Bernanke’s Losing Control Again

Phoenix Capital Research's picture

Bernanke has
a real problem on his hands. QE 2 spent $600 billion and got him at best a few
months’ worth of upticks in well-massaged economic data. In the process it blew
up food and energy prices and made the Fed look even stupider than usual (Bill
Dudley’s iPad comment comes to mind).

 

However, the
US economy clearly took a nosedive starting in February of this year and we now
have a confirmed double dip in housing. So Bernanke’s little brain is whirring
with the prospect of printing even more money because… well, that’s all he
does.

 

So, what can
he do? He can’t just go and announced QE 3 without risking his own neck… but at
the same time, he can’t just have stocks crater overnight by turning the
printer off.

 

Solution: he
continues to funnel money into Wall Street via less publicly offensive policies
such as QE lite (see the story below):

 

While the $600 billion purchase
program, known as QE2, winds down, the Fed said June 22 that it will continue
to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as
$300 billion of government debt over the next 12 months without adding money to
the financial system.

 

http://www.bloomberg.com/news/2011-06-27/fed-seen-buying-25-billion-a-month-in-treasuries-after-qe2-comes-to-end.html

 

The only
question is whether this will be enough juice for the markets until the
inevitable QE 3 or some such additional liquidity measure is announced (Bill
Gross has hinted it will be unveiled at the Fed’s August FOMC).

 

The Fed a
similar stunt in 2010 when QE 1 ended. However, at that time the game consisted
of pumping the system during options expiration weeks to the tune of $20-30
billion tops. This time around, the Fed could be funneling as much as $300
BILLION… and somehow the Fed’s in control of things?

 

I’ve said it
before and I will say it again: Bernake is slowly losing control of the system.
In 2007, he was putting $30 billion into the system here and there. In
2008-2010, he upped the ante to $50 billion PER MONTH. QE 2 pushed the amount
up to $100 Billion per month. And here he is, hinting at giving ANOTHER $300
BILLION when QE 2 ends!?!?

 

Folks, there
is a name for a financial game that requires larger and larger sums of money to
continue. It’s called a Ponzi Scheme and the longer it lasts the more
disastrous the collapse will be.

 

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Good
Investing!

 

Graham
Summers

 

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