Morning Audibles 7.22.10 - Annotated Bernanke

"The Beard" - Before the Senate Banking Committee - 7/21/10

Bernanke said the debt crisis in Europe, which has rattled Wall Street, played a role in the Fed's "somewhat weaker outlook." Although financial markets have improved considerably since the depth of the financial crisis in the fall of 2008, conditions have become "less supportive of economic growth in recent months," he explained.

Translation: The stock market has gone up. With all our PHD's over here at the FED, all we really know how to do are foolish maneuvers that make a stock market that go up, for awhile. Lately though, we're lamenting the fact that it's in the process of giving back those gains...

As a result, Bernanke said progress in reducing the nation's unemployment rate, now at 9.5 percent, is now expected to be "somewhat slower" than thought. Unemployment is expect to stay high, in the 9 percent range, through the end of this year, under the Fed's forecast.

Translation: Nothing we ever do will save your job. However, from TIME (Magazine) to TIME (Magazine), we'll get voted "Person of the Year" honors in the HOPE that we'll save your job... Luckily, our jobs are safe because we are appointed by a President who is not really sure what a job is in that he has never run so much as a Dairy Queen in his life.

High unemployment is a drag on household spending, Bernanke said, although he believed both consumers and businesses would spend enough to keep the recovery intact.

Translation: Because of our proxy, we keep funneling free credit to the banks hoping they'll cooperate and lend it to you. Unfortunately, people aren't as stupid as we are and are not taking that bait and hook.

Bernanke also said it would take a "significant amount of time" to restore the nearly 8.5 million jobs wiped out over 2008 and 2009.

Translation: What we're REALLY hoping for is that we can devise some kind of virus that will selectively kill only unemployed people. The rest, with jobs, we're hoping they'll keep listening to our clap trap and borrow more money from our banks to live lifestyles they can't afford.

And, Bernanke said the housing market remains "weak" and noted that the overhang of vacant or foreclosed houses are weighing on home prices and home construction.

Translation: If we could just round up all the unemployed people and lock them inside vacant houses, pour gasoline over the whole thing, and take a match to it... That would be sweet!

Given the weak recovery, inflation is not a problem, Bernanke said. However, Bernanke didn't talk about deflation, a prolonged and destabilizing drop in prices for goods, the values of stocks and homes and in wages. Although most economists think the prospects of deflation are remote, some Fed officials have expressed concern about it.

Translation: Inflation is a phenomenon caused by supply and demand (not monetary policy in a fractional reserve banking system). But we were all absent in the corridor doing bong hits during that economics lesson in college.

To strengthen the economy, many economists predict the Fed will hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012. Doing so, would help nip any deflationary forces.

Translation: We hope. Maybe the problem is that we need to do even MORE bong hits until that appears to become reality.

And keeping that bank rate at super low levels also would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades.

Translation: The banks don't really lend any of this credit out, but the US Government needs these rates to stay low so that it can spend itself into the position where it will have to gobble up your private savings.

Ultra-low lending rates, however, haven't done much lately to rev up the economy. Consumers and businesses are cautious and aren't showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries.

Translation: We only WISH people were as stupid as we are, but since they're NOT, we'll just wave our PHDs at them and keep them distracted.

Bernanke, meanwhile, welcomed Congress' new revamp of financial regulations signed into law by President Barack Obama on Wednesday. The new law, he said, "will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years."

Translation: Any bill that DOESN'T include "AUDIT THE FED" in it, is fine with us.