Wednesday, April 17, 2013

What If Bernanke Had It Dead Wrong?

Or perhaps even worse, it's all been a lie from the very start.

Dr. Bernanke to the ER! Stat!

After the Friday-Monday meltdown in the metals complex, I've been watching and seeing other cracks develop in commodities. They are all turning down. Some traders are saying, "sell them all."

We live in an isolationist world. We think that somehow, Americans are special and immune from the problems in other parts of the world. Americans in their own arrogant way, dismiss the problems of places like Greece and Cyprus. That couldn't happen here, they think. Yet worldwide financial systems have never been more joined at the hip. We might never have known that piece of information if the Federal Reserve hadn't been forced to divulge who they had made loans to in 2008. The international banking community was almost completely bailed out by the United States Federal Reserve. Here's a piece on the SIXTEEN TRILLION DOLLAR international bail out.

The point being, it is a global financial system. Pure and simple. Now you might be wondering why in the hell the US Federal Reserve Bank is bailing out international banks. I would remind you, that despite the name which was concocted to intentionally deceive you, the US FED is a privately owned international bank. You don't elect it's leadership nor do you nominate it's chairman. That is all done internally. Just like any other business. Pretty much all you'll ever need to know about the FED can be found here in a simple 42 minute video.

You might say that in 1913- our leaders outsourced the job of printing money without even obtaining competing bids. Signing the bill that created the FED, Woodrow Wilson said years later that it was the biggest mistake he ever made as President.

That is the system that spewed forth Ben Bernanke. Bernanke is a genius by all standard measures. He is a Harvard grad (he is a close personal friend of Lloyd Blankfeins', CEO of Goldman Sachs, they met at Harvard) and received his doctorate at MIT. Bernanke allegedly had perfect SAT scores.

I need to add one additional item. Bernanke said he studied the Great Depression at length. Thus he believed that the reason that period was so prolonged- was due to deflation. He is an expert. From wiki: Bernanke succeeded Alan Greenspan on February 1, 2006. In 2002, when the word "deflation" began appearing in the business news, Bernanke gave a speech about deflation entitled "Deflation: Making Sure "It" Doesn't Happen Here."[1] In that speech, he assessed the causes and effects of deflation in the modern economy. Bernanke states:

"The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand – a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending—namely, recession, rising unemployment, and financial stress."
So Bernanke has been printing money hand over fist- convinced that his efforts will stave off or return America to some economic normalcy after the greatest credit expansion of all time. My question is, "What if he is wrong?"

Edison was a genius too. Unfortunately, Edison was forced to try a thousand different methods of inventing the light bulb before he found one that worked.

One of the greatest problems this nation has- is that it attaches far too much credibility on flimsy credentials and attaches it to one man.  The second problem I have with Bernanke's great thesis is a demographic issue. In the 1930's  we had the capacity to recover. We were in the midst of a great technological advance and an industrial revolution. We had a domestic workforce. American business invested in American workers.

And then they got greedy. Millions upon millions of jobs were exported. Things in 1934 looked a helluva lot differently demographically than they did in 2008.

It is almost as though Bernanke didn't figure in those lost 50 million jobs and to be sure- his thesis was finished long before we lost those jobs. So after years of QE this and QE that, Zero Interest Rate Policies, Operation Twist and this latest QEternity- we are still without a recovery.

Why? Because nobody can figure out a way to bring back all those tax paying, buy everything on credit, jobs. We can't even tax or repatriate the trillions that have been made off shore.


Which brings me back to the gold melt down triggered on Friday. What if we suddenly have the great deflationary meltdown that Bernanke has worked so fervently hard to avoid? What if all those trillions of dollars in debt were added in a desperate attempt to escape the inevitable grasp of deflation and yet- deflation comes anyway?

Isn't there an aggregate loss of demand for goods and services when you have no new jobs, deteriorating wages, and new taxes everywhere? Isn't your demand going to go down, Dr. Bernanke? Isn't that your definition of deflation?

There are signs of deflation everywhere. Commodites are all going down. Taxes are going down. Consumer sentiment and purchasing is going down, even the last great investment of the 21st century is starting to tank. Equities, despite all of that QE, are beginning to behave like someone is paying attention to fundamentals. Like bad earnings may actually have a say in the outcome of equites. Even China is starting to drag. People are rushing back into bonds. The 10 year yield is a whopping 1.7%.

Check this out. Here's the FED saying inflation is too low. Can you say deflation?

You gotta love Bullard's response. Well hell, QE hasn't worked for five years, so let's try some more QE! That's real genius.

The FED just can't admit one simple truth. They were always wrong. It was always a giant con to try and restore insolvent international balance sheets. They screwed the pooch and the only solution is for the whole system to deflate, wring out, and re- inflate with some sort of plan in place which they still don't have.

What happens if we have the great deflation now that we have trillions of additional debt? I'm not sure. I'm not even sure I'd waste the time and ask the great credentialed one. At this point, Ben Bernanke sure isn't looking like the great genius he is purported to be. The patient is starting to look rather lifeless, doctor.

1 comment:

Anonymous said...

The system that we grew up with is gone. The U.S. has lived beyond it's means on cheap money for over forty years. The problem now is that the bill is due and we have no way to pay. Just look what has transpired over the last several weeks. China has set agreements with Australia and France on direct currency swaps. The Chinese are using gold and treasury paper to buy oil and mineral resources. Turkey buying oil from
Iran with gold. Germany (pissed off about there inability to get gold back from Fed)has entered into agreement with Russia for direct transaction by passing the dollar.
The U.S. Mint has sold 63,000 ounces of gold eagles since Monday's take down. It is no longer a case of if, it is a case of when.