The Final Call

Ben Bernanke’s trial balloon

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Federal Reserve Chairman Ben Bernanke Is there a project or scheme in place to prepare, or manage American public opinion, over the continued fall in the value of the dollar and a potentially rapid rise in the rate of inflation?

On November 2, 2005 I wrote an article called, “A Federal Reserve Chairman, Ben Bernanke, Could Lead America To Fulfill The Words of The Honorable Elijah Muhammad.” It was originally published at BlackElectorate.com (http://www.blackelectorate.com/) and then later, slightly modified, in The Final Call newspaper. I thought of that article as I attended arguably the most influential monetary policy conference in the world, the Cato Institute’s Annual Monetary Conference (http://cato.org/monetary/program.html). This year’s conference theme was, “Monetary Arrangements in the 21st Century.” Last year’s conference theme was “Federal Reserve Policy In The Face Of Crises.” I began participating in these conferences in 2005.

For two years I have been openly writing—based upon the words of the Honorable Elijah Muhammad and the Honorable Minister Louis Farrakhan, and my study of economics and financial events and news—that it might very well be Mr. Bernanke who presides over the greatest episode of hyperinflation (a severely high rate of inflation where a nation’s currency rapidly becomes less valuable each and every day, eventually almost worthless) in American history.

My thinking towards this possibility is based upon where America currently is—in history and prophecy—and an economic policy and philosophy that Chairman Bernanke holds near to his heart, which I strongly suspect he desires to eventually make Federal Reserve policy.

In a room of approximately 100 people, and broadcast, Nov. 14, live via Internet and financial cable media, I was among those who heard Mr. Bernanke move closer toward this possible outcome. In a speech called “Federal Reserve Communications,” Mr. Bernanke announced sweeping changes to the manner in which the Federal Reserve will communicate with financial markets, the media, and the American public. That speech is available at the Federal Reserve website (http://www.federalreserve.gov/newsevents/speech/bernanke20071114a.htm).

In a nutshell, the Federal Reserve, with little indication or advance warning to the most respected and “in the know” financial journalists is revamping its communication strategy.

Why?

An excerpt from Mr. Bernanke’s speech states:

“In testimony to the Congress at the time of my nomination as Chairman, in 2005, I pledged to continue the trend toward greater openness sustained under Chairman Greenspan. In so doing, I stressed the importance of continuity with the policies and strategies that have served the American economy well. Any further changes, I promised, would come only pursuant to a consensus within the FOMC that those changes would enhance the Committee’s ability to pursue its dual mandate of achieving maximum employment and price stability.

Toward that end, the FOMC has engaged in extensive deliberations over the past year or so to consider further steps toward greater transparency. Guided by a subcommittee chaired by Board Vice Chairman Donald Kohn, the FOMC reviewed the full range of our communications with the public. As indicated in a statement issued by the FOMC today, these discussions have led to a decision to increase the frequency and expand the content of the publicly released economic projections that are made by Federal Reserve Board members and Reserve Bank presidents.”

The above-described changes most importantly indicate that the Federal Reserve is increasing the amount of times it will release the economic projections of the members of its powerful FOMC each year.

FOMC stands for the Federal Reserve Open Market Committee. The FOMC consists of 12 members—the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.

Why does this change matter? Because history—past and recent—shows the more the Federal Reserve speaks in public, the more it can influence the financial markets that hang on its every word. Take the little bit of time necessary each week to watch an informative and relatively easy-to-understand business news program like Nightly Business Report on PBS to get an idea of how influential Federal Reserve movements are to stock prices, for instance. When the Fed (or any of its members) speaks, people listen.

Aside from this major decision, the other major change in Federal Reserve communications strategy is that the projections, which will now be published more frequently, will also cover longer time periods. Mr. Bernanke said, “The horizon of the projections will be extended from two years to three.” This means the projections members make this week (beginning Nov. 19) on the real gross domestic product (GDP), the unemployment rate, and core inflation that normally would run through 2009, now will extend through 2010.

Why does this change matter? Because it enables the Federal Reserve to have greater influence on debates between Congress and the President on how inflation rates affect entitlements like Social Security, Medicaid and Medicare which have cost-of-living adjustments tied to inflation measurements. More importantly, longer projections about inflation go hand-in hand with the philosophy that many suspect Mr. Bernanke wants to move the Fed toward: inflation-targeting.

The section which gives this away is the following:

“As you may know, I have been an advocate of the monetary policy strategy known as inflation targeting, used in many countries around the world. Inflation targeting is characterized by two features: an explicit numerical target or target range for inflation and a high degree of transparency about forecasts and policy plans. The steps being taken by the Federal Reserve, I must emphasize, are intended only to improve our communication with the public; the conduct of policy itself will not change. Nonetheless, in light of the changes to communications we are undertaking, one might fairly ask how the Federal Reserve’s approach relates to inflation targeting.”

If Mr. Bernanke wanted to announce a communications strategy change at the Fed, he could have simply done so, and through would have been deemed significant and newsworthy on its own merits. As confirmed for me in side conversations with respected analysts, economists and investors at the conference, there was no need for the change in communications strategy to have been associated with an entire paragraph on inflation targeting, as was the case with this speech, unless something bigger was at work.

It was clear, we agreed over coffee and lunch discussions, that Mr. Bernanke had cast what is known as a “trial balloon.”

The Merriam Webster Online dictionary defines trial balloon as “a project or scheme tentatively announced in order to test public opinion.”

Is there a project or scheme in place to prepare or manage American public opinion over the continued fall in the value of the dollar and a potentially rapid rise in the rate of inflation?

And what does any of this have to do with the November 12, 2007 Washington Post op-ed by Sebastian Mallaby called, “The Dollar In Danger,” a prominent appearance of a stack of 500-euro notes and not dollars in Jay-Z’s new video “Blue Magic;” “supermodel” Gisele Bundchen insisting that she not be paid in U.S. dollars, and the excellent new book by Nathan Lewis, Gold: The Once and Future Money?

More next week, Allah Willing.