QE-Infinity III: The Silence of the Bernanke

Extended review of the immediate QE implications during the Fed Chairman

transition and extended implications for the fully ‘mature’ QE-Infinity program

© 2013 ROHR International, Inc. All International rights reserved.

COMMENTARY: Friday, November 15, 2013 Weekend Read

While there was much that went on in yesterday’s Senate confirmation hearing for Janet Yellen as new Fed Chairman, the most telling was likely the degree to which it was all so collegial. What most participants know well is that while she may have supported them, the current Fed policies are the handiwork of the current Fed Chairman. That said, the full implications of Buzz Lightyear Bernanke’s QE (“to Infinity and Beyond”) program will become much more apparent and likely oppressive during Dr. Yellen’s regime.

So before we get onto more detail of the hearings and longer term implications of QE-Infinity, a brief word on what the transition means in practical terms to any QE taper, and the title of this piece (with more below.) The Fed is not likely to implement a ‘taper’ (as we all know, initially that’s merely a modest cutback) of its aggressive asset purchase program until Dr. Yellen has been installed as the new Chairman.

Just as Mr. Greenspan had to defer a rate hike so Mr. Bernanke could mitigate his Über‎-Dove image back into early 2006, so Mr. Bernanke must do the same for Dr. Yellen. Whether you agree with their program or not, the folks at the Fed aren’t stupid. And this is the most basic bit of game theory risk-reward assessment. The Fed can’t very well begin the taper in December only to see the economy weaken. That would mean it would need Janet Yellen’s first official act of any substance to be a QE increase in March. That would be counterproductive, so don’t look for them to taper in December. Also in line with game theory, at this point how much does an extra $30 billion or so on the balance sheet really matter vs. the standing of the new Chairman?

And that has one immediate, somewhat important implication. The man who initiated it, and across time grew the Fed’s QE program into such a Brobdingnagian Beast won’t be saying a single thing about it after January for quite some time. The man who, in the words of Warren Buffet and others, has turned the Fed into The World’s Largest Hedge Fund is excused from saying anything about it (possibly for years) at the most critical juncture.

That said, it is indeed plain old etiquette and sensible policy that the previous Fed Chairman should really not be saying anything about his successor’s actions for a long, long time. Brilliant. For Bernanke. Seems kind of unfair to Dr. Yellen, but she knew what the gig was when she took it. Much more on the extended implications and likely resolution problems with QE-Infinity below.  

But first, it was an impressively collegial affair at yesterday’s Senate Banking Committee confirmation hearing for Dr. Yellen. In fact, almost surreal. There’s a reason for that. After taking the blame (and opinion poll nose dive) for the US government shutdown, the Republicans were NOT going to significantly oppose the appointment of such an experienced and savvy candidate as Janet Yellen. So some typical Conservative opponents of Fed activity like QE largesse and weak regulation of big banks, etc. were purring like little kittens instead of playing their typical Tigers of the Right role.

They did get their points in, yet in a most agreeable way. Senator Bob Corker (R-TN) is one of the very few successful businessmen in the US Congress. No surprise he is also one of those free market Conservatives who has had questions about Fed policy in the past. However, he was very restrained if pointed in the lines he pursued, and allowed quite a bit of forbearance on the key issue of whether such extensive QE had left the Fed a 'prisoner of the markets'. He even took the trouble to clarify that Dr. Yellen is no perma-Dove… the conversation actually evolved into whether she had voted for 20 or 27 rate hikes during her various roles at the Fed (and never opposed any rate hike.)

We also afford those wishing to review the entire 2 hours 17 minutes the benefit of this link to the Full Senate Confirmation Hearing for Dr. Yellen. 

The Current Rohr Technical Projections - Key Levels & Select Comments are available via the link in the right-hand sidebar

Read more...