Everyone hangs on its every word. After all, the mantra is "don't fight the Fed".
However, it appears that they are nothing but a political organization, trying to maintain its relevance.
At the head of the class is Jerome Powell, the ringleader of propaganda meant to keep people listening to this rather impotent organization.
Of course, this is his job. That said, we might be better off listening to the old Chairs. It seems they can bring a degree of honesty to the discussion.
Helicopter Ben
Does everyone remember Ben Bernanke> He got the nickname "Helicopter Ben" because of his statement about the Fed having the printing press. It was he, the Great Depression expert, who claimed the Fed could print their way out of any problem and avoid anything that resembled the Great Depression.
It is helpful to remind everyone that it was under his watch that the Great Financial Crisis occurred. This was a situation that arose out of not enough collateral. Ultimately, what was touted as a subprime problem (which was never big enough to take down the global economy), turned into international monetary problems (from the Eurodollar system) coming onshore.
Basically, we watched a glorified bank run. However, instead of depositors running to the bank for their money, the banks were rushing around trying to have their collateral made good.
Nobody wanted to be stuck holding the (near) worthless mortgage backed securities.
For two terms, Bernanke told us all the Fed was doing to "manage" the economy. He repeatedly espoused the monetary policies the Fed was implementing and how they were going to work.
Now, it appears, he is taking a different tone.
So basically Bernanke is saying that what the Fed does only accounts for 2% of the result and 98% is what it says.
This is certainly a different perspective than we see on the mainstream media. In other words, what the Fed does has little impact.
Manager Of Expectations
Have you heard of people "front running the Fed"?
This is where the Fed foreshadows what they are doing in hopes the market will jump the gun and get ahead of them.
It was the situation when the Fed announced they were going to enter the corporate debt market. They announced that and what did market participants do? They ran in to buy corporate debt. Guess who didn't have to enter this market? The Fed.
Of course, this is total market manipulation. Nevertheless, it is legal for the Fed to do this.
It also proves another vital point: the Fed does nothing more than manage expectations. The monetary policy is rolls out is not effective. Even the Fed realizes this. We have to understand how the market is in full control. So the Fed has to get market players to buy into what it is proclaiming.
Naturally, Powell can't admit this since he is up there in front of the microphones shoveling the crap by the ton.
There is one area where Bernanke and Powell completely disagree.
The Fed Doesn't Print Dollars
Here is a video (only 1:30) of Bernanke versus Powell. The former says the Fed doesn't print money where is Powell claims it does.
Which one do you think is misleading here?
It is vital that we point out that Bernanke seriously changed his tune since he was in the Chair. Nevertheless, the Fed does not print US dollars and both know it.
Bernanke was accurate about his claims. Powell went political and talked a lot of truth, although convoluted.
"We print money, digitally. And we do that by buying Treasury bill or bonds..."
Well he was misleading with this entire process. No Jerome, you do not increase the money supply; you increase the monetary base. The reserves that are being printed to buy the government approved securities are not legal tender. Hence, it is not USD that the Fed is printing.
The reserves the Fed creates can only be held by depository institutions. They cannot be held by any individual or business other than banks that have deposits. As for the USD, the only way that is expands is through loans made by the commercial banks.
It is also why Bernanke was correct in what he said. If the banks aren't lending the supply of USD is not increasing.
Perhaps Powell should read Investopedia. Here is what is says about Understanding How the Federal Reserve Creates Money:
However, the vast majority of the American money supply is digitally debited and credited to commercial banks. Moreover, real money creation takes place after the banks loan out those new balances to the broader economy. (emphasis mine)
The broader economy utilizes and depends upon USD. It does not operate on reserves the Fed prints up and sticks on balance sheets of commercial banks. While the Fed believes it is raising the banks loan ceiling, it means nothing if the banks aren't lending to begin with. After all, that is why they bought the securities in the first place. If they were going to lend, they would have done it when the deposits hit the bank instead of opting to buy the Treasuries.
Be very careful of the wordplay the Fed engages in. The reality is not as people think. It is why most have an economic framework that is completely wrong. This is also why people claim stuff that doesn't happen for decades.
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