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Thoughts from Jackson Hole

BernankeIn his long awaited speech Friday Mr. Bernanke pretty much told it like it wasWithout giving you a line by line analysis the Fed chairman took the Federal Reserve back to its roots

As we have penned in the past the Fed traditionally has had a dual mandate of stimulating output when needed and long term price stabilityThe Fed worked from the premise that if the economy grows asset prices will followWhen it became apparent that the financial crisis of 2008 was spinning out of control the Feds mandate shiftedThe implementation of QE II confirmed the Fed now believed that boosting asset prices was the key to jump starting the economy
Remember Ben is a student of the Great Depression and his biggest fear was the devastating effects of deflation not inflationIn his speech he pointed out that even now the Fed is very accommodative and will remain so until at least 2013The door remains open for a QE III but I doubt the political will is there and the crisis here at home would have to weaken significantly before such a program would come to pass
Pointing his finger at the political process he signaled it is time for Washington to pick up the baton and take the necessary steps to deal with long term structural issuesI wont hold my breath on that one
Trichet - Nothing really to report hereJean-Claude delivered an almost meaningless speech that was little more than an academic comparison of growth rates between the U.S. and EuropeI wont waste your time with an analysis of his comments because it doesnt deserve any
LagardeChristine Lagarde said we are in adangerous new phase”… “We must act now.”  

The shot heard round the world was her statement thatbanks need urgent recapitalization.”  In addition she pointed out that Europe needs a common vision of its future.”  This is really the heart of the problemContinued aid and participation from Germany its strongest member will be difficult at best especially with political pressure rising against Chancellor Angela Merkel
Some Greek newspapers refer to Germans as euro Nazis.”  With emotions running high and pressures mounting my confidence in the sustainability of the Euro is very low and expect it to disappear within two years.