Helicopter Ben rides to the rescue of the Fed's banking clients once again
The Dow Jones industrial average closed the day with a gain of 90 points after the chairman of the Federal Reserve gave a robust defence of past central bank interventions, which, traders said, prepared the ground for a third round of quantitative easing should the economic picture worsen. France's CAC and the German DAX closed up 1%.
In his much anticipated a speech in Jackson Hole, Wyoming, Bernanke described the current economic situation as "far from satisfactory". He said that high rates of unemployment were a "grave concern, not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for years".
His speech to the annual central bank symposium came ahead of September's meeting of the Federal Reserve's open markets committee (FOMC), which sets US economic policy. Recently released minutes from its last meeting show the committee has become increasingly concerned about the US recovery and is weighing further action.
However, since the last FOMC meeting, more positive economic news has emerged on jobs and housing. Next week the closely watched non-farm payroll survey of monthly employment trends will be released. After a sharp rise over the winter, job growth slowed in the spring, but appears to be picking up again.
Comment: Appears to be picking up again? Which US economy figures are they looking at? The ones we're reading are disastrous:
Is The Real Unemployment Rate 40 Percent?
He urged European leaders to make faster progress in tackling the debt crisis affecting Greece and other indebted eurozone countries. His concerns that Europe may drag the US back into recession were highlighted by figures showing that unemployment across the zone remained at an all-time high in July.
Comment: This is a startling example of the pot calling the kettle black. It is the US economy that is dragging the rest of the world down into a black hole of debt.
The European Union's statistical agency, Eurostat, said 88,000 more people were without a job in July, pushing the total out of work in the eurozone to 18m, the highest level since monetary union in 1999.
The 11.3% unemployment rate, up 1.2 points from a year earlier, failed to come down after joblessness increased in Spain and bailed-out Greece. In Spain youth unemployment stood at 52.9%, in Greece at 53.8%.
Any monetary action by the Fed is likely to trigger a furious response from elements within the Republican party who have criticised his past actions and warned against new measures.
Mitt Romney, the Republican presidential candidate, has made it clear he will replace the Fed chief, who he accuses of putting taxpayers' cash at risk, if he is elected in November.
The House financial services committee chairman, Spencer Bachus, told Bernanke last month at a congressional hearing: "The truth is the Federal Reserve cannot rescue Americans from the consequences of failed economic and regulatory policies passed by Congress and signed by the president."
Comment: Nevermind the politiking: the Fed's chairman is 'elected' by the private Wall Street banks that own it.
The initial US quantitative easing programme from November 2008 to May 2010 saw the Fed buy $1.75tn in debt held by mortgage providers Fannie Mae and Freddie Mac, a range of mortgage-backed securities and government bonds, mostly from the country's 3,000 banks.
A second round, dubbed QE2, involved an additional $600bn. "Operation Twist" began in September 2011 with a pledge to swap $400bn in short-term loans for longer term bonds, with an extension in June adding a further $267bn.
Comment: And where did all this money go? Towards making sure the US government (ahem, the US taxpayers) continued making interest payments on the spiralling debt they owe to the private banks that own the Federal Reserve.
Bernanke offered a strong defence of his actions at Jackson Hole. "A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks," he said.
In a swipe at Republican critics who accuse him of jeopardising hundreds of billions of taxpayer funds following the expansion of Federal Reserve loans, he said loans by the Fed since the bank rescues of 2008 had earned money for the exchequer.
David Zervos, head of global fixed income strategy at US investment bank Jefferies, said it was unlikely the Fed would back a further round of central bank lending before the presidential election in November.
"The idea that the Fed would come out with unconventional monetary policy, such as credit easing of some kind, seems to be a little bit of a stretch," he said.
"This was a backstop speech that gets Bernanke through. If the data turns or Europe turns, then the Fed is back in."
Gus Faucher, senior economist at PNC Financial Services, said: "It sure sounds to me like he is getting ready to act."
He said the FOMC would now be waiting for the non-farm payroll figures. In July, the US added 163,000 new jobs, more than many economists had expected. Faucher is predicting that 130,000 new jobs were added in August, while other analysts are expecting about 100,000.
"If it comes in below 100,000, I think the Fed will act," he said. "That would be four out of five months below 100,000. That's not good enough."
Can you say: "HYPER(!)-INFLATION!" !