The Media Once Again Repeats Bernanke's Lie
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2013-11-20 10:32 by Karl Denninger
in Editorial , 327 references Ignore this thread
The Media Once Again Repeats Bernanke's Lie

Read again:

In a copy of remarks prepared for delivery at the National Economists Club annual dinner in Washington, Mr. Bernanke said that "even after unemployment drops below 6.5%, the [Fed] can be patient in seeking assurance that the labor market is sufficiently strong before considering any increase in its target for the federal funds rate."

Assurances of low rates are a central part of the Fed's efforts to boost the economy. Officials hope that the pledge will hold down longer-term interest rates and encourage borrowing, investing and spending in the near term. A research paper by senior Fed staff suggested the Fed might even strengthen that assurance by lowering the 6.5% threshold.

"Effort"?

Nonsense.

Again, there is no "boost" as everything is a balance sheet.

If I get a lower rate to buy a house the person who buys my mortgage paper gets a lower return on their invested capital.  Every dollar I "save" they lose.

Any time that someone tells you that cutting the cost of financing "spurs economic growth" they are lying because it cannot do any such thing.  For each dollar that the spender "saves" an exactly identical dollar is lost by a lender and is unavailable to be spent in the economy.

If The Fed tries to "neutralize" this by performing "QE" then the value of all existing dollars is diminished by the exact number of dollars of QE and again this offsets on an immediate basis the so-called "benefit."

Lowering interest rates results in what looks like a benefit when it is initiated, because lending (bond) portfolios have duration and the initial input of the lower-yield bonds are a small percentage of the whole in the portfolio.  But that cash statement impression is deeply misleading; an honest balance sheet must account for the discounted value that is lost immediately even though it is to be recognized over time, as the recognition of that loss is inevitable.

This morning the latest scheme claim is that the ECB is contemplating a negative deposit rate.  Let 'em do it; that will cause an instantaneous drain of all excess reserves.  But that will not boost the economy, because again forcing that credit into the economy still causes the lender to receive a lower rate of return and immediately cancels the so-called "stimulus" that is allegedly "gained" by the person who borrows at the cheaper rate!

QE and suppressed interest rates are in fact deflationary because they destroy capital formation and it is capital that is critical to capitalism and the expansion of both wealth and value.  All manipulation can do is shift wealth from one person to another -- and the person it is being shifted to, unless you're one of the privileged bankster or political class, is not you.

Any entity that puts forward tripe like this is lying and actively trying to deceive you.  Any person who has taken first-semester accounting knows that any accurate accounting must account for the debit that goes with each credit and vice-versa.  

All of these claims of "benefit" are intentionally omitting the other side of the balance sheet and for this reason are an intentional fraud.