Professor Elam

The FED Report Card

Ben Bernake as I write is playing out
his part in the latest installment of the Theater of the Absurd. 

Ron Paul has introduced a bill to audit the FED. Initially Barney Frank was
on board forhte audit but of course has been brought back on the reservation by
Chief Bernake. The FED is an independent organization which exists to preserve
banks, not depositors. It is truly absurd to hear politicians defend past deeds
on the premise that 'things are better than if we had not done thus and so.'
 Well since history only has one outcome, how will we know?

The SEC requires public companies to
be audited. Yet the FED claims this would, well frankly I don't know what the
defense is, other than Bernake does not want that done.  So much for promised transparency.  An audit would reveal where two trillion
in TARP and other money went. Bernake claims to have created jobs as the U 6
unemployment has risen to 17%, taking the absurd theater to new heights. We pay
the commerce dept to track unemployment which is now at multi decade highs just
as Bernake tells us he is staunching it. Actions speak louder than words
Ben. 

Bernake's analysis of the Depression
was that FDR did not spend enough money. Actually FDR never managed to create
any private sector jobs, same as now, for all the money he did spend. And so Ben
has spent trillions, plural. But in the Depression the USA was a net creditor,
the world owed us. Now we owe the world, whoops. 

And the debt holders see what we are
doing, seeking to pay back trillions of debt  as we print more and more cheaper dollars. Not surprisingly,
the world wants another currency, US debt holders are shortening maturities
they hold. We do not have enough reserves to pay the debt we need to roll over
this next year, ie, we are as broke as Dubai World. 

The money the FED has printed has
gone into soaring bank reserves which are not being loaned out. Why, well,
banks are not marking loan losses to market but hoarding money hoping the loans
will improve, they are not. Meanwhile the money has found its way into
speculation on commodities, oil gold, silver, copper, you name it, are all up
as well as  the stock market.  Goldman Sachs put their ‘bailout money’
to work March 9 at the market bottom. Now, the new media of blogs and websites
has revealed the private gain in speculation using our public money. This
morning Goldman has announced that perhaps stock rather than cash bonuses are
in order. 

But here is the ultimate irony.   CITI bank, whose stock was beaten
to less than $2 last fall,  lent $8
Billion to Dubai World last December. Presumably the loan was our TARP
money!  Last week of course, Dubai
World announced they needed a payment holiday for a few months on payments due
this month. One wonders, did CITI award bonuses for this feat? As with health
care, the party battle lines are being drawn. The March primaries are but 90
days off.  Unemployment benefits
have been extended again, many states are borrowing from the Federal Government
to pay these benefits. Look for a battle royal over FED policy which has only
created more unemployment.

Meanwhile, oil has fallen below $80
and fewer stocks participate in the rally. The ’new highs’ exist only in a few
stocks in a couple of stock indices. The XES oil and gas services ETF has
pulled back. We look for a couple more weeks of weakness before the traditional
Santa Claus Rally may begin. Overall the FED wants the dollar weak. We suspect
this will lead to ever higher commodity prices in the spring. Yep you heard it
here first. We see a modest pullback in energy prices now. And then the continuing
weak dollar should float oil prices higher in the spring. How high, well, we
suspect the $100+ level. This will result in yet another scramble for energy
services, We pointed out last March that was the time to be shopping for
employees, rather than letting them go. The wise service company will be
readying equipment and employees now.   We suspect the phones will be ringing come the new
year.