Ben Bernanke 311.
(photo credit: REUTERS)
Jackson Hole, Wyoming? The very name reeks of danger, although whether the
source is Indians – Apache? Cheyenne? – or desperado outlaws can be left to the
imagination of anyone with a suitable background in Westerns.
however implausibly, Jackson Hole is a place where a group of the most powerful
people in the world gather in the late summer heat – not that they are exposed
to the elements, of course – to talk about global finance. Not only do they not
shoot up the town or make rowdy in the saloons, they don’t even indulge in the
modern-day recreational events that this mountain resort has to offer.
Nevertheless, at this moment in time, Jackson Hole is the center of the global
financial system and, for the myriads round the world who are part of that
system, it is the most important place on earth.
On Friday morning, local
time – late afternoon in Israel – Federal Reserve Chairman Ben Bernanke will
give the keynote address at the first day of the annual symposium held at
Jackson Hole and hosted by the Reserve Bank of Kansas. This is the most eagerly
awaited event of the week, and probably of the month, for the aforementioned
myriads – because they expect Bernanke to spell out what he wants the Fed to do
in response to the unexpected and rapid deterioration in the health of the
American and global economies.
Last year – this is the phrase that has
appeared in 100,000 articles on this subject written and published around the
world over the last few weeks – last year, Bernanke laid the ground in his
Jackson Hole speech for the formal announcement of “QE2” – the second round of
large-scale purchases of US Treasury bonds undertaken by the Fed, in an effort
to spur the US economy to stronger growth. Because of this precedent, as well as
other important speeches made at Jackson Hole over the years – there is a strong
conviction that this year, too, Uncle Ben will charge to the rescue of the
sinking markets and floundering economy, at the head of the US cavalry and in
the best traditions of John Wayne in John Ford’s epic movies.
strong conviction is by no means universally shared. Many analysts are dubious
whether Jackson Hole will this year see a sequel to last year’s performance, let
alone anything on the same scale as QE2 eventually turned out to be (a $600
billion program lasting eight months). The main argument of the doubters is
brutally simple: after spending all that money – not to mention even bigger
amounts in QE1 – the Fed has very little to show for its efforts. Unemployment
is still high, economic growth is fading – to the open consternation of the Fed
itself, which predicted stronger growth in the second half of this year – and
whereas last year there was a threat of deflation, this year has seen higher
inflation, thanks to energy and food prices. There is a widespread belief, at
least amongst those skeptical that QE3 will be launched on Friday, if at all,
that the huge amount of money pumped out by the Fed actually contributed to the
surge in energy and food prices. In any event, it certainly had little impact on
production and investment in the American economy, and such impact as it has
proved all too fleeting.
There is, however, a counter-argument even more
powerful than the seemingly convincing case against QE3, based on the failures
of QE1 and QE2. That is, that the Fed cannot be seen to do nothing. Inaction is
not an option, because it implies an admission of defeat before the fight even
begins. It’s like a gunslinger failing to show up to the shoot-out. That’s not
acceptable behavior in Wyoming, not in the frontier days and not today either.
Ben will show, he’ll make his play and he’ll go down shooting if need be – but
no-one will be able to say that he walked away.
That is a brief summary
of the millions of words written on this subject, all in preparation for
Friday. No-one has any idea what Bernanke will actually say, but one
thing is certain: an even greater number of words will be written in the next
week explaining why he did (or didn’t) say whatever it is he is going to