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Last night was a stinker of a night, as Big Ben Bernanke decided to do a Bullwinkle and pull a rabbit out of his hat, and tell an audience that â€œinflation must be watched extremely closely.â€ Like thatâ€™s something new! UGH! Shouldnâ€™t a central bank (that is, if you really feel one is needed) would be â€œwatching inflation closely at all timesâ€? So, he was telling people that he was doing his job, and the markets took it as some great indication that interest rates will rise in the US sooner than expected… Really? And this â€œnew thought on ratesâ€ comes from what Big Ben said last night? Really? Well, Iâ€™ll be a monkeyâ€™s uncle!
Folks, this is nothing more than a tempest in a teapot, and the markets will realize that sooner or later they have egg all over their face, and that interest rates arenâ€™t going anywhere (Fed Rates) sooner! We all know that yields on Treasuries have risen, and mortgage rates are inching higher.
So… Whatâ€™s the Big Deal? Well, as I said, the markets took this comment by Big Ben, and ran with it, which meant, buying dollars… The currency rally we had watched for a few days, came to an abrupt halt… But, the slippage hasnâ€™t been too bad, but then, US traders will be arriving at their desks in a couple of hours, and it will be interesting to see if they take this bait, hook, line and sinker, like the foreign traders did. Oh, and should I remind traders that later in the comment, Big Ben said, â€œinflation gains are likely transitory.â€ Now, does that sound like someone whoâ€™s committed to a thought that inflation is rising, and that interest rates are going higher? I donâ€™t think so…
Well… Things here in the US continue to be pretty shaky… It was reported yesterday that 44.18 million people received food stamps in January…. Thatâ€™s up from the previous reading of 43 million. I find this to be a real problem for me to talk about, because on one hand, there are people who obviously need to eat, but on the other hand, one has to wonder how much fraud is involved in this program, and then we have to get down to the root of the question of whether itâ€™s the governmentâ€™s job… But thatâ€™s a discussion for another day… But you see why I have a problem talking about the food stamps program… And the fact that it adds to the deficit spending in this country.
Speaking of deficit spending… Reader Scott, sent me this, and I just had to go yell at the wall after reading it…
(CNSNews.com) â€“ The US Treasury has released a final statement for the month of March that demonstrates that financial madness has gripped the federal government.
During the month, according to the Treasury, the federal government grossed $194 billion in tax revenue and paid out $65.898 billion in tax refunds (including $62.011 to individuals and $3.887 to businesses) thus netting $128.179 billion in tax revenue for March.
At the same, the Treasury paid out a total of $1.1187 trillion. When the $65.898 billion in tax refunds is deducted from that, the Treasury paid a net of $1.0528 trillion in federal expenses for March.
That $1.0528 trillion in spending for March equaled 8.2 times the $128.179 in net federal tax revenue for the month.
Now, doesnâ€™t that just make you want to yell at the walls, too?
But, we have the ratings agencies downgrading Portugalâ€™s rating… UGH! Sure, Portugalâ€™s debt rating needs to get downgraded, but does that really carry as much weight as the need to downgrade the USâ€™s rating? I guess I need to back off there… The ratings agencies do a very good job…
OK… Are you laughing as hysterically as I am right now? I tried to be nice, but it just didnâ€™t work! But if you think the story above about the US spending 8.2 times their net revenue in March is something… Hey kids, check this out!
In a letter to Congressional members, US Treasury Secretary Tim Geithner decided to give them a piece of his mind…
â€œThe longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations. Default by the United States is unthinkable.â€
Really Tim? Well… Why not send a memo over to the White House and Congress and ask them to stop deficit spending? Because thatâ€™s the only way the US is going to avoid that problem!
Well… The dollar rally overnight wasnâ€™t across the board, as the Swiss franc (CHF) got back on the rally tracks after the downgrade of Portugal, and the star performer of the night was…. Drum roll please… The British pound sterling (GBP)! Geez Louise, what in the world got the pound sterling on the rally tracks, I hear you asking… Well, grasshoppers, it seems that manufacturing is trending higher, thus putting the inflation meter in red territory… And the markets all believe the Bank of England (BOE) is ready to confront those inflation pressures… Just not this Thursday when the BOE meets!
The Reserve Bank of Australia (RBA) left rates unchanged last night, as suspected. Even though a rate hike was not expected, the Aussie dollar (AUD) lost some ground after the announcement. The statement after the rate announcement was very similar to Marchâ€™s statement, with the RBA holding to the view that inflation will remain around 2-3%… In my mind, this is central bank parlance for: rates are on hold for now… The Aussie dollar also saw some slippage on the worse-than-expected trade balance for February… The markets had expected a surplus of A$1.2 billion, but instead a deficit of A$ 205 million printed. So, the recent trend of a narrowing trade deficit in Australia has a hiccup…or at least I hope itâ€™s just a hiccup!
The Aussie dollarâ€™s kissinâ€™ cousin across the Tasman, kiwi (NZD), received a boost overnight, when the Finance Minister (English), said that he â€œwould be surprised if another rate cut is neededâ€… You may recall that the Reserve Bank of New Zealand (RBNZ) cut rates last month to assist the earthquake torn country… Maybe this will be enough to keep the markets and trader from pricing in another rate cut.
This just came across the screens… The Peopleâ€™s Bank of China raised benchmark lending and deposit rates one-quarter of a percentage point, in yet another attempt to apply the brakes to the Chinese economy… Which, by the way, hasnâ€™t collapsed, like a TON of pundits claimed it would do last year… Just thought I would make that point, and then go on… Nothing else to look at here… Move along…
The price of oil stopped rising yesterday, falling from the $108 handle…. But the slippage has been small, so thereâ€™s nothing to get all warm and fuzzy about here… However, with the price of oil backing off some, the Canadian dollar/loonie (CAD), Norwegian krone (NOK), and even the Russian ruble (RUB) get marked down… But, I donâ€™t see this as a long-term trend or anything like that… Again, itâ€™s another hiccup…
Well… This afternoon, weâ€™ll get to see the meeting minutes from the last FOMC meeting… The only thing I would look for are dissenting comments from Big Benâ€™s stance of carrying out QE2… I wonder if the Fed Heads out on the road, talking tough, fade in the FOMC meetings… Fed Head Hoenig, certainly doesnâ€™t, but what about the rest of them?
Then there was this, in an overview of a piece from The Economist… â€œThe Federal Reserveâ€™s policy of driving down interest rates wasnâ€™t intended to hurt retired senior citizens who depend on interest-paying investments, but it did, according to The Economist. There is a growing divergence between the interests of working and nonworking Americans. â€˜The Fedâ€™s task will grow ever more difficult as more Americans age into the latter group, and that is a matter of grave concern for those in the former, as Japanâ€™s working-age population can certainly attest.â€™â€
To recap… Big Ben Bernanke turned the tables on the currency rally last night, when he mentioned that â€œinflation was being watched very closely.â€ The dollar rally wasnâ€™t across the board though, as Swiss francs and pound sterling rallied for different reasons. The RBA left rates unchanged, and Australiaâ€™s trade deficit got a surprise that wasnâ€™t good for the Aussie dollar. And… The US spend 8.2 times their net revenue in March… Deficit spending at its best, eh?
Dollar Rallies As Bernanke Announces He’s Doing His Job originally appeared in the Daily Reckoning. Daily Reckoning founder Bill Bonner recently wrote articles on stagflation and introduced his new book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas.
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Dollar Rallies As Bernanke Announces Heâ€™s Doing His Job
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.