obama replaces Bernanke when his term ends in January 2014, he's likely to choose another soft-money acolyte like Fed Vice-chairman Janet Yellen to lead the Fed.
For believers in sound money like me, that's something of a gloomy prospect.
As for the rest of the world, the prospects for higher interest rates don't look too good, either.
However, on Monday I did catch a glimmer of light when it was announced the Bank of England's new Governor is going to be Mark Carney, the former head of the Bank of Canada.
Now I'll be the first to admit that, at first glance, Carney doesn't look too promising.
He did, after all, spend 13 years at Goldman Sachs (NYSE: GS). And we all know the track record of Goldman Sachs has been nothing short of appalling.
The bank itself made a bundle by shorting the housing market on the way down and persuaded its alumnus Hank Paulson to bail out its dodgy AIG credit default swaps with $13 billion of taxpayer money.
However, the truth is Carney has been out of Goldman since 2004, and his track record at the Bank of Canada has been very good indeed.
To Carney's credit, he didn't cut interest rates as far as the Fed and has actually raised them part of the way back. What's more, Carney only did $20 billion of "quantitative easing" bond purchases in 2009, at the height of the crisis, and has since sold the extra bonds back to the market.
In the aftermath, Canada's economy has notably outperformed the U.S. economy over the last five years, and continues to do so even though house prices there are currently looking wobbly.
Ben Bernanke could learn a thing or two here.
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Election 2012 Means the Real Bernanke Bombshells Won't Fall Until December
If you were expecting big news from this week's Fed meeting it looks like you are going to be in for a long wait. This week's FOMC meeting was business as usual.
There was no change in interest rates, no change in the determination to keep rates low into 2015 and no change in the Fed's latest solution, otherwise known as QE infinity.
The truth is the real bombshells won't likely start until the Fed's next meeting in December. By then, the landscape could be completely changed.
With Election 2012 still at stake, it's who controls the Oval Office that matters most when it comes to Fed policy.
You'd never know that if all you did was watch the debates.
Ben Bernanke may well be the second most powerful person in the country, yet his name was never mentioned-not even once. Remarkably, monetary policy was completely absent from the debates.
Election 2012 and the Fed
That's true even though the two candidates differ substantially when it comes to the Federal Reserve.
For instance, Mitt Romney has repeatedly said he would not reappoint Ben Bernanke when the Fed chairman's current term ends in January 2014. Conversely, President Barack Obama has indicated his support for Bernanke and his easy money policies.
For that matter, Bernanke himself is in an open question. He may retire in January 2014 no matter who wins Election 2012.
However, at the December meeting one major thing will have changed: the time horizons of both investors and policymakers.
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