Bernanke Remains In the Box, America Continues to Crash

By John Galt

June 24, 2009

He must like it in there.

Just what in the world was the FOMC thinking?

Press Release

Release Date: June 24, 2009
For immediate release

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months.

Let me get this straight:

1. Housing starts and permits are at levels unseen since the mid 1960’s when our population was substantially lower.

2. General Motors and Chrysler file Chapter 11 bankruptcy, albeit with unconstitutional assistance from the Executive Branch.

3. Home sales are at mid 1990’s levels.

4. Real unemployment is in excess of 16%.

5. Consumer loans are still constricted at best, highly rationed in reality with such high front end costs to the customer that they are prohibitive to most citizens even at these interest rates.

6. Regulatory oversight of our financial markets is still a joke. (See: Citigroup Halts Some Mortgage Applications, Cites Missing Data )

7. Personal and bankruptcies continue to increase despite the bankster inspired revisions designed to block them. (See:Total Bankruptcy Filings Increase Nearly 35 Percent Over First Quarter 2008 )

8. TEU traffic at our largest ports continues at a historically low pace, intermodal and boxcar traffic is down, over the road trucking statistics are down and one of the largest LTL carriers is on the verge of bankruptcy (YRC).

9. Credit card delinquencies continue to increase. (See: Credit-Card Charge-Offs Surpass 10% In May -Moody’s )

10. The CMBS market is still pretty much locked up, presenting an entirely new set of problems that accelerate in Q3 and Q4 that have not been addressed by the TALF, TARP, CRAP or CARP programs that have done nothing to solve the issues of credit quality in the securitization markets, the ratings agencies issue, or the toxic (aka legacy) debt issue still on the balance sheets.

That’s an improvement?

Back to the FOMC Statement:

Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales.

11. May Retail Sales Fall More As Most Stores Miss Projections

Uh, huh. Keep wishing. Unemployed people do not buy anything but food and necessities boys.

Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

Should not that sentence read “manipulated market forces” as most hedge funds and institutions with intelligent investors are playing it very safe. The fiscal stimulus phrase is a joke so why even begin to address that. And Mr. Ben and gang, I just remind you, regarding the “gradual resumption of sustainable economic growth in a context of price stability” phrase of this headline:

12. U.S. Economy In “Shambles” .. No Signs of Recovery Yet

That was from one Mr. Warren Buffett, not John Galt, not any other bloggers. He calls it correct, retailing, manufacturing, whatever (his words not mine) are just not happening yet. Back to the FOMC….

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

I think he means disinflation. It’s not inflation if you leave $9 trillion off the books and answer the Congress with the “Banker’s Privelage” retort. I also remind you of what old Warren said in the interview above to the CNBC infobabe: “You won’t see deflation in your lifetime.”

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

The problem is the agency debt is just being recycled so Fannie and Freddie can buy the Chinese holdings back at a profit to them and to insure they will not nuke our dollar. The reason monetary velocity is in the toilet is that the funds allocated to purchase so-called toxic assets are being used to repurchase the bad MBS from certain foreign owners to prevent a run on the dollar at this time. Thus the reason the Federal Reserve could care less about the population as long as the fiscal appropriations provide a minimal safety net to prevent civil unrest. The fallacy of this statement is that by failing to inflate and commit to it now with any voracity, the danger of any unforeseen event will force another panic response in the near future which destabilizes the economy or the nation further and creates the fuse for hyperinflation immediately removing all controls from the Fed’s hands.

From every appearance, and without some course of action in July, this is another colossal blunder just like the one I said he committed in October of 2007. During that meeting, no major course of action was engaged in by the FOMC which insured the series of collapses in financial institutions the remainder of 2007 and the Bear Stearns fiasco some five months later. That was the chance to inflate heavily, overwhelm the over-leveraged system with cash to acquire and monetize the debt before the boomerang of deleveraging begins.

The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I can’t wait to see them buy California.

The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

That’s nice FOMC. Now what about your off balance sheet transactions that are not recorded on any Federal Reserve website. And just when and what are you going to do about the technically insolvent FHLB’s that are stuck holding worthless Countrywide and WaMu paper?

With that statement above, all in italics, and with sarcastic comments included, the Federal Reserve is embarking on another feel good tour to convince the people that are too stupid to understand Donkey Kong and Pac Man up on the Hill that all is well and that “less bad” is good. So to say that “hey you only lost both of your legs but we have your fever under control” is one hell of a statement for the Fed to make at this time.

The economic recovery is a mirage, much like seeing Pamela Anderson with your beer goggles on then realizing you’re hitting up on a 300 lb. Rosie O’Donnel with a 5 o’clock shadow when your buddy slaps you upside the head. The reality is that as long as unemployment continues to rise, housing remains at pre-1970, hell 1990 levels, the automotive sales activity remains at historic lows, and the President of the United States continues to inject socialist partnerships and takeovers of private corporations, there is no reason or market based impetus for the economy to recover before 2011. I was hopeful that the new administration would let the unwinding finish but alas, i was mistaken he was a man of his word and instituting policies that would make 1923 Mussolini blush. These people in charge do not realize that they are stifling financial innovation and as they usurp two centuries of American capitalist freedoms they are creating the pages telling the story of their own demise.

America was never meant to be run as an oligarchy, yet today, sadly, it is nothing more than a banana republic with three piece suited lobbyists, two bit conniving lawyers, and the banksters running our nation into the ground. The “V” shaped recovery is now projected by the ‘experts’ to be more like a W; bunk I say. It is a “L” as on the Highway to HELL much like the post-Soviet oligarchy was, and apparently the model for this government and its banking overseers.