Mr Bernanke went to congress to deliver the semi annual Monetary Policy Report today. For those of us who have the stomach to read the text of his speech it can offer some deeper insight into how the Fed is thinking. 

Here is a link to the text: Bernanke speech

To help you along, I am going to reproduce some of it here and spell out what is required for the Fed Chairman wish-list to happen. Here is that first paragraph again:

“The U.S. economy has weakened considerably since last July, when the Federal Reserve Board submitted its previous Monetary Policy Report to the Congress. Substantial strains have emerged in financial markets here and abroad, and housing-related activity has continued to contract. Also, further increases in the prices of crude oil and some other commodities have eroded the real incomes of U.S. households and added to business costs. Overall economic activity held up reasonably well into the autumn despite these adverse developments, but it decelerated sharply in the fourth quarter. Moreover, the outlook for 2008 has become less favorable since last summer, and considerable downside risks to economic activity have emerged.”

Now, I am going to be a little cheeky here. How many of you actually read the speech BB gave to congress? Yes, that one in the link above.

Well done if you did….but did you re-read the paragraph above too?

I wouldn’t be surprised if it was only me. It’s what I do, check things out, read the small print. The paragraph above is from the actual report, the very first paragraph of part 1.

Yes, you guessed it, I have no intention of seeking deeper insight today. I found something much darker to discuss.

 Now please bear with me, here is the first paragraph BB actually delivered after his introduction:

“The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate–at 4.9 percent in January–has moved up somewhat.”

 Here is a list of words missing in BBs’ first paragraph of his speech but are actually part of the first paragraph of the Monetary Policy Report to the Congress. I will show the phrase from the report first and then what BB actually said,

“The U.S. economy has weakened considerably since last July”, replaced with “The economic situation has become distinctly less favorable since the time of our July report”

“Substantial strains have emerged in financial markets here and abroad” replaced with “Strains in financial markets, which first became evident late last summer”

“housing-related activity has continued to contract” replaced with “have led to tighter credit conditions for many households”

“but it decelerated sharply in the fourth quarter” replaced with “but it has since slowed sharply”

“Moreover, the outlook for 2008 has become less favorable since last summer, and considerable downside risks to economic activity have emerged.” Replaced with a silence.

At first glance you may wonder why I think this is important? It looks roughly the same you might say. Well these are the days of market expectations, of political and economic spin and propaganda.

I will go further. These are the days of deceit and lies. Has Ben Bernanke sat in front of Congress and misled the People?

This is serious, this is an attempt to make the problems sound less urgent than the Federal Reserves’ own report. Some areas of concern in the report are not present in the speech. Is this a deceit driven for political ends?

Shame should be heaped upon on the members of the committee on Financial Services at The US House of Representatives. They either knew of the deceit put before them or didn’t even bother to read the actual report and therefore showed their ignorance. These so called representatives are nothing of the sort. Fifteen minutes of television coverage and a 2 minute close up are all they seek.

American citizens who read this article might want to think about the usefulness of such individuals.

This is shocking in the extreme. Every wire report I have seen carried BBs speech, not the actual report. Remember, this was the first paragraph, it sets the tone for the hearing, it gets the markets to react.

 I am not going to go through the full texts here, it would take a much larger article. So, I’ll leave you with the first part of the respective second paragraphs, again the actual report first and the speech second.

“The turmoil in financial markets that emerged last summer was triggered by a sharp increase in delinquencies and defaults on subprime mortgages. That increase substantially impaired the functioning of the secondary markets for subprime and non-traditional residential mortgages, which in turn contributed to a reduction in the availability of such mortgages to households.”

“Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market. In 2006, after a multiyear boom in residential construction and house prices, the housing market reversed course. Housing starts and sales of new homes are now less than half of their respective peaks, and house prices have flattened or declined in most areas. Changes in the availability of mortgage credit amplified the swings in the housing market.”

You see what I mean? The report is realistic and identifies the areas of concern with clarity. The speech obscures the realism, using up tempo words such as boom. Where it is impossible to deny downside, the speech rewords the report to soften the meaning and context, “substantially impaired” becomes “changes in the availability of mortgage credit“.

Ben Bernanke has wandered into the prison block showers and slipped it to the USA as it bent down to pick up the soap.

And he did it on Bloomberg.

No snippets today but for FTSE followers an update to RBS. Last week RBS denied rumours that it would seek funding. Today RBS confirmed it placed 50 million shares priced at 400p. The placing was rumoured to be with a Qatari Govt backed investment fund. How did the share react?

Right into the resistance pointed out last week at a premium to the placing. Spin indeed.

Commentary by Mick Phoenix

on behalf of An occasional letter from The Collection Agency

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. The views in the article are for informational purpose only.