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"Bernanke Warned Congress On Wednesday That The United States Could Soon Face A Debt Crisis Like The One In Greece"
Bernanke is now joining Rosenberg, Ferguson and Faber, Edwards, Grice and many others in warning that the debt crisis rearing its head in Greece may spread to America, causing U.S. interest rates to climb.
As the Washington Times wrote yesterday:
With
uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke
warned Congress on Wednesday that the United States could soon face a
debt crisis like the one in Greece, and declared that the central bank
will not help legislators by printing money to pay for the ballooning
federal debt.
Recent events in Europe, where Greece and other
nations with large, unsustainable deficits like the United States are
having increasing trouble selling their debt to investors, show that
the U.S. is vulnerable to a sudden reversal of fortunes that would
force taxpayers to pay higher interest rates on the debt, Mr. Bernanke
said.
"It's not something that is 10 years away. It affects the
markets currently," he told the House Financial Services Committee. "It
is possible that bond markets will become worried about the
sustainability [of yearly deficits over $1 trillion], and we may find
ourselves facing higher interest rates even today."
Yes, massive debt overhangs do matter.
Contrary view: A very smart financial expert disagrees, telling me:
Higher interest rates do not equal a debt crisis.
Greece's
situation is not comparable to the US. Greece's situation is comparable
to that of California. It makes a big difference whether you control
your currency or not.
I believe in Der Spiegel, Wolfgang Schäuble called BB "Ahnungslos" which means "unaware" more than "clueless". WS is likely thinking of BB's being unaware of the ultimate political consequences of venturing down the road of money printing. From the German point-of-view, money printing leads to unhappy voters which can lead to fascism which can end in mayhem and slaughter.
Damn, I'm more confused than normal:
2/24, BB says expect ultra-low interest rates for some time to come:
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/24/AR201002...
2/24, BB says "...we may find ourselves facing higher interest rates even today..":
http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warnin...
Keep interest rates at 0 and people leave the banks.
Raise interest rates they come back.
It's not a question of IF someone is going to get screwed. It's a question of who and how much.
Well, since one is a relative term and the other is subjective, you could still technically have the rates be higher than they are now and still be considered ultra-low. Real tricky Ben, real tricky.
The first quote is "what Ben wants", and the second is "what Ben craps his pants thinking might be forced upon him."
that and, possibly, different parts of the yield curve: ben is strong inside two years but really peters out between ten and thirty.
take away legislators checkbook, oh no!
Is anybody actually buying this nonsense? He's lied about everything else when it suited his purposes. What is he going to do stand there and watch the real economy slowly implode?
For Christ's sake, I read an AP story in the local paper that says we're headed on another leg down. The green shoots vapor has completely evaporated. He'll print money like there's no tomorrow unless he gets different marching orders from Washington. That being the equivalent of immediate political suicide I'm not holding my breath for it.
I guess he thinks that this will buy a little more time. Anyway it's worth a try, because solutions are now beyond the realm of Fed policy.
ben is talking out his ass yet again....he will print money whenever he is told to print.....i hope is head gets caught in a printing press so we can get rid of the creep....
I think it is agreed that the Ben threat not to protect issuance is a veiled one. To great extent he is two faced because he is increasing debt through his own actions with the MBS buy, and support of Treasury (FDIC) bank practices.
Bernanke will not have any choice but to try and control the cost of debt through interest rate manipulation, through every avenue possible; QE, pressure on primary dealers to buy and hold, you name it, it will be tried. But, there is a finite limit on the amount of debt that can be floated in order to meet the requirements of the US Government outlays.
Really the problem is one of relative rates and not some static debt to GDP number, taken alone as a ratio, or as a meaningless comparison from one country to another. Each country is vastly different in how their citizens and systems are organized to fund Government.
Let me explain, for the US we have to fund government through debt because we cannot cover existing outlays and maintenance of preexisting debt, through revenue alone. So, as a simplistic view, we then have two funding streams, revenue and selling debt. Now if the FED is well behaved and just maintains through SOMA and proding the primary dealers, in order to fund government we must sell a certain amount of debt, if we cannot sell it, the FED at some point will have to step in and buy it, much like QE1 $300B. The MBS buy could be used to increase reserves so that it is feasible that the primary dealers may hold a lot of this debt if asked. But, knowing bankers, they will not have the stomach unless the FED kicks in with QE2 to manipulate rates. So there is a limit to the amount of debt held by the primary dealers, above and beyond the normal market for USDs.
So okay what will happen. Crystal ball time; The key question is at what point will the FED step in and protect the interest rates on debt?
Simple enough, but the situation is not as it seems, because the processes involved are dynamic. Ben does not think he will be able to control the bond market, and he is correct. This then will mean that Government will have to take some very painful actions. Meaning cuts to benefits and attempts at tax increases.
Many people looking at this, are stuck by the fact that the premise behind any FED measure, is that it can be controlled. This is where it gets interesting, because we do not really know. The mental picture the economists have, is one of a gradual increase in rates with a cap at around 6% to 7% on the 10Y all under the watchful control of the FED QE and rates. This assumes a great deal about the bond (debt) market of the future for sovereign debt. The US is very vulnerable to a pull back in the market for USD denominated debt. Granted, to large extent by the de-leveraging going on, but also by the shear magnitude of the debt the US has to sell.
