Posts Tagged ‘Bernanke’

« Older Entries

How Quantitative Easing Helps the Rich and Soaks the Rest of Us

Monday, September 17th, 2012

reason.com

QE3

Anthony Randazzo

The decision is in: Unlimited quantitative easing. That was the announcement from the Federal Open Market Committee this afternoon, launching a third round of purchases of securities in a bid to boost the economy and reduce unemployment. This time, Federal Reserve Chairman Ben Bernanke and crew are pledging to buy $40 billion per month until the economy improves. The Fed’s policy committee also extended its zero-interest rate policy until “at least mid-2015.” If QE3 lasts that long, the Feds will be printing at least another $800 billion to buy mortgage-backed securities.  

It won’t be a surprise to read conservatives lambasting this as unconventional monetary policy meant to help re-elect President Obama. And inflation hawks have already started screeching. But the loudest cry of “for shame” should be coming from the Occupy Wall Street movement.

Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.

How is the Federal Reserve contributing to regressive redistribution, income inequality, and manipulated markets? Let’s flesh this out a bit.

Last month, Bernanke said that quantitative easing had contributed to the rebound in stock prices over the past few years, and suggested this was a positive outcome. “This effect is potentially important, because stock values affect both consumption and investment decisions,” he argued, apparently under the belief that the Fed has a third mandate to support rising stock prices.

This is ironically a trickle down monetary policy theory, where rising stock prices mean more wealth and more consumption that trickles down the economic ladder. One problem with this idea is that there is a gigantic mountain of household debt—about $12 trillion worth—that is diverting away any trickle down. An even worse assumption is that the stock market really reflects what is going on in the real economy.

Where the Occupy movement should really be teed off is when you consider that most equity shares in America are owned by the wealthiest 10 percent. That is not inherently a problem—wealthier individuals with more disposable income will have more ability take ownership stakes in companies than those in lower income brackets. And it is not a call for class warfare. However, it does mean that when the Fed engages in quantitative easing it is providing a benefit to a very narrow segment of society at the expense of others (either through future inflation or through the cost of raising taxes to pay for increased federal debts). That is the definition of crony capitalism.

At the same time, all Americans have seen the prices of basic goods increase over the past few years in large part due to rising commodities prices. The whole idea of QE is to drive investors out of lower risk investments like mortgage backed securities and government debt and get them to put that money in “more productive” use—lend it, build skyscrapers, invest in technology, etc. Since there is little confidence about the future of the economy, many investors have crowded into the stock market with their money, and still others have invested in commodities.

The problem is that investing in commodities can push up prices on things like gas, meat (because of feed corn prices), bread (because of wheat prices), and even orange juice. There certainly have been other contributors to commodities prices going up, but if the Fed has boosted stocks, they’ve boosted commodities too. So not only are the cronies gaining from quantitative easing, there is a negative wealth effect too.

The cronyism doesn’t end there. In a Dallas Fed paper released in August, OPEC chief economist William White points out that easy monetary policy favors “senior management of banks in particular.” And even Bernanke himself suggested (as if it was a good thing) that quantitative easing purchases “have been found to be associated with significant declines in the yields on both corporate bonds and MBS.” Translation: the Federal Reserve has made it artificially cheaper for corporations to borrow money and has pushed up the prices of houses (benefiting homeowners but hurting homebuyers).

Correct me if I’m wrong, but I thought cheap loans allowing businesses to leverage up and juiced housing prices were key parts of what got us into this mess?

All of this might be acceptable to some if quantitative easing was helping the American economy recover. The reality is that quantitative easing has made it cheaper for the government to borrow, has artificially propped up the housing market (making it take longer to recover), and has dramatically manipulated the distribution of capital in financial markets. And the economy has not been in recovery.

The plans announced today will exacerbate pre-existing malinvestment and income inequality. What is this continuous round of purchases going to do? It won’t get banks lending any more than they already are. And even if it did, households and small business still have a lot of debt that will keep them in a deleveraging state for a while. It won’t help the housing market bottom out, clear away toxic debt, and end the wave of foreclosures that need to process. It is not going to push up incomes, create new jobs, or change the technological revolution that is altering the face of employment in America.

To put it simply: More quantitative easing is not going to move the dial much on the growth meter.

Taken together, the crony capitalism and negative wealth effects of quantitative easing should clearly give pause. The fact that QE promotes activities that led to the housing bubble should have stopped its progression as an idea a long time ago, especially since these problems are greater than any gain that would come from this now perpetual pace of money creation.

If there is a time to head down to Zuccotti Park and raise some cardboard in opposition to the continuation of such a devastatingly failed policy, it is now.

Tags: , , , ,
Posted in Uncategorized | No Comments »

Audit the Fed Threatens the Secrecy of the Federal Reserve Bank

Tuesday, August 7th, 2012

INFOWARS.COM

audit fed HR459

Susanne Posel

Senator Ron Paul, author of the legislation called Federal Reserve Transparency Act of 2012(HR459) that will subject Ben Bernanke and the privately-owned Federal Reserve Bank to amonetary audit policy has seen much support from his peers on Capitol Hill. The House of Representatives passed 327 – 98 on a vote last week which exceeded the necessary 2/3rd majority.

Bernanke, trying to deter the US Congress from digging into the private matters of the Fed, told House lawmakers that this legislation would allow a “nightmare scenario” of political meddling in monetary policy making. How pretentious of this head of the global Elite banking cartel to say that American representatives would be fumbling idiots meandering about in the matters of private shareholders being forced to disclose their agendas regarding our money system.

Paul, who is pushing for “transparency” in America’s relationship with the Fed, said that Americans are “sick and tired of what happened in the bailout and where the wealthy got bailed out and the poor lost their jobs and they lost their homes.”

Back in March, Bernanke lectured at the George Washington University in a propaganda stuntto reaffirm to the younger generations that the Federal Reserve is necessary and integral to the US monetary future. Bernanke claimed that “a central bank is not an ordinary commercial bank, but a government agency.”

