The Nonsense of Ben Bernanke

Yesterday, the Federal Reserve Chairman, Ben Bernanke, gave his second press conference since serving in this position. He made it clear to the American people that he is "frustrated" by our slow rate of economic growth. Rather than blaming poor economic policies, Bernanke is attributing our stagnant growth rate to higher oil prices, as well as to the earthquake that occurred earlier this year in Japan.

Additionally, Quantitative Easing (QE) round two is going to be coming to an end this month. Throughout the course of QEII, the Fed purchased around $600 billion in Treasury bonds and notes, under the precept that it would help to further spur the economy. However, as evidenced by our ever stagnant economy, QE has done nothing to bring us true economic growth.

In the process of QE, the Fed has served to inject trillions of dollars into the economy, leading to the fear that this will further debase the value of the USD, and ultimately lead to inflation. Bernanke stated that the Fed will maintain interest rates at around 0-.25%. He also declared that the Fed is no hurry to raise them.

These artificially low interest rates could also prove to be more hurtful than helpful in the long run, as artificially  low interest rates, in essence, subsidize short-term, low-return investment opportunities. This is harmful as this negates capital that would naturally go towards long-term, high-return investments.

Bernanke's press conference begs the question for as to whether or not there will be another round of QE. While Bernanke didn't necessarily allude to it, he still hasn't taken it off of the table. Furthermore, Bernanke claims that immediate budget cuts would have the capacity to hinder economic recovery.

Despite what Bernanke says, I believe that the market needs a natural correction. What the Fed is doing is akin to the habits of a drug addict; wherein they get their high, and then crash, thus creating the need to continue their addiction. Due to the intervention of the government and the Fed in the economy, this is exactly what appears to be happening. In reality, any economic gains that we have made can be attributed to this artificial nonsense.

Ultimately, I'm afraid that the continued use of this interventionist approach in regards to our economy is only going to result in an even bigger crash. The only role that the government should be playing is one in which they strive to create the most business friendly environment as possible. However, none of this seemingly matters, for as John Maynard Keynes once said, "in the long run, we're all dead."

All the best,

Kip

Source: http://www.telegraph.co.uk/finance/economics/interestrates/8591772/Fed-chief-Bernankes-press-conference-as-it-happened.html