The Long Crisis

Posts Tagged ‘Ben Bernanke’

Ben Bernanke was recently confirmed by the United States Senate for a second term as chairman of the Federal Reserve Board. While 30 senators opposed the Bernanke nomination the fact that he was reappointed indicates that in Ben Bernanke we trust. After all, the man has the second most powerful job in the world at a time when the US and the global economy are suffering the worst economic downturn since the Great Depression. The decisions that he and the Federal Reserve Bank makes will be crucial to restoring economic growth for the US economy.

However, when one looks at the Bernanke track record prior to and during the crises that occurred during his first term in office one has to wonder why in the world the man’s judgment could still be trusted? While he seems to be a sincere enough and nice enough guy, as shown in the video, he has consistently been wrong in his judgment as to the status of the US economy.

While considered to be an expert as to why the United States entered into a Great Depression and in how the nation was restored to economic growth Bernanke seems to have a simplistic view as to how the economy works. He seems to think that the economy works as some kind of mechanical machine. All one has to do to keep it running smoothly is to pull a few levers here and push a few levers there. Apparently he thinks that market forces can be overcome by fine tuning the machine. He shows no signs of realizing just how much human emotions enter into the mix.

While Bernanke acted aggressively and quickly once the economy began to fall apart during the latter part of 2007, as you will see in the video, he had absolutely no clue that bubbles were being formed in the real estate market as well as in equities that would soon pop with devastating results. Unfortunately, I fear that we will soon see that the actions of the Federal Reserve Bank, as led by helicopter Ben, may have helped early on to stabilize the economy the actions will have disastrous long-term effects.

For one thing under his leadership the Federal Reserve Bank engaged in a “cash for trash” program that extended credit to favored banks and institutions, such as AIG, in exchange for toxic assets of questionable value. The strength of the Federal Reserve’s balance sheet had to be seriously impaired due to this and other actions initiated by Bernanke.

All one has to do is to watch the video to see how truly clueless Ben Bernanke was during his first term as chairman. However, the President and the Senate seem to still be confident that he is a man that we can trust to help guide the nation out of the economic wilderness. Based upon his track record so far, the question is why?

Tweet This Post

On Wednesday of this week the Bernanke Fed announced a wild ass plan to save the world from depression . It appears to me that Helicopter Ben and the Fed have gone into a full press panic mode and hit the printing press button big time.

The numbers were so big they were hard to follow. Computer money must be easy to create but I doubt if it will be so easy to control.

$300 billion, was the number Bloomberg reported. $1 trillion, opined the New York Times. $1.2 trillion, was the number tossed out by the Washington Post.

As it it turns out all of these numbers are correct. The Fed stated that it was going to buy $300 billion of U.S. Treasury bonds…and more of other securities – notably bonds from Fannie Mae and Freddie Mac.

Maybe Ben Bernanke will be able to do what no central banker has ever been able to successfully do in the history of the world. Bernanke actually thinks that he can create fiat money to first put the brakes to deflation and then to reflate by just the right amount. A Goldilocks solution. Not too much, not too little. Damn! Ben thinks he is so clever. What a fellow.

In the past, central bankers always tended to overdo it. There are not many examples to examine. There is a reason for this as the results were always horrible. In the 18th century France, England and America gave ‘quantitative easing’ a go. There are practically no examples in the 19th century as for awhile the bankers seemed to have learned their money creation lessons. In the 20th century only desperate marginal countries, countries in truly impossible situations, engaged in ‘quantitative easing’.

Germany tried it in the 1920s, because her war reparations burden was greater than she could sustain. The end result was a hyperinflation that lead to the rise of Hitler and WW Two. Argentina did it in the 1980s, because she owed too much money to too many foreigners and could only pay the debt off by at first printing worthless money and then when that didn’t work defaulting on its’ sovereign debt. Argentina manged to destroy its middle class in the process.

The most recent entry into economic madness, was and is Zimbabwe. They did it in 2003-2009 with results so terrible that a formerly prosperous nation has been destroyed with inflation so high it won’t even compute into understandable numbers. The preferred currencies in Zimbabwe now are cigarettes and beer. And now the US has decided to play the same currency debasing game. Bernanke must not be a very good history student.

There are not many examples because the consequences of over doing it are so horrible, so destructive to an economy, that central bankers generally have been afraid to do it. Quantitative easing was always a possibility, a weapon in the central banker’s arsenal, but it was always a last resort…kind of a Dr. Strangelove thing like riding the nuclear weapon right into the target and maybe missing that target by just a tad and blowing up a division or two of friendly forces. It was something you did when you knew you’d lost the battle already but were stupid enough to think that you could pull off a miracle.

When the news from the Fed hit the wires stunned forex traders quickly regrouped and hit the dollar sell button. The dollar fell against the Euro by the greatest amount since the birth of Euro trading in 1999. Gold buyers had trouble finding sellers. Gold rocketed by about $60 an oz. almost all at once, and finished the week $80 higher. Crude oil and all commodities immediately soared. The outlook is for more of the same. The great inflation has started in the commodity markets.

Poor Ben Bernanke and President Obama. Both inherited a mess from Alan Greenspan and President Bush and both are earnestly and actively trying to fix the problems and save the US from depression. However, by being so active, and being over confident that they can control events in the financial markets and the real economy, they are making matters worse. Much worse.

With ‘quantitative easing’ now out in the open the stage is set for some very unpleasant fallout. China, the largest lender to the US, was already nervous about the 1.4 trillion or so in dollar holdings in their treasury. Russia, the UN, and other nations, have been calling for the end to the US dollar as the world’s reserve currency. Now with the Fed’s announcements worried thoughts will likely be put into action.

The fallout to the US economy and overall standard of living in the US will be disastrous. We are on the path to self destruction. Not that the United States will disappear. But the prospect of third world conditions being realized, with a weak currency that is no longer wanted, and competing for oil and other commodities in dollar terms when the dollar is worth little, is high.

As inflation follows deflation look for yet another panic at the Bernanke Fed. But then it will be too late. A default on the mountain of US debt or even worse a war against the world will set the United States back a hundred years. Panic will be a common condition in Washington and across the nation.

Even if you doubt the outcome of the Fed’s actions will not be as grim as set forth above you should be buying some gold as well as survival supplies. Just in case. We can now be assured by the Fed’s quantitative easing actions that we will have a long crisis.

Tweet This Post