By fabricating the factual need of the Fed as a cornerstone of our currency system, Bernanke tried to coerce the public on the benefits of the Fed. Dennis Kucinich said that “it’s time that we stood up to the Federal Reserve that right now acts like some kind of high, exalted priesthood, unaccountable to democracy.”

Paul wants to show the American public that their hard-earned money is going into off-shore accounts to support the global central banking cartels and fund their agendas. The focus is on the 2007 – 2009 “recession” that has laid the groundwork for hyper-inflation in the near future.

The Audit legislation will direct the Government Accountability Office (GAO), which is an independent congressional agency, to oversee a full review of the Fed’s monetary policy while conducting an audit of them and their decisions will be turned over to the Federal Open Market Committee.

Senate Majority Leader Harry Reid, co-author of the NDAA, is nowdecrying that his tried to bring a similar legislation to the House back in 1995. Reid asserts: “I have sponsored legislation that would call for an audit of the Federal Reserve System. I offer that amendment every year. Every year the legislation gets nowhere. I think it would be interesting to know about the Federal Reserve. I think we should audit the Federal Reserve.”

Reid went on to say: “It’s taxpayer’s money that’s being used there but we don’t do that. Senator Dorgan has spoke out on the secrecy of the Federal Reserve System. He’s spoken out on the Federal Reserve more than anyone that I know in either body. But even though there is no entity in the world that controls our lives more than the Federal Reserve System, his speeches go unnoticed I’m sorry to say.”

It is Reid’s contention (and quite rightly) that the Fed “effect government, because of the money that government’s borrow.” Since the US government allows this privately-owned bank to sell them their currency instead of printing it themselves as is allowed by the US Constitution, give the Fed and central banking cartels rule over the American public through the ruse of taxation and the bull-dog collection agency known as the Internal Revenue Service (IRS). It appears that although Reid was once in support of this type of legislation, he is clearly not today as he has stated emphatically that the bill will be killed in the Senate.

Because of the central banking cartel’s takeover of the American people in 1913 with the signing of the Federal Reserve Act; which led to the monetary enslavement we are witnessing today as well as the transformation of America from a Constitutional Republic into a nation of serfs who are tied to the conspiratorial endeavors of the global Elite.

Obama has made it clear that he believes the legislation is a “really, really bad idea.”

In the words of Timothy Geithner, former US Treasury Secretary, asserted that an audit of the Fed is a “line that we don’t want to cross” and that if the American people successfully audit the Fed it would be “problematic for the country.”

As former head of the New York Federal Reserve, Geithner is doing a good job supporting the supposition Bernanke would like us all to believe – that somehow the central bank that caused this economic mess will be the only force to get us out. However, liberating the American public from debt slavery is not in the best interest of the privately owned bank. It is doubtful that the saving grace will befall from Bernanke or his laky, Geithner.

None of this true.

It is the opposite – that the central banker need the American public to survive and without us, they will perish.

A revolutionary thought is that we could just create an alternative monetary system, stop using the Fed’s fiat currency and liberate ourselves from feudal slavery.

That reality could happen tomorrow, if only with the accord of the American public that we are truly tired of being debt slaves to a system that is no more based in fact than the paper the US dollar is printed on.

 

Tags: , , , ,
Posted in Uncategorized | No Comments »

The Federal Reserve Is Not Going To Save Us From The Great Depression That Is Coming

Wednesday, July 18th, 2012

The American Dream

Federal Reserve Chairman Ben Bernanke delivered his annual address to Congress on Tuesday, and he did very little to give lawmakers much confidence about where the U.S. economy is heading.  Bernanke told members of Congress that recent economic data points "suggest further weakness ahead" and that the Federal Reserve is projecting that the U.S. unemployment rate will remain at 7 percent or above all the way through the end of 2014.  Now, it is important to keep in mind that Federal Reserve forecasts are almost always way too optimistic.  The actual numbers almost always end up being much worse than what the Fed says they will be.  So if Bernanke is saying that the U.S. unemployment rate will be 7 percent or higher until the end of 2014, then what will the real numbers end up looking like?  During his testimony, Bernanke seemed unusually gloomy about the direction of the U.S. economy.  He seemed resigned to the fact that there really isn’t that much more that the Federal Reserve can do to stimulate the U.S. economy.  Yes, the Federal Reserve could try another round of quantitative easing, but the first two rounds did not really do that much to help.  The truth is that the United States is absolutely drowning in debt, and when that debt bubble finally bursts the Federal Reserve is simply not going to be able to save us from the Great Depression that will happen as a result.

At this point, Bernanke appears to be in "cya" mode.  For example, the following is from Bernanke’s prepared remarks to Congress on Tuesday….

The second important risk to our recovery, as I mentioned, is the domestic fiscal situation. As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority. At the same time, fiscal decisions should take into account the fragility of the recovery. That recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken. The Congressional Budget Office has estimated that, if the full range of tax increases and spending cuts were allowed to take effect–a scenario widely referred to as the fiscal cliff–a shallow recession would occur early next year and about 1-1/4 million fewer jobs would be created in 2013. These estimates do not incorporate the additional negative effects likely to result from public uncertainty about how these matters will be resolved. As you recall, market volatility spiked and confidence fell last summer, in part as a result of the protracted debate about the necessary increase in the debt ceiling. Similar effects could ensue as the debt ceiling and other difficult fiscal issues come into clearer view toward the end of this year.

The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery. Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.

Did you catch that?

Bernanke says that the federal government is on an "unsustainable path" and must reduce debt, but he also says that the economy cannot afford tax increases and spending cuts right now.  In fact, Bernanke is warning that "a shallow recession would occur early next year" if something is not done about the looming "fiscal cliff" that so many people are talking about.

So what does Bernanke want us to do?

