A review of Benanke's Speech on 1st of December 2008

Chairman of Federal Reserve, Ben Benanke gave a speech in Texas on December 1st, 2008. The speech was an attempt to reharse the problems of the society in the context on Fed policy. It had become officially clear that U.S economy is in recession going by James Pertuba of M.I.T, who on the same date highlighted that the country had been in recession for over a year. If this is the case, there is nothing about this recession spoken by Ben Benanke in this 1st December of 2008 speech in Texas. Benanke spent more time reharsing te policies of the Fed over the years leading to the day in question. Some of his usual nuances about inflation were expected but the motion of buying deliquent credit seem relatively new.



What was not clear is that frequent mention of "price stability" "standing institution" "primary dealer" "Federal Reserve credit" "private counter party", which despite the clarity of the terms involved seem a bit foreign to the current argument of inflation and recession. If these newer nuances only means that he is looking at secondary option to reverse the trend and that the Feds were looking at using third party to paddle the issue of credit in the country. This might mean that Banks and Banking section is entirely under review, whether he is suggesting that the problems of the society is credit driven does not mean that credit and credit default can replace the issue of value, which is a market trend.



The price of houses in the US has taken a huge spike since 2000 and the money been paid to Banks could not be maintained by Americans on fixed income. This huge run on prices does not infect the value of real estate everywhere in US, but the forceful trend of high prices led to manipulation of Americans by their Banks and their brokers. Shortfalls in payment was only natural and these banks have so much in their hands in times of Assets. 'Decay' is a big deal in real estate, but it does not apply except in the context of reversals in prices, and how those prices remain profitable when default and deliquencies forces drop down in real estate prices, then stagnation. Banks can also remain hostile to spin of assets, with the Feds and Treasuries breathing down their neck about redemption. Upward trend is a market problem, it is a question of price.

Anyone who has followed Benanke's speeches would not fail to notice three major themes his meetings. These are as follows (1) market prices/convertibility (2) price stability and sustainability of demand (3) inflation accounting as converging negatives. It is clear that Benanke is yours truly Keynesian, not that he believes that sustainig demand is the function of the government propiece, rather price stability can encourage a good degree of market 'demand' precipiece. This naturally encourages manufacture and explains the basis of Benanke' insistence on price stability. Manufacturing is a first rate sharpe of market prices, yet price stability in America is not a function of the credit market.

Benanke mentioned that "global economic growth will level out the commodity price" reffering to the act of allowing emerging nations in the world like China to enter the common market. That Benanke reffered to this particular Fed policy in his speech means that he was educating the crowd on the Hedge against the current economic crisis. It is important to understand what that means in realtime, it simply means America was never expected to support its own market and that commodity had been factored in, hence the inevitability of inflation. The trend was upwards and the general conditions means that inflation will stay the course unless a reversal is effected. From such position, we can see that the Speech was intended as an invitation to the Fed policy of buying bad credit as a form of deflationary tactics. But then the jump to Deflation is a last option for markets that are stretching its limits.

On the same day, James Hamilton was also interviewed by Tom Keane on Bloomberg news, and James Hamilton was giving his review of his book 'Time series analysis' upon which hour he mentioned that in terms of Fed policy and the new issue about deflation, it is possible that the Feds were 'running out of option'. James Hamilton suggested that Benanke was perhaps experimenting with the whole issue of 'deflation' given especially his stated awareness of the problem of global stores houses.

I cannot credit Benanke with the claim that he was aware of the problem of global stores given the current surge of inflation, on the count that Junk bonds were until lately outperforming the US Federal Reserves by 11%. It only means what it chimes, that America investors were primarily involved with investment banking with lending to third party, usually foreign businesses. US funds rate had been for many years at all time low an lower still, at Q3, 07, 90% of US Exchange traded funds were still foreign. We are still aware of Greespan's "irrational exuberance" which fall exactly short on the warning that the current American expansion of its local market cannot be defended by its local markets. The lending practices of the 2000's were cause for concern in America, and the returns were not locally generated. Much of that money were invested elsewhere, e.g China, India, Brazil, Russia, Western Europe and Eastern Europe and other secondary emerging markets in the world.

Given the different international valuations of world market, it is not difficult to understand why these funds trapped oversea cannot be accounted for. The funds are seriously trapped. As such the idea that "global economic growth will level out the commodity prices" is entirely redundant on the platform that 'price stability' is a function of the credit market which America and its lending tree is the very fulcrum. The collapse of value is not American in origin, but the rise of inflation in America is due to excess floation leading to deliquences. Deliquencies from fixed incomes.

This 1st of December speech is therefore a hint that the Feds were retreating to the 'formation of crisis' leading to 2008. That means that American recession is more than 12 months. It is several years old. On the October 7th 2008, the world began to crack on its base and immediate attention and remedy was the 'supply side' economics. Of course there is the drain of funds. Whatever the outcome, the general lack of commitment on the part of American banks is not really the bane of global markets. As such the participation is completely disusue. These terms ''short term rate'' "short term funding" "higher credit rating" or "standing instutition" and third party, the usual highlights of Benanke's speech means a consistent federal government intervention, perhaps at a calculated rate which might also mean extensive monitoring by Feds. Risk and price management which be the current theme, but when you have a loss of liquidity, you are likely to stall the market since there is high volitality. Such third party arbitraguer in all consensus will further dislocate the lending institution and nothing under the current condition will hold their value.

Iroabuchi Onwuka