Sunday, December 21, 2014

The Jackson Hole circus: Does Bernanke's Fed matter?

Tax and interest rates aren't what drives the economy, says Dick Bove'

The Jackson Hole circus: Does Bernanke's Fed matter?

As Federal Reserve chairman Ben Bernanke and his cronies posture for the news media out at the Kansas City Fed's annual gathering in Jackson Hole, Wyoming, veteran bank analyst Richard X. Bove' says the circus is beside the point, in a note to clients of Rochdale Securities. Highlights:

"The Federal Reserve has a minimal impact on economic activity and that the government’s tax 
policies neither drive nor hinder the economy. In a capitalist economy it is all about the actions in the private sector.

"Over the past 25 years the economy has grown faster when there are tax increases than when there are tax cuts. Check the numbers...

"Presidents George H.W. Bush and William Clinton both raised taxes and the economy grew.

"President George W. Bush lowered taxes and the economy barely grew...

"Cutting interest rates lowers savings and weakens passive income. That is a fact...

"By lowering interest rates and printing money the Federal Reserve has lowered government interest payments to foreign governments and it has helped fund the deficit. This central bank has been of major assistance in aiding the Treasury in handling the Federal debt. That is a fact.

"Theories about whether the actions of the Fed have aided the economy can be argued forever. One fact that stands out in this debate is that debt in the financial sector has declined as rates and monetary policies have been eased. That fact flies in the face of all the theories that state Fed easing aids the economy.

"The fact is that this central bank has been funding the government not the economy...

"The media and politicians will have great fun this weekend scratching each other backs... However, they will do nothing that will either aid or harm the economy. They will simply spin theoretical tales that are useless in getting anyone a job."

In short, the economy prospers, not so much when rates rise or taxes fall, but when the private sector is confident that supply and demand will make growth profitable.

Adds James M. Meyer of Tower Bridge Advisors, in a report for Boenning & Scattergood: 

"The harsh reality is that the Fed has very little ability to move the economy from here. Interest rates are already ultra low...

"What might be more effective is for Bernanke to use stronger language than he has used in the past to try and make a point that Congressional action on fiscal policy would be a much more effective method to achieve economic improvement...

"If the Fed prints more money, it would simply pile idle cash on top of the idle cash already existing in the economy... Name me just one bank that wouldn’t like to make more loans today. Does anyone really think banks are content to earn 25 basis points parking cash at the Fed? They aren’t doing it to make money. They are parking the money because loan demand is insufficient and regulators won’t let them make low or medium quality loans."


Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at or 215 854 5194.

Joseph N. DiStefano
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