If we continue on the path that we are on, our debt will continue to grow by leaps and bounds.

But if we seriously cut spending or raise taxes, that will significantly slow down the economy.

Either path leads to a whole lot of pain.

Bernanke sounds like a politician that is trying to cover all of his bases without giving us a recommendation about how to fix things.

Of course the truth is that the Federal Reserve system itself is at the very heart of our economic problems and has been the engine that has caused our national debt to explode at an exponential rate, but we all know that Bernanke will never admit that.

Bernanke can see that things are starting to fall apart, and he wants to shift as much blame to Congress and to other entities as he can while there is still time.

Bernanke knows that the U.S. economy is not going to produce enough jobs for our population anymore, and he does not want to be blamed for that.

Bernanke knows that the money printing done by the Fed is going to cause prices to continue to go up and that this will seriously stretch family budgets all over America, and he does not want to be blamed for that.

Bernanke wants to come out of all this looking like a good guy.  At this point he is probably hoping that the next great global financial crisis does not happen until his term ends.

Unfortunately, he is not going to have that luxury.  The next wave of the economic collapse is rapidly approaching, and it is going to hit the U.S. even harder than the last recession did.

And when the unemployment rate soars well up into the double digits, what do you think is going to happen?

The truth is that the entire country will soon resemble cities such as Gary, Indiana and Flint, Michigan.

To get an idea of what most of our cites will soon look like, just check out this video.

When people lose hope, they tend to get desperate.

And desperate people do desperate things.

Just look at the mob robberies that we are seeing all over the country right now.

In Jacksonville, Florida the other day, hundreds of young people that had just left a massive house party that police had broken up decided that they would descend on the local Wal-Mart.

According to police, approximately 300 people stormed into Wal-Mart and started going crazy.  They threw produce at each other, many of them started putting merchandise into their pockets, they destroyed an anti-shoplifting security scanner that is worth about $1,500 and there were even reports that shots were fired outside of the store.

It was absolute chaos.  You can see video of this incident right here.

A similar mob robbery happened in the Portland, Oregon area on Saturday night….

A group of teens targeted a Troutdale store last weekend in a ‘flash rob’ and investigators are trying to identify the suspects.

Investigators said as many as 40 kids entered the Albertsons store at 25691 SE Stark Street at the same time late Saturday night and started stealing things.

Security officers chased the thieves out, but no one was captured. They also left employees pretty shaken up, including one woman who was in tears after getting terrorized by the robbers.

So will Ben Bernanke and the Federal Reserve be able to save us from this kind of chaos?

Of course not.

If you have any faith in Bernanke at this point then you are being quite foolish.

Our economy is on the verge of collapse, and when it does collapse there is going to be hell to pay on the streets of America.

These days young people seem to commit absolutely brutal crimes just for the fun of it.  For example, in Chicago the other day two teens beat to death a 62 year old disabled man who was collecting cans for no apparent reason whatsoever.  The following is from a report about this incident from the NBC affiliate in Chicago….

Police said a 16-year-old gang member punched Delfino Mora, father to 12 children and a grandfather to 23, last Tuesday in an alley in the 6300 block of North Artesian. Mora’s devastated family told NBC Chicago that Mora was on his regular route of collecting cans that he sells for cash when the teens confronted him.

Nicholas Ayala, 17, of the 6300 block of North Talman and Anthony Malcolm, 18, of the 5500 block of North Broadway were both charged with first-degree murder and robbery.

Malik Jones, 16, the Latin Kings member accused of striking Mora, was charged with first-degree murder and ordered held without bail Sunday by Judge Adam Bourgeois.

Police said Jones handed his friends his cell phone to start filming then demanded money from Mora and punched him in the jaw. Ayala and Malcolm are accused of taking turns filming the video which allegedly showed Mora’s head smashing into the concrete.

But just because you aren’t in the city does not mean that you are safe.

For example, just check out what happened to three rural Michigan teens when they decided that it would be fun to hop on a passing train.  The following is from a recent article in the New York Times….

For generations of Midwestern youths who have grown up hearing the long whistles and deep rumbling of passing locomotives, hopping a freight train to another city has seemed like a free ride to adventure.

But for three rural Michigan teen-agers who actually followed this dream, the results proved disastrous. The two 15-year-old boys and a 14-year-old girl climbed off the train when it stopped last Wednesday evening in a rough neighborhood here. Within hours, the girl had suffered multiple sexual assaults and all three had been shot in the head and left for dead in a park.

One boy, Michael Carter, was killed, while the other, Dustin Kaiser, and the girl staggered to a road and flagged down a truck driver. Dustin is in stable condition at the Hurley Medical Center after two rounds of surgery, while the girl, who was shot through the cheek, was treated and released on Friday, said Donna J. Fonger, a hospital administrator.

Our country is degenerating, and the Federal Reserve is not going to save you.

We have been living in the greatest debt bubble in the history of the planet, and it is going to burst at some point and that is going to cause a massive economic depression.

Just check out what Richard Duncan, the author of The New Depression, told CNBC the other day….

When we broke the link between money and gold forty years ago, this removed all the constraints on credit creation. And afterwards credit absolutely exploded. In the U.S. it grew from $1 trillion to $50 trillion – a fifty-fold increase in forty three years.

This explosion of credit created the world we live. It created very rapid economic growth. It ushered in the age of globalization.

But it now seems credit cannot expand any further because the private sector is incapable of repaying the debt that it has already. And if credit now begins to contract there is a very real danger that we will collapse into a new great depression.

In the chart posted below you can see what he is talking about.  Once upon a time the total amount of debt in the United States (including government debt, business debt and consumer debt) was sitting at about a trillion dollars.

Today, it has nearly reached 55 trillion dollars….

We have lived way above our means for decades, and now a day of reckoning is rapidly approaching.

Ben Bernanke and the Federal Reserve may be able to delay the coming depression slightly, but they cannot avert it.

