Ben and Barack Are In A Box

Courtesy of John Nyaradi

With major speeches delivered on the same day, it is becoming painfully obvious that President Obama and Dr. Bernanke are in a box.

Dr. Bernanke delivered a closely watched speech that the stock market obviously didn’t care for as it took a swan dive into the close. He didn’t offer any new plans, other than to say that the Fed “will do all it can” to help out but the market wanted details and didn’t get any.

However, major analysts, reporters and market players are counting on Fed action at their September meeting and the most widely expected action is “Operation Twist” wherein the Fed exchanges shorter dated maturities for longer ones in an attempt to force down long term interest rates.

I’m not a Phd. in Economics and so forgive me, but I don’t get it.

The 10 Year Treasury is now in the neighborhood of 2% and the 30 Year is about 4%, which already puts mortgage rates at near record lows. Since the housing market remains in a funk at historically low interest rates, how will a few basis points lower make any difference?

The other option being discussed is to buy more assets outright but with $2.3 Trillion bought up by the Fed so far with little to show for it, growing dissent among his colleagues and political heat from the Presidential campaign trail, Dr. Bernanke is treading on thin ice if he’s going down this path.

So, in a word, Dr. Bernanke is in a bit of a box.

Turning to job creation and President Obama’s speech in a few hours, we find a similar dilemma.

Today’s unempolyment claims ticked upwards to 414,000 from 412,000 last week and now 14 million Americans are on the street with record numbers on food stamps and among the long term unemployed.

Tonight the President is scheduled to unveil a $300 Billion or larger jobs creation program which has already been promptly rejected by many Republican leaders. In a time of deficit reduction being forced upon the U.S. by advocates from the Tea Party and analysts from the ratings agencies, it’s going to be difficult, at best, to come up with $300 Billion in stimulus without breaching (again) the recently revised debt ceiling, not to mention the debate that is about to start in the Congressional “super committee” that came out of this summer’s stalemate.

So, in summary, President Obama finds himself in a box with a recalcitrant Congress and an already bloated Federal deficit.

Where does this all leave us?

In a box, sadly, similar to Greece which reported a contraction of -7.3% annualized in its 2nd Quarter GDP, 16% unemployment and a one year Treasury bond rate near 100%. (Just think, you could almost double your money if Greece survives for just one year)

Stock markets reacted as one could expect, with a triple digit loss on the Dow (DIA) and another day of gains for gold. (GLD)

President Obama and Dr. Bernanke are in a box, not as big as Greece’s, but big enough.