from Press Conference

I thought he did a AAA job within his paradigm.

The answers on the dollar were spot on- ultimately the dollar is worth what it can buy, so ‘low inflation’ is a strong dollar policy in the long term. It’s pretty much the purchasing power parity argument. Additionally, he said a strong economy helps the dollar, citing the capital inflow channel, probably a reference to China and other emerging market nations. And I might have added the fiscal tightening channel, as strong economies tend to cause federal deficits to fall via automatic fiscal stabilizers.

Interestingly, he did not mention specifically how higher oil prices, set by a foreign monopolist, continue to work against the dollar.

Nor how highly deflationary policies in other currencies tend to strengthen those currencies relative to the dollar.

And there was no mention of how portfolio shifting alters the dollar, which may be the largest driver currently.

Let me suggest, however, it would have been more nearly correct for him to have said the policy of low inflation and strong growth also happens to support the dollar, rather than imply a strong dollar was the policy variable.

He remains out of paradigm on the QE issue, still not realizing it’s entirely about price and not quantity, but that was to be expected.

The more dovish tone from the FOMC indicates some fundamental insecurity about the economy. Yes, they remain moderately optimistic, but probably continue to worry disproportionately about the downside risks. They see downside risks to demand everywhere from the euro zone and the UK, to Japan and China, and, though recognizing nothing of consequence has happened yet, they hear the fiscal sabre rattling from both the left and the right. And they see it’s unlikely for the housing channel to provide much support in the near future as it’s done in previous cycle.

Also, second chance to buy my 100oz gold bar at the current spot price of gold!
When I offered it for sale when gold was $1,200, no one wanted it so I still have it.


Karim writes:

1) Extended period means a ‘couple of meetings’.
2) Q1 GDP weakness transitory (i.e., they didn’t alter the outlook for rest of f/cast period) due to
   a. timing of defense outlays
   b. timing of export shipments
   c. weather
3) No fiscal measures that have been announced so far have altered their near-term outlook
4) Impact of Japan supply disruptions ‘moderate and temporary’
5) Strong and stable dollar in U.S. best interest

This entry was posted in CBs, Deficit, Employment, Fed, Inflation, Oil. Bookmark the permalink.

24 Responses to from Press Conference

  1. Mario says:

    I’m surprised you’re not more upset with how insistent Ben was on “handling the federal deficit.” He was always so reserved and cautious in all of his responses until that Fox News dude asked him about the deficit and then all of a sudden the guy sounded just like one of the crazy politicians and lost all of his composure…at least that’s what it seemed to me.

    He was on the one hand still concerned about unemployment yet is totally adamant that austerity if the way to go…even in the face of the UK and EU, which he admitted were not doing so well. What gives?!?!? Frankly he’s bought out in that game it seems to me…either that or he’s just making sure that he sounds like he’s bought out so that the tea party and everyone else doesn’t go after the Fed too if they feel like they are not on board…I don’t know…but I lean towards the former possibility much more.

    I do agree though that overall it was a good little conference.


    beowulf Reply:

    He was always so reserved and cautious in all of his responses until that Fox News dude asked him about the deficit and then all of a sudden the guy sounded just like one of the crazy politicians and lost all of his composure…

    Congress has the Fed running scared and some media adviser told Bernanke it was time to improve his public image, thus the first press conference from what may be the last independent Fed chairman. Its not the deficit per se or the terrible press from the Fed audit that’s killing the Fed politically, its been a dead man walking ever since it poisoned itself with a lethal dose of politics by dropping the TARP bill in Congress’s lap two months before a general election.

    Bernanke and the Fed governors could have simply used their 13(3) extraordinary lending powers, but they insisted that Congress jump off the bridge with them. That TARP vote became a career-killer in last year’s midterms for a whole slew of Democrats, ditto with moderate Republicans who lost in primaries like Bob Bennett in Utah, Michael Castle in RI and Bob Ingler in SC (UT’s other senator, Orrin Hatch and IN’s Dick Lugar are probably goners next year).

    Anyway, having sowed the seeds for electing dozens of anti-Fed Members of Congress, Bernanke gets to reap the whirlwind. He’s just lucky these new congressmen hate the President and the Secretary more than they hate him. As long as he can be agreeable enough (say, by endorsing austerity) to maintain that hate deficit, the Fed has a reprieve. Once the President– the next one, presumably– replaces Geithner, the Fed is in danger of being put on Tsy’s leash forever by Congress changing one line in the Federal Reserve Act:
    and wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.—-000-.html

    The Fed would then operate (still off-budget, incidentally) with all the independence of a well-run student council “subject to the supervision and control” of a Joe Clark-style high school principal (and yeah it’d be awesome if the Secretary roamed the halls of Eccles Building carrying a baseball bat).


    Mario Reply:

    wow very interesting insights B

    interesting times…it’ll be interesting to see how this all pans out over the next couple years.



    Agreed, if it were up to me I’d have sent him home long ago.
    He’s been a major part of the problem, largely due to his lack of understanding of monetary operations and the essence of money and banking itself, as discussed repeatedly on this website.

    Hopefully MMT breaks through soon and he’s the end of the line of out of paradigm Fed chairmen.


    beowulf Reply:

    The Fed was working to further the public purpose in the 1940s when as, Tim Canova has written, “The Fed… supported much higher levels of deficit spending, which were needed for a recovery at low interest rates”. It also followed, by and large, the direction of the Secretary and the President.

    The Fed took its eye off the ball beginning with the Tsy-Fed Accord of 1951. The only way to get the Fed back on task is if Congress put it under the supervision and control the Secretary of the Treasury (and authorized the Secretary to create US Notes as necessary to fund federal spending). Of course the Secretary of the Treasury takes his marching orders from the Oval Office. For good or ill, our Constitution obligates us to to trust our security, military and financial, to the man we elect President; an unelected committee in charge of an “independent central bank” is no substitute.

