Federal Reserve Math is the Second Most Spectacular Thing I Have Seen All Week

The first most spectacular is none of your business.

Anyway, file this under things guys like Ben Bernanke both actually say and actually believe (via Reuters):

Bernanke said that a $60 billion cut along the lines being pursued by Republicans in the House of Representatives would likely trim growth by around two-tenths of a percentage point in the first year and one-tenth in the next year.

"That would translate into a couple of hundred thousand jobs. So it's not trivial," he said in response to questions from members of the House Financial Services Committee.

Pressed on how such job losses would affect the recovery, Bernanke said that in spite of concerns about the longer-term budget deficit, the Fed's focus is on reducing unemployment.

"I would like to see job creation," he said. "What I have been trying to focus on is, we have got to keep our eye on deficit reduction, but we need to think about it in a long-term framework."

Here's where I am confused by the math and please, if someone knows how to add up big ass numbers better than I do I invite you to correct me if I have this wrong.

In January, Fed vice chair Janet Yellen said both rounds of Fed securities purchases of $300 billion and $600 billion (lovingly, if mistakenly, dubbed QE and QE2, respectively) could, according to the Fed's painstaking research and/or never wrong , create 3 million jobs by 2012. Well... $900,000,000,000 divided by 3 million = $300,000, so for each $300,000 the Fed creates, supposedly 1 job comes out of it as a result.

Ignore the fact that even if this assumption is correct, all those new workers will actually be paid less than they think they're getting paid as the Fed has to get the value for the new money from somewhere and where do you think that comes from? The old money, right! Is that in the painstaking research? Oh well.

So let's puzzle it out the other way. If the federal government cuts $60,000,000 in spending it cannot afford, Bernanke estimates that 200,000 jobs will be lost. What's $60,000,000,000 divided by 200,000? $300,000 a job.

Maybe Janet is right, perhaps we should just eliminate the middleman completely and let the Fed issue its own debt and no, I'm not referring to FRNs, different sort of self-issued debt. The government is obviously mismanaging its finances and the Fed has it all figured out and it evens out in the end.

I mean they do have an unlimited supply of this shit so long as the rest of the world (we're talking about you, China and oil-producing nations) hasn't called their bluff, right?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Bucksmack said...

In your first equation you divided 900 million, instead of billion.

Bob English said...

Bruce Krasting also relays this fascinating exchange:

"Senator Shelby asked Bernanke to explain how he came to the $600b QE2 program. The answer came at minute 32 of this C-SPAN clip. Ben explained that he felt that a monetary ease equivalent to a 75 BP reduction in the Fed Funds rate was in order to avoid deflation. He equated $150-200 billion of QE as being equivalent to a 25BP reduction in short term rates. The justification for QE all along has been that monetary policy is range bound by zero interest rates. QE brings us below “0” in equivalent policy.

The sum of QE 1, QE lite (the top off of QE1) and QE2 is $2.35 trillion. Using Bernanke’s formula you get a range of 4% to 5% as the approximate interest rate consequence of QE. (2.35/.15 or 2.35/.2)

That is an extraordinary number. The Fed’ ZIRP policy set interest rates at zero. QE has brought that to -4.5% (average) based on Ben’s numbers."


Nice to know that some back of the envelope calculations by egghead Messrs. Bernanke and Sack are all that're [sic] required to justify the greatest expansion of a global fiat reserve currency in history.

Thanks, my calculator ran out of zeroes and had to put them back in.

That sentence alone is disturbing.

Technoweenie said...

Just send me my $300,000 already.