An Unofficial Translation of Bernanke’s Jackson Hole Speech, Part 2
by Gary North
Here we get to where the rubber meets the road.
In the remainder of my remarks I will discuss the policies the Federal Reserve is currently using to support economic recovery and price stability. I will also discuss some additional policy options that we could consider, especially if the economic outlook were to deteriorate further.
Translation: This section ought to goose the stock market for a day or two.
In 2008 and 2009, the Federal Reserve, along with policymakers around the world, took extraordinary actions to arrest the financial crisis and help restore normal functioning in key financial markets, a precondition for economic stabilization. To provide further support for the economic recovery while maintaining price stability, the Fed has also taken extraordinary measures to ease monetary and financial conditions.
Translation: We screwed the pooch, 2001–2007, and we were about to lose the sucker. We all did what Keynes said we should. First, the politicians increased the government deficits on an unprecedented level. Second, central banks counterfeited money as never before. Third, everyone held press conferences saying everything possible was being done to solve the problem. Anyway, Hank Paulson held press conferences. I avoided most of them, and when I showed up, I said nothing. He was a lame duck. I figured I’d let him take the heat. It worked.
Notably, since December 2008, the FOMC has held its target for the federal funds rate in a range of 0 to 25 basis points. Moreover, since March 2009, the Committee has consistently stated its expectation that economic conditions are likely to warrant exceptionally low policy rates for an extended period.
Translation: The FOMC of course has done nothing since late October of 2008 except to tell the Federal Reserve Bank of New York to swap liquid Treasury debt for toxic assets at face value, in order to bail out the big banks, and to sell Treasuries and buy Fannie and Freddie toxic assets, in order to bail out the Treasury. The FOMC announces the fix and then does nothing. The FOMC has nothing to say about the Federal Funds rate. The commercial bankers are so scared that they have cut back lending and have increased excess reserves, so the Federal Funds rate has collapsed to about 0.15%. That’s the rate at which banks lend money to banks overnight to cover any need for reserves. Banks no longer need to borrow to get reserves. They have a trillion dollars in excess reserves. So, the FedFunds rate will stay at zero.
Look, the FOMC has been selling assets since March, and still the rate is close to zero. The banks set the rate; we don’t. So, we hold meetings every six weeks and issue a press release saying we have decided to keep the rate low. You people believe it, so we keep saying it. Anyone who can read a money supply chart knows it’s a crock, which means none of the financial media.