You better get ready.

Be Sociable, Share!

Tags: , , , , , , , , , , , , , , ,
Posted in Uncategorized | No Comments »

How Can The American People Ever Trust Congress Again After Learning Of The Rampant Insider Trading That Has Been Going On?

Tuesday, November 15th, 2011

By Michael Snyder
BlacklistedNews.com

Will the shocking insider trading revelations that have come to light in recent days finally be enough to motivate the American people to start throwing all of the con men and charlatans out of Congress?  On Sunday, 60 Minutes opened up a huge can of worms when it did a feature story on insider trading by members of Congress.  Up until now, the vast majority of Americans had no idea that insider trading was actually legal for members of Congress.  In fact, as will be documented later on in this article, members of Congress have been using secrets that they have learned during the course of their duties to make huge amounts of money in the stock market.  If you can believe it, during the financial crisis of 2008 some members of Congress were making huge stock moves that would only pay off if the stock market crashed really hard at a time when they should have been focusing on creating legislation that would help the U.S. financial system survive.  It is hard not to feel sick after learning how low some of our "leaders" have stooped to enrich themselves.  Now that the American people are learning the truth, how can they ever trust Congress again?

Even before these revelations about insider trading by members of Congress came to light, the approval rating for Congress was sitting at about 11 percent.

There is a widespread feeling in this country that our political system simply does not work any longer.

Nearly all of our "leaders" seem to be wealthy elitists that are rapidly becoming wealthier.  Today, the average net worth for a member of Congress is approximately 3.8 million dollars, and the collective net worth of all of the members of Congress increased by 25 percent between 2008 and 2010.

It would be one thing is they were accumulating all of this wealth legitimately.  However, it is just not right for members of Congress to use government secrets and inside information that is not available to the general public to make huge profits in the stock market.

If any of the rest of us engage in insider trading, it could get us thrown into jail.

But as a recent CNBC article noted, members of Congress can pretty much get away with it as much as they want to….

When you buy and sell stocks based on secrets you learned at the office, it could be insider trading.

But when a United States Senator does it, it’s probably perfectly legal.

That’s because the SEC has largely determined that trading stocks based on advance knowledge of action in Congress is not insider trading.

But just because it is legal, that does not make it right.

Former Washington lobbyist Jack Abramoff made headlines recently when he claimed that "a dozen members of Congress and their aides took part in insider trading".

Well, it turns out that there has been a whole lot more insider trading going on than that.

If you have not seen the recent 60 Minutes report on this issue yet, you really should take a few minutes and watch it….

One of the politicians featured in the 60 Minutes story was Nancy Pelosi.

Pelosi has been doing incredibly well financially in recent years.  For example, her net worth soared by 62 percent in 2010.  If you can believe it, Nancy Pelosi is now worth 35.2 million dollars.

That is a nice chunk of change.

So has she been getting a little bit of "extra help" along the way?

According to a recent CNN article, one very preferential stock deal involving a credit card company went very well for her.  It also turns out that there was credit card legislation that was pending in the House at the time….

Pelosi and her husband participated in an initial public offering of Visa in 2008, according to CBS. They bought 5,000 shares at the initial price of $44; two days later, shares were trading at $64, CBS said.

The network reported the investment came at the same time a piece of legislation that was opposed by credit-card companies was making its way through the House.

But what is even worse is what many members of Congress did with secret information that they were told by U.S. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke at the start of the financial crisis of 2008.

On September 16, 2008 Paulson and Bernanke held "closed door meetings" with members of Congress and warned them that the financial system was about to totally collapse.

But instead of racing out to save the financial system, author Peter Schweizer says that many of our representatives in Congress raced out to save their stock portfolios.

In his new book, Schweizer alleges the following….

*Schweizer says that U.S. Senator Dick Durbin sold $74,715 worth of stock on September 17th and $42,000 worth of stock on September 18th.

*Schweizer says that U.S. Representative Jim Moran sold off shares in 90 different corporations on September 17th.

*Schweizer says that U.S. Senator Sheldon Whitehouse sold off at least $250,000 worth of stock between September 18th and September 24th.

*Schweizer says that U.S. Representative Spencer Bachus bet very heavily against the stock market in the days following the September 16th meeting and made tens of thousands of dollars doing so.

*Schweizer says that U.S. Senator John Kerry bought up approximately $350,000 of Bank of America stock and approximately $550,000 of Citigroup stock during October 2008 and November of 2008.  It was during this time period that the bailout programs for the big banks were being developed and debated.

Are you feeling sick to your stomach yet?

But it isn’t just members of Congress that are using secrets to make money in the stock market.  According to an article in the Wall Street Journal, quite a few Congressional staffers have also been making questionable trades….

"At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009."

But nobody is getting into trouble for any of this.

This is how corrupt our system has become.

And there are scientific studies that show that members of Congress have been doing significantly better in the stock market than the general public has been doing.

For example, one study from 2004 found that members of Congress do even better in the stock market than corporate insiders do….

"A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade."

A recent CNBC article mentioned another recent study that found that investments by members of the U.S. House of Representatives beat the market by about 6 percent a year….

In the 2011 study “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives,” four university professors found that a portfolio that mimics the purchases of House Members beats the market by 55 basis points per month, or approximately 6 percent annually. That study looked at 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001.

Clearly all of this is not just some huge coincidence.

So why doesn’t Congress just pass a law to make it illegal for members of Congress to make trades based on insider information?

Well, a few members of Congress have actually tried to introduce such legislation, but it has never gone anywhere.

It turns out that members of Congress like things just the way that they are.

Being a member of Congress is one of the best jobs in the country.  It is a great way to become famous, get rich and live the high life.

As mentioned earlier, only 11 percent of the American people think that Congress is doing a good job, and yet we keep sending the same people back to Congress time after time.

