| "Ineffective and Impotent": Greenhaus and Pento Slam Bernanke's "Watershed" Moment |
August 16, 2010 - 1:55pm — europac admin
By:
Aaron Task
Source:
Yahoo! Finance
August 12, 2010
Tuesday's announcement that the Fed will start buying Treasuries was a "watershed" moment for Ben Bernanke, says Michael Pento, senior economist at EuroPacific Capital.
Important? Definitely. Successful policy? Not hardly, judging by the market's slump on Wednesday and the critiques levied in the accompanying video by Pento and Miller Tabak's Dan Greenhaus.
The FOMC's move is like "pouring gasoline into the tank of a vehicle that doesn't have an engine," Pento says, noting U.S. banks already have about $1 trillion of so-called excess reserves on hold at the Fed.
"That money is not being moved out," he says. "Consumers are still deleveraging [so] there's no demand for that money. Pouring more gasoline in that tank is not going to spur more lending."
While a little more measured, Greenhaus was similarly critical. In Tuesday's statement, the Fed basically admitted the economy is worse than they thought it'd be, inflation is M.I.A. and that de- or disinflation is the real threat, the strategist says. "In light of this new data [the Fed] said ‘we're going to make an accounting adjustment to our balance sheet.'"
In other words, if the Fed is really so worried about the economy and deflation, why didn't they do more? If the goal is to boost the housing market, buying some $200 billion of Treasuries is not the solution; instead, why didn't the Fed announce renewed purchases of mortgage-backed securities?
"At the end of the day, the structural imbalances in the housing market need a whole lot more" than what the Fed just promised, Greenhaus says.
In sum, "we're at the point where monetary policy is ineffective and impotent," Greenhaus says, suggesting the Federal government could have much more "meaningful impact" on the economy via spending or tax policy.
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