Bernanke Comes Under Pressure From a Most Unlikely Source…the IMF!

The annual meetings of the IMF and World Bank not only have a carnival atmosphere, they are carnivals! 10,000+ delegates and 5,000+ additional hangers-on converge on the hapless host city. Tents are erected to shelter cocktail parties, private jets chauffer bank CEO’s in and out of the airports while anxious relationship managers (salespeople) sweat over who and how many senior Central Bankers agree to ‘one-on-ones’ with their firm’s Chairman/CEO/Senior Window Gazer. Invitations to the ‘hot’ party are viewed by recipients as proof that they have made the grade while those that miss out sulk home hoping for a tap on the shoulder next year … Having attended these meetings myself, I can honestly say that the hierarchy in sovereign land is almost feudal, and respect for the king is uniform … until now!

Ben Bernanke is the current reigning monarch owing to his position as Chairman of the Board of Governors at the Federal Reserve. In my former life, I attended a JPMorgan cocktail function with 1000+ revellers when suddenly the whole room went quiet when Alan Greenspan walked in. My current life doesn’t get me on the invitation list, however judging by this weekend’s press reports Ben Bernanke would not have been accorded the same show-stopping entrance.

Bernanke would have expected ‘kiss-my-ring’, godfather-like, treatment in Tokyo this weekend. Instead, he came under attack from developed and developing countries alike for his QE-X easy money policies which, frankly, aren’t delivering. Interestingly, all the detractors focused on the effect low US interest rates has had on their currencies. Critics focused on capital flows into their own economies forcing up exchange rates and/or creating inflationary pressures – the argument is that low US interest rates lead capital to seek higher returning economies. Even Japan blamed Bernanke for their own strong Yen problems stifling recovery.

Bernanke was forced to defend his position, feebly arguing that the claimed policy leakage into foreign economies was minimal (show us the evidence, Ben) as well as claiming that the rest of the world has benefited from US ‘monetary stimulus’ (again, show us the evidence Ben).

Clearly, Bernanke’s Jackson Hole speech has not silenced his detractors. Adding to the pressure was Jamie Dimon’s prediction on Friday that short rates will need to rise in 2013, instead of 2015 as promised by the Fed Chairman. Can Bernanke deal with this pressure for a policy reversal while still holding the confidence of the markets??? … I predict rough times ahead for the Professor.