Since 1964, the reelection rate for members of the U.S. House of Representatives has never fallen below 85 percent.

Yes, our system is a joke, but the joke is on us.

So do any of you out there actually believe that we have a chance of changing this deeply corrupt system?

Insider trading Congress

Tags: , , , ,
Posted in Uncategorized | 1 Comment »

An Absolute Zero

Sunday, October 2nd, 2011

Article by Frederick J. Sheehan

The Daily Reckoning 

The Federal Reserve Open Market Committee (FOMC) concluded a two-day meeting last week by initiating “Operation Twist.” The FOMC’s press release explained: “The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.”

This announcement initiated sell programs in almost every financial market. There are many reasons for this reaction, one of which was the recognition that the Federal Reserve is 0-for-whatever-it-has tried. All the Fed’s initiatives have failed, and now, all that Bernanke can think to do is drive down yields that are already below 2.00%!

The Fed’s efforts to revive the economy are failing because of the four topics that never enter the mind of Federal Reserve Chairman Ben S. Bernanke: money, credit, leverage, and capital.

The productivity of capital is an important consideration, one which most people understand, in their own words. A bank does not lend money to a business that cannot earn its way to paying back the loan. A potential borrower understands the banker’s hurdle. Similarly, an investor buys shares of common stock in a company that will produce the most from the least. The higher the profits produced per share, the more the shares should be worth.

In other words, most folks understand the classic connection between risk and reward. And most folks also understand that merely borrowing more money, without putting that money to productive use, will never solve anything.

Ben & friends do not think this way. They believe that funneling more credit into the economy is a surefire means of “kickstarting growth.” But the facts say otherwise.

During the quantitative easing programs, the Fed’s credit-from-the- heavens produced zero growth.

During the 1980s, the change (rise) in non-financial domestic debt divided by the change (rise) in nominal Gross Domestic Product was 2.2. That is, for every $2.20 borrowed, the United States produced $1.00 of additional goods and services (nominal). In the 1990s, debt was less efficient. The US borrowed $2.70 for every $1.00 of growth. More recently, between 2001 and 2008, this ratio soared all the way to $4.20 for every $1.00 of growth.

In other words, every incremental unit of credit has been less and less productive. But that’s the only tool Bernanke has in his toolbox, so he just keeps using it. Since the Fed rolled out its various quantitative initiatives in early 2009, the ratio of debt- to-production has been 3.7:1 (through June, 2011). But, the increase in transfer payments (1-in-7 Americans now receive food stamps, Cash for Clunkers, shovel-ready bank bailouts) exceeds the rise in nominal GDP by a wide margin. Thus, as a measure of financial efficiency, the ratio is now meaningless.

The additional debt being manufactured is not producing any additional goods and services. The more Bernanke applies his senior thesis to the real economy, the less the economy is able to pay down old debt, much less manufacture additional goods and services to pay down the new debt.

The Fed has pegged short-term interest rates at zero; Operation Twist is an attempt to drive long-term rates to zero (or, close to it); the rise of incomes in the United States since 2008 has been zero; “real” GDP growth since QE1 has been less than zero; the FOMC is an absolute zero.

Physical elements tend to behave very strangely as they approach absolute zero (-273 Celsius).

Economic elements, as it turns out, are not so different. The move toward “absolute zero” along the yield curve is producing some very strange behavior — in both the financial markets and the economy at large.

The Authorities have lost control of the markets they have been manipulating. Desperate tactics, with untold unintended consequences, such as the Swiss National Bank doubling its monetary base last month, ensure more fanatical outbursts from the Fed, the ECB, and the Bank of Japan.

In this setting, gold fell more than $150 last week. Strange, isn’t it? Other than remote islands, gold is the best bargain around.

Regards,

Frederick J. Sheehan,
for The Daily Reckoning

 

 

 

 

Tags: , , , ,
Posted in Uncategorized | No Comments »

No new stimulus for US economy: Bernanke

Sunday, August 28th, 2011

TheComingDepression.net

n his long-awaited speech at Jackson Hole, Mr Bernanke disappointed markets by failing to signal that the Fed would launch another round of quantitative easing (QE), on top of the $2.3 trillion (£1.4 trillion) already completed.

However, he declared himself “optimistic” about long-term prospects and sought to restore faith in the world’s largest economy by insisting that US fundamentals have not been “permanently altered by the shocks of the past four years” and that more stimulus is not currently warranted. Source: (1) Daily Telegraph

Being no surprise, his comments today directly go against his comments made a little more than a month ago where he stated further stimulus “We have to keep all options on the table,” Mr. Bernanke said during a nearly three-hour appearance at the House Financial Services Committee. “We don’t know where the economy is going to go.”

The Fed has “put quantitative easing right back on the table,” Peter Schiff, chief executive officer of Westport, Conn.-based Euro Pacific Capital and a prominent skeptic of the Fed’ s unconventional policy, said in a statement. “Fighting a recession with QE is like fighting a fire with gasoline.” Source: (2) Financial Sense

Bernanke said “the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years.”

In his view, this is a good thing, He believes that the US had real growth fundamentals.

With long term interest rates already very low (2.23% on 10-year treasuries), more QE will have less and less of an impact at this point. Fiscal policy is where the attention should be, and a new stimulus package from Obama / Congress, especially one that invests in the country’s infrastructure, would be prudent right now. But they must combine it with a realistic and detailed long-term plan that spells out how they are going to control the budget, including tax reforms. Of course, this will not happen anytime soon.

In our view, this is bad, Because, despite extraordinary stimulus and intervention, huge shocks and worries, the US growth fundamentals remained static, and this is bad. Why?

Because without deficit driven government spending, there is no growth. We am not speaking of infrastructure or other longer term spending but current account deficits. If we removed the portion of government spending that was deficit driven from GDP, we would guess that the US has not been growing for a long time. All they did was borrow to spend to give the illusion of growth.

