I almost fell out of my chair today at lunch as I scanned Bloomberg's news stories. There in not-so-black -and-white stood the statement that completely summarized all of the issues that America has with Wall Street and its crazy view of the world. There, plainly for all to see, one statement characterizes why the last two years of my blogging has been therapy in a way. This sentence captures the essence of why Main Street will never get Wall Street, and why Wall Street won't be happy until the entire nation's financial system is completely destroyed.
WE NEED MORE POWER!
In an interview this morning with Bloomberg Surveillance, Tom Keene spoke with Ira Jersey of Credit Suisse Group. In the discussion, Ira gives us his view that more quantitative easing is needed and more liquidity should be spent to stimulate the economy. Mr. Jersey starts with;
"The policy-making Federal Open Market Committee meets Jan. 24-25. The central bank is forecast to keep its target for the federal funds rate at zero to 0.25 percent. The target has been at that level since December 2008 and the Fed has pledge to keep it there until mid-2013.
The central bank has purchased $2.3 trillion of mortgage and government bonds in two rounds of so-called QE. In September, it announced plans to sell $400 billion of short-term debt and use the proceeds to buy an equal amount of longer- maturity securities, in a program as nicknamed Operation Twist after a similar action in 1961 designed to contain borrowing costs for companies and consumers."
“We do think the Fed is going to do another round of asset purchases later in the quarter, probably aiming for April,” Jersey, director of U.S. rates strategy at Credit Suisse"
ALL IS FIXED, LEAVE IT ALONE?
Ok, so we are told daily on CNBC that jobs are getting better, housing is improving, banking is returning to normal and banks are healthier, inflation is under control, foreclosures are abating, and the consumer is out there spending and adding to his revolving debt. How could we possibly need more QE?
Well, if you are a Main Streeter, perhaps all of those positive things would lead you to conclude that while the economy is not fully recovered, it is on its way and the government and Fed should wait and see how things are going and maintain the status quo for a while. You'd probably think that allowing market forces to take over might be a good thing. While you might feel that way, bankers don't exactly see it the way you do.
"Jersey said a third stimulus effort may be more focused toward the housing market and buying mortgage-backed securities.
A Bloomberg news survey conducted in November found 16 of the 21 primary dealers of U.S. government securities said Fed Chairman Ben Bernanke and his fellow policy makers would start another purchasing program during the first half of 2012. The dealers’ estimated that the Fed may buy about $545 billion in home-loan debt.
“We need to get confidence up, in particular business confidence up,” Jersey said. “That would help stimulate jobs, which helps stimulate the residential housing market, and that’s what gets you out of the doldrums.”
HOUSING, HOUSING, HOUSING IS NOT OK
So, we need to get the business confidence up and that will fix housing and everything else. Why the heck didn't I think of that? Have you noticed that everything comes back to these housing values? If I didn't know any better, I'd almost suspect that banker's balance sheets could somehow still be impaired after all this time. Mr. Jersey believe that the Fed will act to drive mortgage rates even lower and somehow this will get economic activity really fired up.
WHERE IS HE GOING WITH ALL OF THIS AND HOW DOES IT RELATE TO THE FED?
Mr. Jersey casually drops this bomb on us, which is frankly just awe-inspiring.
“We are growing, we just don’t feel prosperous. It is a part of the job of the Fed to assure prosperity, one of the ways to do that is to kick- start housing.”
WHAT?? THE 3RD LEG OF THE FED STOOL
Did Ira Jersey just say what I thought he said? Of course he did. Didn't you know that there was a 3rd mandate of the Fed?
First, we want to maximize employment, second, we want to maintain price stability and NOW, Credit Suisse has added that we need to expect the Fed to make us feel prosperous!! It is so nice to know after all of my years in the markets that I had completely left one of the Fed's mandates out!
Clearly this interview reveals the divide between Wall Street bankers and normal people. We want the Fed to just stop, and the bankers just want the Fed to make them happy. Unfortunately we also know that the only thing that makes bankers happy is a predatory economic attack on our wealth and our savings (sort of like the government too eh?). Somehow I think regular people don't have a chance in this fight.
Finally, if you want to read some old speeches about the Fed mandate, how about this gem from another Fed Governor who helped do "research" that helped collapse a Euro nation a couple of years ago. - MONETARY POLICY & THE DUAL MANDATE - Fred Mishkin