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The Bernanke Monetary ‘Model’…going forward!

September 18, 2013

According to Ben, markets will not dictate Fed policy. What does this mean going forward? To me, this means that the Fed (Mr. Bernanke and his select members on the FOMC committee) will attempt to DICTATE monetary and economic policy for the forseeable future. There will be NO tapering for years and years as our global economy is a basket case (living on steroids is the only solution to avoid collapse). Digital money units can now be created to avoid collapse (assuming Bernanke’s model) and digital money will continue to flow indefinitely. That is my reading of Ben’s presentation today after the FOMC meeting in Washington D.C.

So what is the Bernanke Model going forward? Let’s describe the key items which are now the core philosophy of Ben and Company:

1. The idea of free markets creating change in prices, interest rates, and values is obsolete. From now on, the Fed will dictate what is appropriate and right for the economy. Ben made this clear in his speech that ‘markets will NOT dictate’ policy going forward. Ben will dictate policy and he has control of the FOMC committee as long as he is Chairman.

2. Ben views current metrics as the criteria for any change in policy. In other words, what is happening in the markets (U.S.A. and globally) will determine what policy proscriptions will emerge. Right now, Ben thinks that interest rates need to stay low and markets need the steroids of QE indefinitely.

3. Unemployment and the rate of unemployment is one metric to consider in monetary policy…but this metric will now be viewed based on the participation rate increasing and other factors. The pure BLS unemployment rate which is now 7.3% is only one of the factors to be considered.

4. Ben still thinks that the Fed has many ‘tools’ to use for the next few years. The limiting factors to Fed monetary policy are the Private markets response to QE and also the Fiscal issues within our Congress. These factors could make it difficult for monetary policy if items like the Debt Ceiling are not resolved properly.

5. Ben’s model is primarily based on economic conditions within the U.S.A. He will, however, factor in conditions within Europe and the Emerging Markets when this is appropriate.

6. Any future ‘tapering’ will totally depend on the Fed’s assessment of economic conditions at the time of any FOMC meeting. Ben expects the Fed’s balance sheet to grow but he does not view this as a problem for the Fed and their policy decisions. This means that increases in the Fed balance sheet can grow and grow…going forward.

7. Ben’s new economic and monetary model will be based on conditions on the ground as interpreted by he and his committee at their monthly meetings. The free market will NOT dictate any future policies. This means that Ben views the Fed as a strong and independent entity which can not be changed arbitrarily by any market forces.

In conclusion, Ben would not speculate on how long he will remain as Chairman of the Fed. He will address this issue at some later time. Ben’s philosophy, however, will likely continue for many years as he seems convinced that the Fed will be viable and active indefinitely. At some point down the road the Fed will achieve its policy objectives. My personal view is that Ben and his Committee have a view of reality that is not realistic. In reality, market forces will dictate future conditions and the Fed will not be able to over-rule these market forces. Enjoy and keep watching the markets. Don’t sell your silver or gold as we could see explosive increases in the next year. I am:

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