I learned in a recent Mish blogpost that Ben Bernanke denied that people were taking advantage of the carry trade with record low US government debt yields in a recent letter to the US Congress:
To the charge reduced interest income to savers from quantitative easing is a “tax” on savers, Bernanke responded that it’s in everyone’s interest, both savers and borrowers, to have an economy performing at highest level of capacity.
He also said financial institutions aren’t executing carry trades on U.S. Treasurys, when they use short-term repo transactions to fund investments in longer-dated Treasury notes and bonds. Bernanke says this activity reflects the funding of inventories by securities dealers as part of their market-making activities and not an attempt to exploit differences between short- and long-term rates.
It’s curious that Bernanke covered this particular topic because it was only recently that David Stockman complained about it explicitly in an interview with Doug Casey:
This market isn’t real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they’re doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank. And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed’s ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. They unwind the repo, because then you can’t collect 190 basis points.
Does this mean Bernanke reads blogs and follows Doug Casey?
I got excited at first when I noticed this apparent connection. But then I realized it’s more likely he was responding to particular inquiries from Congresscritters, not necessarily the vox populi itself. Congresscritters and their staff do have their ear to the ground and occasionally turn annoying phone calls, emails and fax inquiries at their office into cases for Congressional investigation. I hear some staffers also read ZeroHedge and I’m sure the interview came up there.
This is probably a good example of the charge that politicians are nothing more than social weathervanes– they aren’t intellectuals and they don’t lead the debate in society, they merely follow it and, when they think it’ll earn them some goodwill, they stick their finger into people’s eyes according to which eyes and how deeply they believe “the people” want them to gouge.
That’s not to say they govern according to the people’s will. Standing on your soapbox and shouting is a bit different from actively trying to manage the economy according to your perception of a mass of other people’s wishes. To the extent that what the politicians do to society overlaps with what certain interest groups actually desire and “vote for”, the coincidence is explained by nothing more than the fact that this is how politicians pay people off to remain in power. The rest of the time, they’re firmly entrenched in the elitist conspiracy and power politics of rulership which has its own agenda, set of rules and schedule of procedures.
In conclusion, Bernanke probably doesn’t read blogs. He probably doesn’t have much time in between manipulating interest rates and having his dome waxed and beard trimmed. After all, the central planner of the free world’s got to look illustrious.
A House Rises 