Saturday, 8 September 2012

Why would "Labor Market Strengthens Bernanke’s Case for More Easing"?

Bloomberg reports,
Federal Reserve Chairman Ben S. Bernanke's case for further monetary easing was bolstered by figures showing widespread weakness in the U.S. labor market.
“It’s probably the straw that broke the camel’s back,”said Brian Jacobsen, who helps oversee $203.6 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “They wanted to act soon, and the data we have here doesn’t point to that substantial and sustainable improvement in the economy to justify sitting on their hands.”

Now, just how would "further monetary easing" help the labor market? Presumably because it would increase credits to businesses. The only problem is that the Fed has already created an enormous amount of money already (see here) and the banks are just simply sitting on the cash and holding them as excess reserves at the Fed (see here).

Bottom line 1: there is absolutely no reason for the Fed to undertake further "monetary easing" as suggested in the article as that would not help anything other than to increase banks' excess reserves further. If the goal is artificial credit expansion (lending more than standard lending with thorough credit checking would imply), something we would strongly oppose, one would need to force the banks to lend more. And not more money printing by the Fed.

Bottom line 2: goes to show even the most seasoned of professional investors have become drug addicts of Fed injections and without understanding what it cures (which is nothing). Give them placebo instead to avoid tax payers and savers ending up suffering from a weaker U.S. dollar and increased inflation.


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