Now, as much of the EU is discovering, this is not sustainable. Thus, to the extent that the last 4 years taught us nothing, it is a sad statement.


Tags: , , ,
Posted in Uncategorized | No Comments »

On the Brink of Inflationary Disaster

Thursday, August 25th, 2011

Mises Institute

Ever since Ben Bernanke began his massive infusions of money into the financial system, many analysts (including me) have been worried about the severe weakening of the dollar if and when the fractional-reserve-banking system magnified the initial injections severalfold.

Although the trend could reverse, data from the past two months suggest that the inflationary big one may be upon us.

Keeping the Genie in the Bottle

To understand the potential problem, we need to review some basic facts. Back in the fall of 2008, when Lehman collapsed and the entire financial system appeared in jeopardy, the Fed began bailing out investment banks through massive asset purchases and extraordinary lending operations. These activities rescued the major banks that would otherwise have gone bankrupt, by taking bad assets off their books (at inflated prices) and by propping up the new "market" price of the assets remaining on their books.

When the Fed buys an asset, it writes a check on itself. This action creates new electronic reserves in the banking system. For example, if the Fed buys $10 million in mortgage-backed securities from Joe Smith, then Smith will deposit the check in his own checking account. His bank will credit Joe Smith’s checking balance by $10 million, but at the same time the bank’s account with the Fed itself will rise by $10 million too.

At any time, regulations insist that commercial banks in the United States keep a minimum amount of reserves set aside in order to "back up" the demand deposits (think of checking accounts) of their customers. For example, if a commercial bank’s customers think they have a total of $1 billion in their checking accounts, then the Fed’s regulations force the commercial bank to keep (roughly) $100 million set aside in reserves. These reserves can consist of green pieces of paper stored in the commercial bank’s vaults, or the reserves can be electronic entries showing how much the bank itself has on deposit with the Federal Reserve.

The following chart shows how much in new reserves the Bernanke Fed has pumped into the system in the last three years:

Figure 1

Notice that "excess reserves" are historically very close to zero. This reflects the tendency (assumed in textbook discussions of "open market operations") for commercial banks to quickly lend out any reserves they have, over and above their legally required minimum. Yet as the chart above clearly indicates, since the onset of the present crisis the commercial banks have not been making new loans. Instead, they have allowed the huge injections of new reserves to sit parked at the Fed.

There are several (possibly overlapping) explanations for this break from the past. Keynesians such as Paul Krugman argue that this was the predictable outcome during a liquidity trap. Proponents of MMT (modern monetary theory) argue that the economic textbook discussions have things upside down, and that banks are never constrained by reserves when deciding on making new loans. Quasi monetarists lament the Federal Reserve’s decision in October 2008 to start paying interest on excess reserves — a policy whereby the Fed actually bribes banks not to make loans to their customers. Free-market guys like Mish (as well as some card-carrying Austrians) have argued all along that significant price inflation was never on the table, so long as the financial system worked through a painful process of deleveraging.

Regardless of their specific explanations for why commercial banks hadn’t been lending out the trillion-plus in new reserves Bernanke created, just about every pundit agreed that this fact was a major reason that what seemed to be incredibly inflationary policies weren’t leading to skyrocketing prices.

However, if the trend of the last months continues, that period of containment appears to be over. All of those pundits who hedged their predictions by saying, "So long as those reserves stay bottled up at the Fed …" may need to go back to the drawing board. Recent releases from the Fed show that the excess reserves are starting to leak out.[1]

The Fed’s Latest Figures on Reserves

Here are the relevant figures from the Fed’s latest (August 18) H.3 release:

Reserves of Depository Institutions (millions $)

Two weeks ending …
Required
Excess

Jun 15, 2011
$76,601
$1,609,786

Jun 29, 2011
$78,682
$1,567,444

Jul 13, 2011
$77,024
$1,634,382

Jul 27, 2011
$77,968
$1,607,797

Aug 10, 2011
$81,303
$1,601,997

The above data are consistent with the commercial banks finally beginning to lend out their excess reserves — something that they typically do, but (for various possible reasons) have not done during the current crisis.

To double-check our conclusions, we can show that demand deposits at commercial banks have grown sharply over the past few months, matching the aggressive growth exhibited back during the panicky days of late 2008:

Figure 2

Moving From Money to Price Changes: Some Pitfalls

Before the reader runs to the gun store (or jumps out the window) because of impending price hikes, I should go over some caveats. First, we must always consider the supply and demand for money. Clearly in late 2008, but also in recent months, the general economic outlook was very bleak and this led households and firms to increase their desired holdings of money (as opposed to other liquid assets). Rather than viewing the banking system as pushing new money into the economy, some economists would look at the above chart and see people pulling new money into existence (through the magic of fractional-reserve lending).

A second nuance is to contrast relative with absolute price changes. During late 2008, the official consumer price index (CPI) was falling fairly rapidly. Therefore, even though it may have been true that Bernanke’s money creation led to "rising prices," this tendency may have been masked by the underlying fall. The net result was only a modest increase in CPI during 2009, which led many critics of Bernanke to look like Chicken Littles. The following chart shows what happened to CPI over the last ten years:

Figure 3

Note that in the above chart, we are not currently staving off a plunge in consumer prices, but in fact are following on the heels of a rather sharp surge in the official CPI.

A third caveat in our analysis is that (as good Austrians) we must remember that there are millions of different prices in the economy. The specific impact of money creation on various sectors can be very different, and operate on different time frames.

For example, during the present crisis, we had the Fed create more than a trillion dollars on behalf of rich investment bankers. At the same time, middle- and lower-class households were plagued by high unemployment, large debts, and underwater homes. In this environment, it’s not surprising that the various rounds of "quantitative easing" went hand in hand with huge jumps in stock and commodity prices, but were muted in the retail sector.

