Ben Bernanke

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Bill Gross: Why QE Will End Before the Fed Wants It To

Legendary bond guru Bill Gross doesn't think too highly of the Federal Reserve and Ben Bernanke's monetary policies.

"There comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts," Gross writes in his June investment outlook titled Wounded Heart.

Gross believes that QE, which he describes akin to a bad dose of chemotherapy, will end later this year but not because of a suddenly strengthening economy.

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Do We Really Need the Federal Reserve System?

Abolishing the Federal Reserve System might seem like a drastic idea, but not when you get the full story...

You see, Congress created the U.S. Federal Reserve System to restore public confidence, provide the banking system a source of liquidity that would prevent its collapse and protect the public against inflation.

A century later, the banking system is so big its risks dwarf the Fed's liquidity capacity, and what cost a buck back then now will set you back $21.

That's why we asked Money Morning Chief Investment Strategist Keith Fitz-Gerald to explain how the Federal Reserve System actually helps a country's economy.

Most importantly, we wanted to know if the United States - or any country - even needs the Fed anymore.

Just listen to Fitz-Gerald's answer in the following interview.

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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The New Crisis Warning Just Issued to the Federal Reserve

Before the housing market crash, economists warned that record low-interest and mortgage rates were fueling a housing bubble.

Unfortunately, those fears were both overlooked and underestimated.

Now, an advisory council to the U.S. Federal Reserve is warning the Fed that its record $85 billon-a-month stimulus and ultra-low interest rates are fueling new bubbles in student loans and farmland.

"Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis," according to minutes of the council's Feb. 8 meeting.
In addition, "agricultural land prices are veering further from what makes sense," the council said. "Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates."

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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 taste in my mouth.
If you sift through the "Fedspeak," it becomes 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.
Here’s what the Fed has in store for us now...

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.

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The Bernanke Shock

The financial world was shocked this month by a demand from Germany's Bundesbank to repatriate a large portion of its gold reserves held abroad.

By 2020, Germany wants 50% of its total gold reserves back in Frankfurt - including 300 tons from the Federal Reserve.

The Bundesbank's announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany's behalf. One cannot help but wonder if the refusal triggered the demand.

Either way, Germany appears to be waking up to a reality for which central banks around the world have been preparing: the dollar is no longer the world's safe-haven asset and the US government is no longer a trustworthy banker for foreign nations.

It looks like their fears are well-grounded, given the Fed's seeming inability to return what is legally Germany's gold in a timely manner. Germany is a developed and powerful nation with the second largest gold reserves in the world.

If they can't rely on Washington to keep its promises, who can?

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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:

  1. 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.  

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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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