Obama to Ben – your fired !!! On Monday evening, President Obama said in an interview, “Well, I think Ben Bernanke’s done an outstanding job. Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI – where he’s already stayed a lot longer than he wanted or he was supposed to.” Many of the financial pundits were astonished. What’s going on here?
In an interview with CNBC, former Fed Governor Larry Meyer said Obama “basically fired Ben Bernanke on the spot.” “This is really remarkable,” said Meyer. “I almost fell off my chair when I heard the President’s remarks last night, then he gave a fairly tepid testimonial afterward.” “The President said [Bernanke] stayed ‘longer than he wanted to and was supposed to.’ What does that mean? I am just befuddled.”
Lets break this down a bit. First, Obama is a very careful person when it comes to his speech. Everything is fairly well scripted. Though I am sure later he will try to back track his comments, I believe he meant exactly what he said. The Fed is making some fairly big decisions right now. To “taper” or “not to taper.” This will have profound effects on the economy. Obama wants Ben to continue to “goose” the economy to help him politically. Ben is obviously extremely worried about the $1 trillion-dollar per year expansion of the Fed’s balance sheet. He does not want to go down in history as the man who blew up the Fed. It is clear that Obama and Ben do not agree, as their objectives are different.
Normally a Fed chairman exits more gracefully, to ensure continuity. As well, you don’t want to “clip” the wings of an outgoing Fed chairman to, in a sense make the chairmanship’s role ineffective in a lame-duck position. But this is exactly what Obama did. Obama is quite comfortable now in his position and not afraid to use the power of the presidency. He sent a clear message to the other Fed members and the future chairman what he wants – easy money.
For the markets, this means the “taper” will happen much more slowly than perhaps the Fed would want. Obama and the Democrats are playing a dangerous game. All this easy money could come back to bite them. They are assuming an improving economy in a tide that will lift all boats. But what if it doesn’t? Can you really create a good economy by “goosing” the books? Are we setting up yet another presidency, in another 8th year crash? As each day passes, Obama is looking more and more like Bush.
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