Do you want to bet none of these questions gets asked today?

Questions for Bernanke
by Gary North

The Federal Reserve System is on the defensive. This has not happened before in my lifetime.

On Wednesday, April 28, Ben Bernanke will hold a press conference. This has never happened before. Journalists will be allowed to ask questions. It will be held at 2:15 in the afternoon, Eastern Daylight Time. The Bankrate site has set up a reminder program so that you won't miss it. It will be broadcast on their site.

We are beginning to see lists of questions that people would like to see asked. These tend to be hostile questions.

5 Questions for Bernanke
16 Questions for Bernanke
I have 16 questions. I hope at least one of them gets asked and answered.

Here is what the session will not be. It will not be open to all journalists.

Each journalist will not submit one 3x5 card with his question.

Bernanke will not shuffle the cards and answer them in order for the duration of the session.

When he submits to that sort of inquiry, I will be impressed. Not until then.

Here are my questions.

1. WHAT EVER HAPPENED TO THE FED'S EXIT STRATEGY?

For two years, Bernanke spoke about a proposed exit strategy. The monetary base has soared. This is the FED's balance sheet. Nothing like this had ever taken place in the era of the FED, not even in World War II. The exit strategy is the FED's plan to reduce the monetary base. He never said what number is the goal.

Here is his testimony to the House Banking Committee in February 2010. It promised an exit strategy.

In mid-February 2010, the FED began a policy of reducing the monetary base. This was a faint hint of the promised exit strategy. It was maintained until early January 2011. Then it was abandoned with a vengeance. The chart issued by the Federal Reserve Bank of St. Louis reveals the extent of the reversal.

Not only is there no exit strategy in 2011, there has been a massive reversal. So, what happened to the exit strategy?

2. WHY DID THE FED ABANDON THE EXIT STRATEGY?

There must have been a reason. What was this reason? What did the staff economists report that persuaded the Federal Open Market Committee (FOMC) to reverse the tentative exit strategy of 2010?

3. WHY DID THE FOMC SELECT $600 BILLION?

The FOMC announced on November 3, 2010, that the expansion of the FED's balance sheet would total $600 billion at a rate of $75 billion per month.

What was the basis of this figure? Why not $500 billion? Why not $800 billion?

4. WILL THE EXPANSION END IN JUNE, AS PROMISED?

Under what conditions might it not end?

5. WHEN WILL YOU TESTIFY TO RON PAUL'S SUBCOMMITTEE?

So far, no Federal Reserve official has testified before the United States House Financial Services Subcommittee on Domestic Monetary Policy and Technology. Under what conditions will you agree to testify before this subcommittee?

6. WHY ARE EXCESS RESERVES SO HIGH?

America's commercial banks have over $1.3 trillion in excess reserves on deposit with the Federal Reserve System. This money is not being lent.

What are commercial bankers afraid of? Why are they refusing to lend money? They cannot earn enough money at the FED – slightly over zero percent – to meet operating costs with this unused capital.

7. WHAT WILL HAPPEN TO PRICES IF BANKS BEGIN LENDING?

Rising excess reserves offset increases in the adjusted monetary base. M1 has not doubled. The M1 money multiplier has fallen. Price inflation has been subdued ever since 2008.

M1 will rise when commercial banks begin reducing excess reserves and begin lending again. Why won't this raise consumer prices?

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http://www.lewrockwell.com/north/north972.html