House Republicans rip into Fed chief Bernanke

[PeacePlan]

House Republicans rip into Fed chief Bernanke

Ron Paul sees higher inflation arising from quantitative-easing policies

By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — House Republicans turned up the heat Wednesday on Federal Reserve Chairman Ben Bernanke as he appeared before Congress for a second time this week to testify on the U.S. economic outlook.

Reuters
Fed chief Ben Bernanke, during March 1 testimony before a Senate panel.
Rep. Ron Paul (R., Texas) called inflation a "deadly threat" to the economy and said it’s being caused by current monetary policy.

Paul, long a fierce critic of the U.S. central bank, disagreed with Bernanke’s assertion in his appearance before the Senate on Tuesday that the recent spike in oil prices would only lead to a "temporary and relatively modest" increase in consumer price inflation.

"I would suggest that we still have a lot of inflation in the system and it is going to get much worse," Paul said.

Paul said that economists he follows argue that consumer prices are rising at a 9% clip and that the money supply is rising at a 24% pace.

"Inflation is exploding and interest rates are going to go up and we are going to have one heck of a problem in the future," Paul said.

Pressed by Rep. Scott Garrett (R., N.J.) about how long inflation would have to rise before the Fed would respond, Bernanke said it depended on whether inflation expectations were anchored and what was going on with the broader basket of prices.

"Oil prices alone, with nothing else moving, would probably not be enough to make us respond," Bernanke said.

The central banker seemed unnerved by the strong criticism but stuck to his defense of the Fed’s innovative bond-buying program.

Known as quantitative easing or "QE2," the policy has entailed the Fed buying up U.S. bonds, including cash reinvested from maturing mortgage-related holdings, in a bid to curb upward pressures on interest rates and thus foster the economic recovery. Through Tuesday, the Fed had bought back about $458 billion under the $600 billion program, according to the latest tally compiled by Morgan Stanley.

Bernanke insisted that supply and demand factors, and not Fed policy, were behind the run in commodity prices. He specifically said the weaker dollar /quotes/comstock/11j!i:dxy0 (DXY76.64, -0.41, -0.53%) wasn’t behind the surge in commodity prices, since prices have climbed significantly in terms of all major currencies.

"The fears of some foreign governments that we were manipulating the currency ... have not come true; the dollar has not moved very much at all. And commodity prices have risen just about as much in other currencies as they have in terms of the dollar so I don’t think they are primarily a dollar phenomenon," he said.

New political realities

In a sign of the unusual clout of the class of House Republicans elected last November, Rep. Spencer Bachus, chairman of the House Financial Services panel, let five freshman members of the committee give opening statements. In typical hearings with Bernanke, freshmen might not even get to ask a question.

In general, the freshman members used their time during the hearing to urge the government to slash spending to achieve faster growth.

Rep. Michael Grimm, a freshman Republican from New York’s Staten Island, said he was concerned about what’s happened since the start of QE2 early last November.

During that interim, oil prices /quotes/comstock/21n!f:cl\j11 , +2.31, have risen from $84 to $100 a barrel, Grimm pointed out.

"There are more people who believe that aliens in Roswell than believe inflation is 1.6%," said Rep. Steve Pearce (R., N.M.). His district includes the town of Roswell, where a spaceship is rumored to have crashed in 1947.
Last month, the government reported retail-level inflation running at a 1.6% clip for the 12 months through January.

Also Wednesday, Bernanke continued to urge Congress to come up with a "longer-term plan" to bring down the deficit.

In testimony before a Senate committee Tuesday, Bernanke said that whether or not interest rates will spike depends "far more on Congress’ decisions about long-term fiscal planning than anything the Fed is going to do."

