BarroMetrics Views: Bernanke’s Press Conference June 21
A reader wrote in with this summary of the press conference. I have not credited him because he had previously explained that he wishes to remain anonymous.
- No new QE’s. He defended the prior one based on averting deflation threat, and a claim for ameliorating employment (purely statistical, like coming off the death-bed). Of most interest to me, he did not make that lame remark as in the last one - we got the stock market up. i.e., we put more money in the hands of those who need it least.
- There is a significant knock-on effect possible from a worsening in europe. While US banks are not largely directly exposed, they are deeply in it to European banks. Plus he also explicitly mentioned money market funds, they have large euro bank exposure. This concern is making the rounds. Even got into the wsj. this could lead to real funding problems if it takes hold.
- He would like a budget fix, but that emphasized later, just like all the other proposed fixes. (what’s a voluntary rollover? my dog does that.)
- He did cave on housing - but it’s only words. I can’t believe that in the very last question, he said he would like prospective home buyers not to have to worry about prices going down. Elimination of fear is precisely how we got here to begin with. To quote a Fed Chairman from our youth, Arthur Burns: “Let’s put the risk back into business”.
(About this quote the author says): “I was being critical of Bernanke. Every business endeavor inherently entails risk. Things go awry when that risk is artificially alleviated, and policy makers give you a stop. E.g., intentionally inflating of asset prices with QE2, or as he suggested today, he would like home buyers not to fear losing money.
These are bad policies which ultimately engender real down-side consequences. Hence: let’s put the risk back into business.”
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