As would be expected, Associated Press reporter Martin Crutsinger Wednesday treated Federal Reserve Chairman Ben Bernanke's announcement that the nation's central bank will reduce the amount of money it creates out of thin air from $1.02 trillion per year to $900 billion, i.e., from $85 a month to $75 billion, as "its strongest signal of confidence in the U.S. economy since the Great Recession." As will be shown, it's a sign of continued serious weakness.
The pretense inherent in all of this is comparable to teaching a child how to ride a bike, raising the training wheels by one-eighth of an inch, and pronouncing him or her ready to roll. What should be troubling is that the tiny reduction means that the Fed will be financing a much higher percentage of next year's projected deficit and increase in the national debt than it has in previous years. That would seem to indicate that the nation is running out of other buyers who might be interested in purchasing Treasury securities, and that Bernanke's own words in July, namely that "the economy would tank" if he wasn't so obviously and artificially propping it up, are truer than ever.
Of course, no such negative thoughts made it into Crutsinger's composition, which also treated low inflation as a negative and found only sunny-side up assessments from others (bolds are mine):
IMPROVING US ECONOMY LEADS FED TO EASE STIMULUS
The Federal Reserve on Wednesday sent its strongest signal of confidence in the U.S. economy since the Great Recession, deciding that the nation's economic prospects are finally bright enough to withstand a slight pullback in stimulus spending.
Yet the Fed also made clear that it will keep supporting an economy that remains less than fully healthy. It will continue to keep interest rates low and try to boost unusually low inflation, which can be a drag on spending and borrowing.
At his final news conference as Fed chairman before he leaves in January, Ben Bernanke managed a delicate balance: He announced a long-awaited and long-feared reduction in the stimulus. Yet he did so while convincing investors that the Fed would continue to bolster the economy indefinitely. Wall Street roared its approval.
In a statement after a two-day policy meeting, the Fed said it would trim its $85 billion a month in bond purchases by $10 billion starting in January. Bernanke said the bank expects to make "similar moderate" cuts in its purchases if economic gains continue.
... "We're really at a point where we're getting to the self-sustaining recovery that the Fed has been talking about," Scott Anderson, chief economist of Bank of the West. "It really seems like that's going to come together in 2014."
... In its statement, the Fed said it will reduce its monthly purchases of mortgage and Treasury bonds each by $5 billion. Beginning in January, it will buy $35 billion in mortgage bonds each month and $40 billion in Treasurys.
If the Fed is buys $480 billion in Treasuries next year ($40 billion times 12), it will be financing about 80 percent of next year's projected deficit of $600 billion (if one were to project the deficit calendar year 2014, it would presumably not differ by much). In fiscal 2012, the Fed's $540 billion in Treasury purchases ($45 billion per month times 12) financed about half of the government's deficit, which was running at a rate of about $1.1 trillion per year.
Thus, the portion of the government's deficits not being covered by creating money out of thin air has gone from about $540 billion to only about $120 billion. Why aren't there more real Treasury buyers out there? If the economy is on the self-sustaining path Crutsinger's "expert" claimed, why shouldn't the Fed be able to taper its buying of Treasuries by far more than $5 billion a month? Maybe it's because things aren't as rosy as the Fed, the administration, and its apparatchiks at the AP want us to believe.
Cross-posted at BizzyBlog.com.