Ben Bernanke Returns To Capitol Hill (July 18 2012), Hints At More Liquidity:
The anti-QE crowd is back, now they are ignoring the economic weakness all over the world.
Federal Reserve Chairman Ben Bernanke returned to Capitol Hill on Wednesday, after giving negative economic predictions about the U.S. economy stating that growth could contract further if Congress doesn’t reach agreement about how to deal with taxes, the fiscal cliff and related budgetary issues.
Bernanke gave his twice-a-year report to Congress about the state of the economy and testified to the House Financial Services Committee. Yesterday, Bernanke spoke to the Senate Banking Committee and had an interesting exchange with NY Senator Chuck Schumer about the need to ‘get to work’ by using monetary policy in a positive way to impact the economy. It seems the same analysts who were against any measure of QE3 are back out of the woods. They have repeatedly been wrong about the state of the U.S. economy and whether the Fed needs to act on its dual mandate of monitoring inflation and jobs as well as the nature of the global economy.
The U.S. Central Bank Isn’t The One Easing
The FOMC isn’t the only bank easing or providing added liquidity. It’s easy to argue that the U.S. economy would have already fallen off a cliff if Ben Bernanke didn’t act earlier because many private companies are sitting on cash and the fiscal policy issues facing the U.S. aren’t much better than when the S&P downgraded America for the first time. Apparently, the S&P was right. Political bickering has continued and the U.S. economy is at risk based on nonpartisanship that has not subsided.
Bernanke and the Fed should act sooner than later because we believe the economic risks from the corn drought could be severe. The U.S. economy is a small exogenous event from severe downtrends that would be hard to combat and it may be time for Bernanke and Co. to get ahead of the curve. Since it’s obvious “they are the only game in town” – it may be time to start the play.
We are watching the dollar and the rebound in financials to see if they will continue to outperform other sectors and we would be ready to reevaluate our positions at the first true sign of trend weakness. Financials decoupled from the S&P slightly today but should lead the markets next move. We believe QE3 will have an impact if implemented and the FOMC has many more tools it can utilize. The Feds number 1 tool – its global banking influence that cannot be understated in a dollar denominated world. Note how many other central banks have followed its lead and added liquidity.