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Posts Tagged ‘Global and US economy’

 

On Fed Chairman Bernanke’s Testimony to Congress

July 19, 2013 by jackrasmus

Federal Reserve Chairman, Ben Bernanke, testified to both houses of Congress this week. The focus was his plan concerning continuing current Quantitative Easing (QE 3) policies, or to begin ‘tapering’ (reducing) the $85 billion a month of printed money injection into the financial system and prospects for continued low interest rates.

Dr. Rasmus was interviewed by the Voice of Russia radio on friday, July 19, to provide his analysis of what Bernanke said.

Dr. Rasmus noted his analysis of Bernanke’s testimony confirms his predictions of March 2012 (see his blog, March 2012, entry at jackrasmus.com, ‘Are Capitalists Addicted to Central Bank Free Money’), which maintain that financial investors (banks, shadow banks, investors) have become increasingly addicted to free money from the Fed.

In the interview with Russia Radio, Dr. Rasmus notes that just a month ago, in June, Bernanke suggested that QE 3 purchases by the FED may have to be slowed at some point in the future. The response of investors to just the prospect of ending the free money (QE3) was to set off a near panic in stocks, bonds, and other financial asset prices. Financial asset prices fell across the board rapidly, and interest rates in turn rose across nearly all asset classes by a percent or more in just a matter of weeks.

In response to the possibility of a more sustained financial asset price collapse, Federal Reserve governors, colleagues of Bernanke at the Fed, quickly reassured financial markets within days that the Fed was not going to reduce the $85 billion, as Bernanke implied in June.

Markets quickly again turned around, surging to new highs in July. As Dr. Rasmus pointed out in the interview, Bernanke confirmed his Board of Governors’ statements in recent weeks, in his own testimony to Congress this past week.

In response, financial bubbles continue to move ahead once again as a result of Fed and other central banks’ continuation of free money policies for bankers and investors. The same policies in turn are becoming increasingly ineffective in stimulating the real economy, while provoking bubbles on the financial side. It is a situation that cannot be sustained, argues Rasmus in the interview. As he notes: at some point the Fed will once again have to confront the prospect of reducing QE and raising interest rates. That will likely provoke another asset price contraction of major proportions, as occurred in June, at some future date and result in turn in an additional negative impact on the real economy in the US and globally, with Europe already stagnating in recession and depression in the periphery, China growth rates slowing significantly, and the US GDP growth slowing to less than 1% in the most recent April-June 2013 period(as forthcoming GDP figures will soon reveal).

The central policy tool–monetary policies of QE and near zero interest rates–of US and global capitalist policy makers is running out of steam and becoming more counter-productive by the month. Meanwhile, degrees of austerity fiscal policies in the US and EU continue. The prospect for future US and global economic recovery is growing increasingly questionable.

FOR THE FULL INTERVIEW WITH RUSSIA RADIO, click on the following url:

http://voicerussia.com/radio_broadcast/61124198/118222702.html

 

Dr. Jack Rasmus,

‘Shadow’ Chairman for the FED, Green Shadow Cabinet

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