Drawing on the Bureau of Labor Statistics’ latest releases of the consumer and producer price indices, we see that once we leave the specific metric — "core inflation" — favored by Krugman and other prominent economists, we get a very different picture indeed of the trend in prices over the past year:

Price Change from July 2010 — July 2011

Producer Price Index — crude goods
22.6%

Producer Price Index — intermediate goods
11.6%

Producer Price Index — finished goods
7.2%

Consumer Price Index — all items
3.6%

Consumer Price Index — ex food and energy
1.8

Read more

Tags: , , ,
Posted in Uncategorized | No Comments »

The Top 10 Failures Of Federal Reserve Chairman Helicopter Ben Bernanke

Monday, March 28th, 2011

The Daily Bail

Proving that job performance is irrelevant in Washington, Obama today reappointed Bernanke to a new 7-year term as Fed Chairman.

Can’t say that this is surprising news, given the signals of late.  But still it is remarkable in the context of Bernanke’s massive failure as the architect of the U.S. financial collapse.  On a day when most are praising the Fed chairman, we will look at his many and massive failures instead. 

As you will hear in the collection of videos and stories linked below:

  • B-52 failed to recognize asset bubbles of all types, and even encouraged irresponsible 2/28 mortgages and low teaser rates in 2007 at the start of the sub-prime implosion.
  • Failed to shut off the free-money spigot still gushing from the Greenspan years.
  • Failed to provide a framework for adequate regulatory oversight of Wall Street (yet Obama now wants to give the Fed more oversight and regulatory authority).
  • Failed to understand the nature of the crisis when it first broke in the Spring of 2007 (Bear Stearns sub-prime, hedge fund implosion).  The famous meltdown clip from Cramer on Bernanke sums this failure up rather nicely.
  • Failed to understand that housing prices might actually decline in value after such a dramatic rise (seriously, even my mother knew that banks providing new mortgages on massively-inflated housing was not going to turn out well)
  • Failed to negotiate with AIG counterparties; instead choosing to pay all claims at 100 cents on the dollar without asking for any compensation (preferred shares) in return.
  • Failed the American people with his decision to support and reward the failed banks and the bankers for their malfeasance, excessive risk-taking and criminality.
  • Failed to protect taxpayer’s interests in deals with AIG, JPM, and Bear Stearns, (with Maiden Lane I, II and III) and the still un-detailed asset guarantees given to Citigroup and Bank of America.

Tags: , , ,
Posted in Uncategorized | No Comments »

Inflation 1; Economy 0

Sunday, March 13th, 2011

America’s recent economic “recovery” is just a dismal version of “Mother May I.” Almost every “one step forward” will succumb to “two steps backward.”

To switch metaphors, the so-called recovery is not the fruit of sustainable underlying demand; it is merely the weed of rising inflation expectations. Let me explain…

Much of the recent improvement in economic statistics can be chalked up to inflationary expectations. Business operators believe that future prices for many goods and services will be higher next month than they are today. As a result, many companies – and some households – are asking themselves: “Why don’t we buy the supplies we’ll need in the future today?” Those with savings and capital can afford to do so.

This buying activity, which is driven by expectations of higher prices in the future, results in a transfer of future economic activity into the present. It’s the type of activity that Keynesian central bankers like Ben Bernanke want to encourage. But the transfer of future economic activity into the present carries with it the same problems we saw during the housing and credit bubbles: when the “borrowed-against” future finally arrives, we see a collapse in demand for the pre-bought items.

An example of this phenomenon was the spike and crash in the construction of new homes in the US. During the peak years, several years’ worth of future demand was pulled into the present.

Bernanke’s goal of inducing a benign rise in expectations for future inflation will backfire. Pushing consumers and businesses to “buy now” with the expectation of higher prices in the future is hardly different from subsidizing the reckless growth in debt-driven economic activity in 2004-07. As a result of Bernanke’s QE experiments, we’ll see sugar rushes in economic activity, followed by hangovers. The result will be stagflation.

While some industries and companies enjoy pricing power, most do not. Those without pricing power will see weaker profit margins as higher raw material prices flow through the chain of production.

I continue to be amazed by the market’s complacency in the face of obvious deterioration in the economic picture. There’s no denying the recessionary impact of gasoline spiking to $4-plus per gallon – and staying there for some time. The International Energy Agency estimated this week that the turmoil in Libya has shut in between 850,000-one million barrels of oil per day. Governments and investors around the world are more interested in securing their oil and food imports than they are in holding US dollars paying negative real interest rates.

Central banks and governments remain blind to the inflationary consequences of their policies. Based on his public comments, Ben Bernanke seems to view rising food and energy prices as a deflationary shock to the US economy – which would, in his mind, necessitate even more money printing. He sees no connection between the expansion of the Fed’s balance sheet and rising prices for necessities. He blames the weather and growth in emerging markets. How convenient!

One would hope that Bernanke understands the dilemmas that faced one Rudolf von Havenstein, president of the German central bank during its hyperinflation of 1921-23. In a research piece posted on Zero Hedge, SocGen strategist Dylan Grice offers an interesting perspective of von Havenstein’s experience. Here is a snippet:

[Let's] not ignore the parallels [between Weimar Germany and today's monetary environment]: as is the case for today’s central bankers, Von Havenstein was faced with horrible fiscal problems; as is the case for today’s central bankers, the distinction between fiscal and monetary policy had blurred; as is the case for today’s central bankers, the political difficulty of deflating was daunting; and as is the case for today’s QE-enthralled central bankers, apparently respectable economic theory reassured him that he was doing the right thing.

Grice’s piece is over a year old, published at a time when the consensus view was expecting a “self-sustaining recovery” and an “exit strategy” from QE1. Instead, after a few short months of economic deterioration in mid-2010, Bernanke came out blazing with his QE2 guns. So the question must be asked: how are endless QE programs not considered an effort to monetize the US federal deficit? Everyone has their own answer, but it’s hard to imagine that more investors won’t start worrying about a dramatic collapse in confidence in the US dollar.

