In what must be the results of being rendered deaf and dumb by the credit implosion of the last 36 months, the National Bureau of Economic Research has declared that the recession has ended. It must be great to be an employed economist. In what world do these analysts live and the bigger question is why does it matter what they declare?
If the recession has ended, why is Thomas Hoenig a lone wolf on the FED BOARD OF GOVERNORS? What difference does it make if the statistical data say the RECESSION HAS ENDED? When the FED is in hyper mode for fear that the U.S. may well plunge into a deflationary spiral we don’t care a lick of what a group of sequestered, molly coddled academics think. We wonder if Richard KOO would agree that this balance sheet recession has indeed come to a halt. Again, we tilt at the models and its builders who cannot predict or measure the true impact of a classic Austrian credit cycle. Oh well, at least TOMMY, the blind kid, became one with the pinball machine. It would have been difficult to be at one with the machine from the safety of an Ivory Tower.
The FOMC met today and released its statement on monetary policy. Although a direct quantitative ease statement was not mentioned, the tone was so soft that the markets took the language to mean that a new round of QE was inevitable. The key line appears to be, “inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.” We have opined for more than a year that GOLD was rising in fear of deflation and what the FED response would be. Now it appears that the market has begun to accept this view. For those who think that GOLD is an inflation play, they are way to early in that fear. The gold market has created worry that a deflationary scare would cause BEN and his modelers to turn on the monetary JETS.
The DOLLAR also took the cue and after trying a quick moment to rally, the U.S. currency sold off as it should. As one of our readers asked, “How is the FED statement different from the BOJ actions of Sept. 15?” The U.S. seems to have adopted the stance that a weakened DOLLAR will have a reflationary effect on the economy. We wonder how the Europeans will act if the DOLLAR really started to drop. The long end of the Treasury market also rallied as they were reacting to the sub-mandated inflation numbers and the high probability of more FED purchases. We will pay close attention to commodity prices as an indicator of the world’s desire to acquire stuff rather than hold paper of questionable value.
News broke this afternoon that LARRY SUMMERS has resigned as head of the National Economic Council and will return to Cambridge, Mass. It is amazing that after President Obama lauded Summers at yesterday’s TOWN HALL meeting Mr.Summers resigns. We don’t believe this puts a positive light on the Obama team. Just before the mid-term elections, the president’s economic team is in disarray. Who will be next to leave and what media darling will the president choose to replace the man who did such a good job? It sort of reminds us of 2005 and “You are doing a heck of a job, Brownie.” Its deja vu all over again.