Notes From Underground: Thanks For The Get Well Wishes…Now, Let’s Get Back To Work

While I was away, Mr. 37 revealed that he is a 37er so the markets OUGHT to take very seriously Ben Bernanke’s PROMISE to Milton Friedman that the FED will not make the mistakes of 1937 again. In the interview with Diane Sawyer and the speech delivered at The National Association For Business Economics on Monday, the Fed chairman displayed his 37er credentials in full force.

The FED is concerned about the slow improvement in the overall jobs situation and will maintain its “EXTENDED PERIOD” monetary policy until the present jobs uncertainty has begun to clear. In the speech, Chairman Bernanke spent considerable time defining the difference between STRUCTURAL AND CYCLICAL unemployment. The FED chairman said he believed the primary reason for the slow return to improved jobs opportunities was more cyclical “… the continued weakness in aggregate demand is likely the predominant factor.” This was a comment of heads, the FED STAYS THE COURSE, or tails, it’s STRUCTURAL and the FED WILL MAINTAIN THE NEEDED COUNTERCYCLICAL MONETARY POLICY AND WOULD EVEN NEED MORE HELP FROM OTHER AREAS: FISCAL POLICY AND A MASSIVE RE-EDUCATION PLAN.

Either outcome, CYCLICAL OR STRUCTURAL, means the FED will err on the side of aggressive easing and any attempt by the market to push rates higher will be met by FED RESISTANCE. This speech was important because it shows that Bernanke is much more concerned with UNEMPLOYMENT and believes that INFLATION in a period of BALANCE SHEET RECESSION is a non-event. As consumers and corporations repair their credit situations through savings and paying down debt, inflation is just not a paramount threat. As I have discussed many times before, in an era of VERY WEAK PRIVATE SECTOR UNIONS WITH LITTLE POWER TO RAISE WAGES, THE FED HAS TAKEN ON THE ROLE OF FIGHTING FOR THE WAGE EARNER.

Read the speech carefully to understand the course that Ben Bernanke is steering. As for Minneapolis Fed President KOCHERLAKOTA, you might want to bone up on BEVERIDGE CURVES for your next speech on unemployment. Bernanke seems to have thrown down the gauntlet to the structural unemployment argument. Bottom line: The FED is serious about the GDP/JOBS GROWTH RELATIONSHIP.

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8 Responses to “Notes From Underground: Thanks For The Get Well Wishes…Now, Let’s Get Back To Work”

  1. ex dividend date Says:

    Thanks for the pearls of wisdom. These would be very helpful to newbie investors. I am always thankful to see others giving high quality info towards community. Will be referring a lot of friends about this. Keep blogging.

  2. kevinwaspi Says:

    Welcome back, you were missed!
    Yeah, Ben is not only a ’37er, Ben’s an academic. That’s not a slam, just a fact. Here’s what I mean. In the academic world of economic analysis, there is a necessary condition that is imposed on the discussion. That necessary is “ceteris paribus”, or “everything else equal or unchanged”. Economic models and academic discussion of them CANNOT allow for anything other than a “closed form solution”
    What that means for the academic discussion is that you cannot question the CHANGING of the relationship, entering of new or additional variables, or any such “structural” change, without risking criticism. Doing so does not allow for the finite number “solution”, and questions the validity of the heretofore “proven” relationship. My lament is (as usual) the laymen’s response: If you do not question the “proven relationship”, how can you tell if it is reliable or still a relationship at all? For Ben’s discussion for instance, WHAT IF the structure of the labor force has changed? For example, maybe a larger number of people have found ways to produce an income in “the underground economy” such as in Greece. We shouldn’t expect to find the same relationship between production and MEASURED employment, because our measure of employment has not kept up with the changes in the labor pool. All in all, what this means is a very real potential for the effectiveness of “modeled solutions” to be less effective (and potentially more detrimental) than they were in any past period of study.
    Just a thought.

  3. yra Says:

    Professor waspi–for a finance professor you have a wee bit of the Dostoyevsky in you–you should be running a bank!

  4. arthur Says:

    Yra is Coming Back Stronger than Ever

  5. kevinwaspi Says:

    Ah Yra! But you Sir, are the keeper of “Notes from Underground”!
    Any simpleton can manage a bank, and most do!

  6. WreckEmFinance Says:

    Does this mean i shouldn’t have taken a 3000 unit long position (50:1; 200 “real practice dollars” available) in my fxpractice account on usd/jpy? i took it under my interpretation that JPY will fall in the near-term against the dollar, say, through to May (end of the semester when our currency workshop ends). I just started practicing and I know I have much, much, much more to learn before I go live.

  7. arthur Says:

    Why Canada’s Austerity Isn’t a Good Example for U.S.

  8. yra Says:

    Wreck EM—not necessarily for the BOJ is going to try its best to keep pace with the FED and seek to maintain liquidity so that the YEN does not carry the burden of the global economy on the Japanese.See tonight’s blog

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