Comments on: The WSJ’s Greg Ip Defends Bernanke Against Martin Wolf

By: Yves Smith

Yves Smith — Thu, 30 Aug 2007 22:41:00 +0000

I spoke too soon; a lesson for me not to work from memory in an area I don't follow closely.

This was the second GDP release for that quarter. It was revised up from an initial estimate of 3.4%. Apparently an increase was expected; the consensus forecast was 4.1%.

I have to confess to being a bit perplexed, particularly since the economy grew only 0.6% in the first quarter. In a big economy like ours, big swings aren't normal.

I'll see if I run across any helpful commentary from the stat mavens.

By: Yves Smith

Yves Smith — Thu, 30 Aug 2007 16:36:00 +0000

Thanks for the comments. Some off the cuff reactions:

I'd like to see what the stat watchers make of that GDP release. There's been a tendency for the initial release to be high and for it to be revised down in at least once, sometimes twice. I must confess I don't watch this closely myself, but as I dimly recall, auto sales were very poor in April, and retail sales were very strong at least one month, but very weak another. So the few stats I've seen don't support a 4% increase, but I as I said, I only watch this in passing.

As to the wisdom of someone at the Fed queuing up this story with Ip (if my suspicion is correct), what bothers me is that makes the Fed more concerned with image management than substance. Remember, traders read the Dddd statement as a promise to cut. If the Fed doesn't like that reaction, using Ip is great way to clear that up. But instead, this appears to be reputation defense, and weirdly, against a source that, although highly regarded, isn't widely read here.

Long winded way of saying it smacks of hypersesnsitivity and wrong priorities.

By: Anonymous

Anonymous — Thu, 30 Aug 2007 16:06:00 +0000

There is still a lemony smell about. Is issuing from a persistently large number or from those being squeezed?

By: dd

dd — Thu, 30 Aug 2007 13:59:00 +0000

Is it possible the money did make it where it needed to go if the banks were borrowing on behalf of clients and/or funneling money to affiliated BDs that in turn could finance the hedgies, SIVs, and even corporate clients? Hasn’t the Fed been issuing exemption letters for this purpose?
Don’t know much about the process; but reading between the lines it seems a back-door was opened.

By: a

Thu, 30 Aug 2007 12:41:00 +0000

2Q GDP at +4%. Looking in the rear view mirror anyway, it looks like the real economy is doing pretty well. What could change the view of the Fed on the real economy for the Sep meeting? Does this figure mean that a Fed cut is almost off the table…??

By: Anonymous

Anonymous — Thu, 30 Aug 2007 10:01:00 +0000

Fantastic piece Yves. I couldn’t agree more. I read the Martin Wolf piece and thought it summed up the situation perfectly. It’s a sad thing to say, but I ignore virtually everything that comes from the fed.

By: Anonymous

Anonymous — Thu, 30 Aug 2007 09:54:00 +0000

Ip may be right about the weaning. The real test comes at the meeting. Here the dejure versus will be key.

Wolf sets out reasonably sound stall which may need some refinement re: communications and what needs to be communicated, nothing which has not been said once to date.

But as post last there can be expected to be a reaction. No need not to prepare a solid defence. Kremlinology may of may not be an important part of this.

By: a

Thu, 30 Aug 2007 08:18:00 +0000

A more charitable take is perhaps: Bernanke thinks the Wolf piece is misinforming the market about the Fed’s intentions, and he is using Ip to clarify.

As near as I can tell, all one can criticize Bernanke up to this point is that he stood behind Dodd while Dodd summarized their meeting. Perhaps this was naive (Dodd is a politician and will say what he wants, even if that puts others in a bad position).

But let’s see what Bernanke actually does – specifically the Sept Fed meeting – before criticizing him.