Greg Robb is a senior reporter for MarketWatch in Washington

 

[Mogambo Guru]

http://www.zerohedge.com/article/watch-highlight-todays-congressional-hearing-ron-paul-vs-bernank

Watch The Highlight Of Today's Congressional Hearing: Ron Paul vs The Bernank

The must watch 5 minutes from today's second day of Bernanke hearings before congress is the following interaction between the Chairman and his archnemesis: Ron Paul. The first brilliant rebuttal by Ron Paul has to do with the ongoing "Federal Reserve lecturing" on why Congress should not allow out of control deficits to escalate. As Paul so correctly put its, "the Congress and the Fed are symbiotic because the Congress spends and they know there is a moral hazard involved because they know that if interest rates go up, the Fed accommodates them. So the Fed really facilitates this spending, and until we realize this I think the Fed is involved with our deficit and encourages it as well as the Congress." This is an absolutely smack on point which goes to the whole heart of the real premise behind QE2: keeping rates low so there is no prohibitive lever against runaway deficits. That, and of course, ending up the primary holder of US debt so that the Treasury can convert "interest expense" into "revenue." And if the 10% of the public that benefits from a Dow 36,000 believes the false "wealth effect" myth in the process (nominal, not real) so much the better. It did, after all, work for a while in Weimar Germany. And while Paul touches on other key topics such as purported price stability (there recently was a scientific paper proving there has been no real change in price stability before and after 1913, which we will track down shortly), real plunging employment and the definition of the dollar (to which Bernanke's repartee that "Consumer don't want to buy gold" should probably be reevaluated in light of today's all time record high price). Yet one exchange that was missing, which was not between Paul and Bernanke had to do with Bernanke's reasoning why in his view it was not possible to get back to the gold standard: "there is not enough gold." That, unfortunately, is the most patently absurd claim ever and coming from a Fed Chairman we are pretty confused by its implications. Surely Ben realizes that all that matters is the price equivalent ratio of conversion. There will be more than enough gold if gold is converted instead at $2,000/oz at $20,000, or failing that, $200,000 and so forth. There will be more than enough gold if one ounce is equivalent to a million piece of linen or more, or more realistically, at $6,300 as Dylan Grice quantified previously. We guarantee it. And after all, that is the whole point of a gold standard: not to dilute the currency infinitely.

 

[yatez112]

http://www.zerohedge.com/article/watch-highlight-todays-congressional-hearing-ron-paul-vs-bernank

Watch The Highlight Of Today's Congressional Hearing: Ron Paul vs The Bernank

The must watch 5 minutes from today's second day of Bernanke hearings before congress is the following interaction between the Chairman and his archnemesis: Ron Paul. The first brilliant rebuttal by Ron Paul has to do with the ongoing "Federal Reserve lecturing" on why Congress should not allow out of control deficits to escalate. As Paul so correctly put its, "the Congress and the Fed are symbiotic because the Congress spends and they know there is a moral hazard involved because they know that if interest rates go up, the Fed accommodates them. So the Fed really facilitates this spending, and until we realize this I think the Fed is involved with our deficit and encourages it as well as the Congress." This is an absolutely smack on point which goes to the whole heart of the real premise behind QE2: keeping rates low so there is no prohibitive lever against runaway deficits. That, and of course, ending up the primary holder of US debt so that the Treasury can convert "interest expense" into "revenue." And if the 10% of the public that benefits from a Dow 36,000 believes the false "wealth effect" myth in the process (nominal, not real) so much the better. It did, after all, work for a while in Weimar Germany. And while Paul touches on other key topics such as purported price stability (there recently was a scientific paper proving there has been no real change in price stability before and after 1913, which we will track down shortly), real plunging employment and the definition of the dollar (to which Bernanke's repartee that "Consumer don't want to buy gold" should probably be reevaluated in light of today's all time record high price). Yet one exchange that was missing, which was not between Paul and Bernanke had to do with Bernanke's reasoning why in his view it was not possible to get back to the gold standard: "there is not enough gold." That, unfortunately, is the most patently absurd claim ever and coming from a Fed Chairman we are pretty confused by its implications. Surely Ben realizes that all that matters is the price equivalent ratio of conversion. There will be more than enough gold if gold is converted instead at $2,000/oz at $20,000, or failing that, $200,000 and so forth. There will be more than enough gold if one ounce is equivalent to a million piece of linen or more, or more realistically, at $6,300 as Dylan Grice quantified previously. We guarantee it. And after all, that is the whole point of a gold standard: not to dilute the currency infinitely.

I love RP, but some of the comments are spot on in the ZH link.

 

[SLSteven]

Bernanke: "Consumers don't want to buy gold."