    As Chief Justice Roberts wrote last year,
    “The Constitution that makes the President accountable to the people for executing the laws also gives him the power to do so. That power includes, as a general matter, the authority to remove those who assist him in carrying out his duties. Without such power, the President could not be held fully accountable for discharging his own responsibilities; the buck would stop somewhere else. Such diffusion of authority ‘would greatly diminish the intended and necessary responsibility of the chief magistrate himself.’”


  2. TC says:

    “Also, second chance to buy my 100oz gold bar at the current spot price of gold!
    When I offered it for sale when gold was $1,200, no one wanted it so I still have it.

    This is just hilarious on so many levels. It’s 10 jokes rolled into 2 sentences.

    Page Sprott – he’ll take it!



    there is obviously no demand for gold that I can discern.


  3. Craig says:

    take a look at this word cloud of his speech.

    somebody is concerned with inflation!


  4. Damien says:


    I am new to MMT and still trying to get my head around things but was wondering if I am on the right path with my thoughts below.

    Just wondering couldn’t Chinese inflation be another factor that is causing a drop in the USD i.e. they are pegged to the dollar and with high domestic inflation the RMB is buying less USD so a major buyer of USD is out of the market at the moment.

    Also wouldn’t this dollar weakness be transitory given the above i.e. when the market catches on that China is pulling back from the commodity market either through necessity [foreign exchange reserve depletion] or political will [fiscal tightening] the flow on effects would put downward pressure on the commodity currencies [less demand for commodities] / Euroland [ buyer of bonds goes away]. The last man standing would be the dollar in such a scenario?



    interesting point to be made here.

    with inflation and a peg, the ‘trade flows’ would require China to use its $US to buy yuan to support the peg and prevent it’s currency from depreciating/dollar appreciating.

    However in China it appears they have $ inflows and the yuan is appreciating/dollar depreciating.

    so what might be happening?

    maybe the yuan might have been cheap to begin with and remains cheap after the inflation?

    maybe the inflows are a speculative bubble from outside speculators?

    maybe china is using its state owned banks to borrow dollars and use them to buy yuan to cause its currency to appreciate?

    anyone have current numbers on $US borrowings by China’s govt, state banks, and state owned enterprises?


    Matt Franko Reply:

    This may be some of the most recent data:,276&type=&id=2

    Excerpt: “At the end of September 2010, China’s outstanding external debt (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province) reached USD546.449 billion. Specifically, the outstanding registered external debt reached USD326.549 billion and the balance of trade credit totaled USD219.9 billion. ”

    Then Mktwatch reported this end Dec 2010:

    Escerpt: “HONG KONG (MarketWatch) — China’s external debt was $548.938 billion at the end of 2010, compared to $546 billion owed at the end of the third quarter, according to newswire reports Thursday that cited figures released by the State Administration of Foreign Exchange. Of that total, China’s short-term debt was $375.7 billion, or equivalent to 13.2% of China’s foreign exchange reserves, the agency said”



    thanks! does that include the state banks and state owned enterprises?

    Matt Franko Reply:

    Warren, It looks like the whole thing over there is mostly state owned (communist):

    “The “big four” state-owned commercial banks are the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China.”

    So I would have to think if these 4 banks are state-owned, that is probably 80-90%+ of Chinese banking (maybe all of it)… like I believe you’ve said a “loan” over there is probably equivalent to our fiscal policy.


  5. MamMoTh says:

    Interestingly, he did not mention specifically how higher oil prices, set by a foreign monopolist, continue to work against the dollar.

    Why would it work against the dollar and not against all other currencies as well?



    the US is the largest importer of crude and products


  6. Dan F says:

    Pardon my ignorance but who is Karim writes?


    Adam2 Reply:

    Yes, Warren mentions Karim’s emails a lot in his posts. Yet I also don’t know who this Karim is.


    beowulf Reply:

    “Yes, Warren mentions Karim’s emails a lot in his posts. Yet I also don’t know who this Karim is.”

    Warren’s alter ego, his “id” if you will. Kind of like Mel Gibson’s hand puppet in “The Beaver”.!5681705/poster-for-the-beaver-makes-interesting-choice-to-play-up-whole-mel-gibson-is-crazy-angle

    That’s been my operating theory, at least. :o)


    beowulf Reply:

    A better link for the awesome Mel Gibson and hand puppet poster.

    DanW has mentioned offhand that he’s buddies with Karim, so I’m quite confident he’s an actual person.

    TC Reply:

    I always thought he was a guy who does research and analysis for Valence. The quotes from Karim are always data heavy and “simple” research. Simple in this case does not mean unintelligent, but rather just a straight reading of the data with some straightforward common sense reading of that data. This is not as easy to do as you might think and I always find his take very useful, almost like a palate cleanser or reset button. When he does through in more complex readings, its always data driven too. Always good stuff.

    Just a guess on Karim’s identity tho.

    MamMoTh Reply:

    Who is Karim? He is supposed to be Turkish. Some say his father was German. Nobody believed he was real. Nobody ever saw him or knew anybody that ever worked directly for him, but to hear Warren Mosler tell it, anybody could have worked for Karim. You never knew. That was his power. The greatest trick the Devil ever pulled was convincing the world he didn’t exist. And like that, poof. He’s gone.


    I this case his father is egyptian and his mother a brit.

    beowulf Reply:

    “Who is Karim? He is supposed to be Turkish. Some say his father was German. Nobody believed he was real…”

    LOL, thst’s hilarious!


    Karim Basta has managed my Valance office in St. Croix for the last 7 years. Prior to that he was at Merrill in research and sales.

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