Forbes: Bernanke's Fed Is Full Of Blind Mice. We need Bernanke to panic.

[Better Believe It]

Bernanke's Fed Full Of Blind Mice
We need Bernanke to panic, take his hands out of his pockets and rally the market with a huge shot of quantitative easing.
By Martin Sosnoff
August 24, 2010

The Federal Reserve Board must be proactive, not reactive. We have a bureaucracy on our hands, a lagging indicator, afraid to get ahead of the numbers. Their monthly press releases read like they were written by a blind man groping the elephant and trying to define its shape, but getting it all wrong.

The Federal Reserve Board(FRB) still plays catch-up ball. A year ago, when we saw GDP at a 5.7% quarter, the FRB searched for inflation under every flat rock. Wall Street expected policy emphasis to tighten this yearend with Fed Funds over 1% and 10-year Treasuries at 3.5% and working higher.

Now the FRB scents deflation in the air, but is not ready yet to buy a trillion or two of Treasury bonds and mortgage-backed securities. This is what the country needs now. It would increase the money supply and maybe our big banks would ease credit criteria and actually increase new outstanding loans. Prime mortgage rates would head toward 4%. It took the Bank of Japan 11 years before quantitative easing began. For Bernanke, it could take till after the election or one and a half years since the financial package that saved the banks and Wall Street.

Congress has tied the administration in knots as far as new stimulus spending goes. Only after GDP flattens out and unemployment breaches 10% will the new Congress reconsider deficit spending of $200 billion or more for infrastructure, which is what the country desperately needs to recover its momentum. China's economy is slowing down to 7% growth so no help there until next year.

My best guess on the Fed's policy change, buying up to $1 trillion in paper assets, is that it will come incrementally and it may take six to 12 months to implement. Buying mortgage-backed securities could drive mortgage rates lower by 50 basis points to less than 4%. This would touch off massive refinancing, reducing the cost to carry and maybe bolster consumer confidence.

We need Bernanke to panic, take his hands out of his pockets and rally the market with huge, one-shot quantitative easing. My guess is Q.E. comes in small doses, a spit in the ocean signifying nothing.

Let's hope I'm wrong and Bernanke eschews the cowardly lion role.

Read the full article at:

http://www.forbes.com/2010/08/24/salesforce-google-apple-markets-citigroup-martin-sosnoff.html

The above article written by the head of a big Wall Street private investment company demonstrates a growing worry about the state of the economy among some capitalists. He is in a minority. Most are still smiling and counting their money. BBI

[customerserviceguy]

1. The Fed's run out of bullets

Frankly, I think they've already thrown the empty gun at the problem, and it's been ineffective, too.

Your idea of lowering mortgage rates is useless; as long as potential homebuyers think that the house they buy today is going to be worth 10 or 20 percent less a year from now they simply won't do it.

[northernlights]

2. yup.

and QE is pushing on wet noodle. Ain't gonna work.

Jobs, bring salaries up to living wages, and then maybe recovery will have a base.

[ShamelessHussy]

3. not true, the tax breaks that just expired motivated a lot of activity

they could do something, but it needs to be massive, and along the lines of the gov programs created during the Great Depression, or bigger, to have any real, long term effects, imho.

however, the elite do not want that money going directly to the regular folks, they already have dibs on it, so they will cry DEFICITS, to try to derail any Gov spending that doesn't go directly to their bosses.

Obama needs to be BOLD here.

[customerserviceguy]

4. While tax breaks are controversial, at best

they're not within the prerogative of the Fed, only of Congress and a President willing to sign that bill.

[ShamelessHussy]

5. controversial to who? everyone i know loves tax cuts.

my main point was/is that incentives can be put in place to help stimulate demand.

[customerserviceguy]

6. And my point was that the Fed cannot enact tax cuts

Regardless of whether everyone wants them or not.