The proposed budget cuts from the Obama administration and Congress are jokes. They are woefully inadequate. And polls this week revealed that even many self-identified Tea Party members have no desire to cut Social Security and Medicare benefits. The weaker the political will to enact painful budget reforms, the faster the federal debt will grow. The faster the debt grows, the more the Fed will be pressured to monetize, which boosts the money supply. The further the money supply grows, the more urgency investors around the globe will feel to buy gold, silver, and other hard assets.

Demand for gold should keep growing in the coming months, as Bernanke and other central bankers willfully ignore the inflationary consequences of their actions. It’s hard to imagine a reversal of this trend until we see much more political support in Congress for handcuffing the Fed or changing its so-called “mandate.” As Rep. Ron Paul noted in his questioning of Bernanke recently, the Fed’s quantitative easing enables reckless federal spending like an accommodating bartender enables an alcoholic.

Investors looking to protect their portfolios from the ravages of deficit spending and money printing will look to buy gold.

Regards,

Dan Amoss,
for The Daily Reckoning

Tags: , ,
Posted in Uncategorized | No Comments »

The Food Crisis is a Dollar Crisis

Sunday, February 20th, 2011

At this week’s hearing on Capitol Hill, Fed Chairman Ben Bernanke demonstrated a lack of understanding about what causes inflation. His comments reflected a belief that GDP growth causes inflation.

But true economic growth is production-driven, and adds to the supply of goods and services in the economy. True economic growth is not inflationary. Rather, inflation is driven by runaway government deficits and bloated central bank balance sheets. And right now, we have plenty of both. So we have every reason to expect the CPI, even with all of its window-dressing shenanigans, to soar past 2% in short order.

I’m surprised at how complacent the stock market remains in the face of obvious pressure building on the CPI. If the Fed doesn’t react to a rising CPI by tightening policy, Treasury yields will keep soaring, and inflationary psychology will take root among most producers. If the Fed does react by ending QE and raising short-term rates, it doesn’t require much imagination to guess what would happen to a stock market that’s running entirely on fuel from the Fed. Either of these potential scenarios is bad for stocks. The only scenario that argues for further rallies in stocks is if – miraculously – even with unprecedented money printing and deficits worldwide, the CPI doesn’t continue rising.

A rising CPI will give more ammunition to the growing chorus of Fed critics in Congress. At this week’s hearing, when questioned about the building pressure on consumer prices, Bernanke answered that it would be easy to stop this trend by reversing his policies. But you know he’s terrified at the prospect of tightening. He’s an academic with his head in the sand.

When asked about the impact of QE2 on global food prices, Bernanke responded that the destabilizing spikes are due to weather and rapid growth in demand for grains in emerging markets. What a lame excuse! As an admirer of Milton Friedman, he must know that “inflation is always and everywhere a monetary phenomenon.” Inflation isn’t a “weather phenomenon.”

Without forever-growing money supplies, price spikes in one set of goods, like food, would be offset by price declines in more discretionary goods. But in today’s world, demand isn’t limited to what one can produce and save; it’s boosted further by what one can get from government handouts and what one can borrow at the Fed window at 0%.

Yet after all the experiences of recent years (including the early 2008 experience in oil and grains), Bernanke is still oblivious to the consequences of debasing the world’s reserve currency. In his view, if the world doesn’t conform to his personal Phillips Curve and output gap models, there must be something wrong with the world, not his models.

Bernanke has the intellect to understand the negative consequences of the Fed’s radical policies, but he simply chooses to ignore them or rationalize them away. By pushing on the monetary accelerator last fall (rather than wait for another “deflation scare”), Bernanke is going to undermine public support for the Fed. As a result, Bernanke gambled that he could spark a stock market rally. He indeed sparked a rally, starting last August – one that looks very long in the tooth.

But the fact remains that there is no direct “transmission mechanism” from the Fed’s balance sheet to the stock market. Speculators have to have a very specific, benign perspective on Fed policy in order for Fed policy to impact stocks. Today’s misplaced faith in the omniscience of the Fed will soon fade, and when it does, the market will return to intrinsic value very rapidly. The day trading robots and speculators counting on a “Bernanke put” will all look to sell at the same time, and patient investors won’t look to buy until prices fall much closer to intrinsic value. Using the most robust, back-tested historical valuation models, the best estimates of fair value for the S&P 500 that I’ve seen is somewhere in the range of 800-1,000 – 25% to 40% below current levels.

At times like these, it is often constructive to contemplate probable outcomes – to thoughtfully consider the likely winners and losers that soaring food prices will create. The shares of Ag equipment guys and fertilizer companies have been soaring. For example, the shares of Deere and Caterpillar have both more than tripled since Chairmen Ben announced his very first QE program on March 18, 2009. Fertilizer company stocks like Potash and Mosaic have also been on a tear. All these companies are on the receiving side of rising food prices – more or less.

But what about those companies who are on the paying side? Food producers and processors of all types are struggling to accommodate soaring food costs into their business models…and their share prices are showing the strain. Pilgrim’s Pride, Tyson Foods, Sanderson Farms, Kellogg, General Mills and Safeway have all turned in conspicuously poor stock market performances during the last several months.

I recently issued a bearish call on another likely victim of rising food prices. This company is subject to many of the same food price stresses that have been buffeting the companies cited above. Yet, for reasons that are not completely intuitive, the shares of this particular company continue to trend higher. Nevertheless, I suspect rising food costs will put the breaks on this uptrend and cause the stock to reverse course.

This company is facing serious fundamental stresses that will cause similar problems for individuals as well. Inflation is here, folks…whether we like it or not. No use in complaining. Better to prepare.

Regards,

Dan Amoss,
for The Daily Reckoning

Tags: , , , ,
Posted in Uncategorized | No Comments »

« Older Entries