Thursday, July 11, 2013

Bernanke and China Jawbone For Printing Money

Bernanke Printing Money and Gold Prices

Federal Reserve Chairman Ben S. Bernanke jawboned for maintaining accommodation just after the minutes of Fed policy makers’ June meeting showed debates on whether to stop bond buying by the Fed in 2013.

Jawboning is the economic policy tool of using speech to affect economic conditions by managing public expectations. The stock market has responded positively to the prospect that money continues to be printed and interest rates will remain low to prop up real estate. As the real estate and stock markets increase consumers feel more wealthy and tend to increase spending.

Market gains based on inflated dollars instead of wealth creation is the definition of a bubble. Recently,  stimulus withdrawal fears have led to major pull backs in the stock market. Benanke's jawboning is likely an attempt to erase these market declines by reducing skeptical investors' fears.

Also of note, gold prices have plummeted during early 2013. Reports point to central banks selling off large amounts of paper gold. The banks are now reportedly purchased physical gold at reduced prices. Today, gold prices are rising rapidly as China also announced it will "introduce supportive measures."
presumably because of the inverse relationship between the price of Gold, and the market perception of the value of paper currencies. So expectations of more QE is probably what has pushed up the price of Gold.
Bloomberg has more details here.
The Fed chairman spoke just three hours after the central bank released minutes of the June 18-19 gathering showing that about half of the 19 participants in the Federal Open Market Committee (TREFTOTL) wanted to halt $85 billion in monthly bond purchases by year end. At the same time, the minutes showed many Fed officials wanted to see more signs employment is improving before backing a trim to bond purchases known as quantitative easing.

hat tip Bloomberg

Additional Sources:

With few options, Fed turns to 'jawboning'

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