The Banking and Strategy Initiative

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US Economy: Bernanke’s Testimony at the Senate Banking Committee Day 1: No QE3 right now.

Read my Lips. We are the US regulator. We cannot regulate LIBOR which is run by the British. A flabbergasted Ben Bernanke would have probably used those words at home or at his favorite College when delivering a lecture on the US Economic Crisis.

At the Senate Banking Committee hearing however, he was much more respectful as he gave potent discourse in repeated queries on how Fed is cooperating with the initial investigations and in the early does of LIBORGate when everyone is supposed to have known of the happenings in setting LIBOR rates and or complicity of even US based banks, Fed had cooperated with any questions and  investigations had never pointed to any criminal wrongdoing.

He infact, (and that’s my favorite part) did mention very concisely in response to a later question that the rates set in LIBOR , patently set at low levels in 2007 had indeed helped  large populations of home buyers and sub prime and rated borrowers with very low lending rates.

The rest of the testimony is proceeding along predicted lines, with background for US Economic progress coming from the FOMC meetings of April and June including “modest recovery is seen in housing” and that all around conditions in the US Economy show weakness and thus the Fed is ready for more Liquidity and easing of monetary policy and will be watching. That the recovery is being held back because of the situation in Europe seemed to be the underlying theme of why he is willing to wait. Ben Bernanke also had a series of questions on prescriptions for US Fiscal discipline coming from the same sources on the Senate Committee as always, and he politely denied being in any position to commit to or comment on the merits of more taxes vs more spending cuts. A less fiscal deficit reduction would definitely be less effective than a larger deficit reduction. He also encouraged lawmakers to get out a tough debt reduction plan for the US Economy

The Jobs situation is not improving as fast as it could, the Eurozone is struggling but is aware and interested in coming out of the crisis.  Bernanke also repeated that oft quoted introduction to QE where in 2008 after rates had been set to nearly zero, the Fed had to resort to non conventional sources to inject liquidity and easing of monetary conditions in the US markets and that in large parts it was a success though one cannot measure the same success except for assuming that what must have happened if they had not injected the liquidity including the latest Maturity Extension Programme.


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