Updated August 26th 2011 – I can’t resist. This is what I wrote after the Jackson Hole meeting in 2010 (last year). Bernanke gave his speech today. Notice any similarities between this blog post and Bernanke’s speech?

And I still think that the NDCI is the only thing that can save the USA (and the world) from a 20 year depression – or worse. Let’s hope that the meeting in September 2011 can finally deliver the goods.

Here is a nice summary of Bernanke’s speech today (August 26th, 2011) :

A House Divided: A Synopsis of Bernanke’s Speech at Jackson Hole, and What It Means

Used with Permission - Click image to see original

Original blog post from Aug 27th, 2010 (last year) :

Wow. Where to start? I have been holding back on a series of blog posts with the title : The Unspeakable. IMHO the current geopolitical and economic situation is much more fragile than many top strategists can imagine. But, for today, a few words that I hope will prove useful and inspiring about the J-Hole meeting.

First, my compliments to Mr. Hoenig.

Avoiding Group Think is essential. I would summarise the invitation mix like this : The people who created the bubble weren’t stupid. Their ideas got inbred. Just like human inbreeding, good ideas mixing back on themselves will start to produce systemically ‘more stupider’ ideas. Mr. Hoenig eliminated (or – at least – mitigated) this very real systemic risk.

Second, my compliments to Mr. Bernanke.

A very good speech. I would summarise it like this : The Fed will buy as many Treasuries as the Treasury department wants. But the economic problem of jobs cannot be managed by the Fed. The Fed’s mandate is to ensure pricing stability (note : not inflation or deflation – pricing stability) and help (as much as possible) to promote full employment.

So, this huge systemic risk (liquidity choking in the home stretch) has also been removed from the list of possible concerns.

Pricing stability is a process because pricing is a process. (I would, however, note that it is my opinion that a steady and declared 2% inflation target is very helpful for business recovery and government planning. One less thing to worry – and hedge – about.)

Full employment will never result from Fed policy. Fed policy is monetary policy. It is not fiscal policy. It is not industrial policy. It is not tax policy. It is not education investment policy. It is not immigration policy. It is not foreign policy.

So, the Fed is now ready. Liquidity management is not a problem. Monetary policy is now flexible and (with the hounds of genius at their heels ie Zero Hedge) creative and innovative.

Bond pricing (cost of money) is now stabilising. Interest rates are low and stabilising. Spreads are settling down on the long end so that people and organisations can commit to long-term investments.

It is now up to President Obama and the political process in the USA to address the economic problems. They have quick access to very large sums of money if they decide to use it. And the liquidity management tools that the Fed now has up-and-running and tested are nimble enough to deal with the mechanics of injecting liquidity and pulling it back out as needed.

I do not see a pricing risk (commonly called inflation/deflation) for asset classes if Congress decides to move decisively to clean up household and bank balance sheets as long as they do this in one gesture. (Obviously, I still consider the NDCI – as designed – the only way to end the ‘credit crisis’ inspired Great Recession.)

And : I think that Labour Day 2010 would be a very, very good day for President Obama to announce it. Only approx. 100 shopping days until Christmas and the year-end.

May all beneficial wishes come true in beneficial ways!

Namke von Federlein