4/27/11: The Federal Reserve Chair, Benjamin Bernanke held his first live news conference:
FOMC HOLDS FED FUNDS RATE TARGET AT 0.25% (AS EXPECTED); LIKELY TO REMAIN LOW FOR AN EXTENDED PERIOD- Unanimous vote by all Federal Reserve Bank Chairs.
Just so we understand what is going on here: the Federal Reserve Banks are private institutions telling our Federal Reserve they need more cheap (0.25%)* money ad infinitum. Why? Because without our tax dollars propping them up, despite record profits just recorded, they would fail and bring our houses down without a very long trough to keep their wheels spinning.
This analogy offered by a Bloomberg TV speaker today: It's almost as if your Model T is in a ditch and your farrier arrived with horseshoes and could not fix the problem.
One might ask: what would happen if the banks stopped getting such cheap money? What calamity exactly are we afraid of here?
From The Fed:
Bernanke reaffirmed his intention to end treasury purchases in June now - Since inflation has picked up in recent months, the Fed is prepared to 'adjust holdings' to keep the financial markets afloat.
Surprising to me is that Mr. Bernanke anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an 'extended period'. He insists that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.
On the street:
Supposedly recent statistics show household spending and business investment in equipment and software continue to expand. They do admit that investment in commercial real estate is weak, and the housing sector continues to be depressed. While admitting the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, the news is 'positive'. Besides the 'fewer job losses' lingo, he believes the recovery is sustainable but is 'watching market indicators'. The dual mandate is price stability and maximum employment. The supposed increase in market stability is not being reflected in today's dollar drop. Frankly other countries and investors are not all that keen to hold our greenbacks. At least not for long.
Market reactions:
Initially after the FOMC statement, we observed a +2% rebound in the precious metals. The dollar devaluation is helping mortgage interest rates by sending safe money into bonds. How long we can keep lowering interest rates to keep feeding banks via borrowing in such a climate is questionable.
Busted inner city, booming suburbs?
I spite of vacant inner city shops and rising short sales andforeclosures of single family homes, multifamily is bouncing back with a vengeance. Our subsidized housing initiatives ((ultra high tech green)are sprouting up all over) funded by the local municipalities and non profits-- I wonder if we have reached a tipping point: when private owners (tax payers) of college housing will find it hard to rent their little old 1-4 plex compared to the shinier new versions closer to nightlife with groovy hidden Murphy beds and built in flat screens owned by these conglomerates. I'd be interested in other perspectives on this--anyone familiar with the private/municipal housing?
OUCH to 30% interest!
This article came out just before Bernanke spoke.
Is this social equality?
When we have extended to these same banks the ability to borrow very cheap money and we, the consuming tax payer must pay even higher fees to use this same money?
Ironically, banks are complaining that too many people are paying down their debt! Lightening up. Scaling down. A friend of mine just took off for a six month hike on the Pacific Coast Trail today from California to Canada carrying 35 pounds on his back. Perhaps he has the right idea!
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