Perhaps unsustainable at 7% for any length of time, due to FED actions to debase the currency. Who would buy US debt, in somewhat real worth today for a promise (bond) of a future debased currency? Good question.
In terms of real worth Ben has been just as destructive as the fiscal idiots. Perhaps more so, we do not really know the magnitude of FED waste (total future QE effects or securities). Or to put it another way FED debt. The debt is just as real as fiscal debt, I beleive, because the FED will never be able to tighten effectively on MBS, or T debt it holds. So the FED will just scrub and not reduce the money supply.
With this in mind, constitutionally, the FED should be abolished because essentially it can no longer control monetary policy. Debasement of a currency is not control, it is destruction. This is the legacy of the FED and the political elite.
Mark Beck
He gets it NOW???!!!! What/s his middle name ....S for Sherlock? The Reserve Bank will not print any more money. PPPHhhhhhhttttttt!!! (There went my coffee). Cough, cough, splutter, blurtle (geez, I hope that was a fart) bwooohahahahahaha. (Oh, stop it Ben, now I went and cracked a rib).
The sudden unexplained resignations of so many
CEOs in the past few weeks are starting to make
sense now.
It would indeed be not much short of a miracle if Bernanke has realised that his banking counterparts have not the sligtest interest nor ability, and I add that second part not lightly, to deal with a crisis constructively.
If Bernanke is willing to do what he thinks is the right thing, the he should be allowed to do so. If that may bring about the dismantling of the FED itself, it would still be the case -that having the right man to do the job, than having the various bank execs be crowned kings.
Meanwhile, Friday was slightly awful and even a line in the sand.
If the bankers- and the people who own banks- do not get their way, i.e. quantitative easing and to a lesser extent the quashing of the Volcker rule, they will put government borrowing into a tight, hard place. In that respect, Bernanke may well be saying 'please do not start upsetting the cart with audits and so-called 'bank-bashing'.. or there won't be anymore money/US government'. ..
The buying of USTs' has a lot do with balancing trade flows- under normal conditions. The last year has been abnormal. The buying of USTs' in this period has had more to do with the owners (of banks) wishing to preserve the economy. In as far as that is the case, the squeeze which Bernanke addresses is certainly political in nature. Yet... we have a blink... the US economy is obviously becoming a bit of worry.
With good reason; as things stand, in the US economy there is a wonderful attitude that allows the rich do anything and the media to completely stand by or to take their side. If anyone in the media says anything out of place, it's a one-off thing. There are courts which are fully compliant. There are the Federal police services, at the beck and call. And then there is the vaunted military...hundreds of thousands of 'citizens' putting their lives in harms way, not to protect the innocent, but for dollars... and then there is the science output -- there is simply no way that the banks can afford NOT to be in the United States. Indeed, the behemoth is the way it is largely because it was given unlimited funding, even before the Fed charter was drawn-up. And this means there is a very strong feeling of 'ownership of the US' deep within the senior banking community.
The current crisis, and the banks' handling of it, is causing a revulsion amongst everyman. This sentiment is far more of a threat than a mere negative business cycle. It would undermine the 'american way of life'; if the general attitude more fully becomes 'state and federal apparatus is neither to be trusted nor talked to' then, in time, the state would fail. Importantly- this is no longer a fragmented world- anti-slave-ownership feeling in one country is going to find resonance everywhere. And right smack at the heart of the malaise lies the greed- the cause of all this noise- of the larger London and New York banks. Who between them, own pretty much all of everything, every product, every debt issuance, have custody of every significant reserve, have control over every useful tax-regime and have every right over our privacy.
So thery're not going to relinquish control over the US Federal reserve without sizeable persuasion. And bear in mind that the owners of these institutions could care less whether you died or lived. If there are only ten people left on earth, as long as one of these remain the banker to the other nine.. Still, they did blink...Whatever the meaning behind Bernanke's message: Popular sentiment, whether it be simply psychological or whether it is cold Aggragate demand, it is a force which rails against their rulership -that has been made as clear as something like this is as likely to... So, now, we put them on the back foot. May I propose that we cut back on all expenditures that are not related to basic day-to-day. Stay with buying food, but don't eat out anywhere that has a roof. Cruel? think of us as all cows which get milked (milch-cows), aside from using bullets on us, the worse that can be done is to turn us free, on the common so-to-speak. Don't buy anything you don't actually use and certainly very little that is expensive - learn how to fight with the wife, again. Certainly, pay the full amount of all the bills on time, don't be a poor credit risk, that would be self-defeating.
I suppose that this was my trading idea, not that it matters at all. But there seems to be more schizophrenia in the markets now than at any time (mainly because it's gamed by a few gorillas in the middle of a tantrum)- got an insider tip, then fine, otherwise it seems to be you against a predatory algo... the deep question is the gold spot. As a response to central banks imposing the concept of prudency into their regulatory frameworks, the merchants may embarrass the central bankers, or they could simply display their power to do whatever they like, or tthey could choose to manipulate silver, but as that is more directly held in place by JPM, there should be less flagrant flailing.
As long as you have a good source of income it is just fine to eat out.
" It makes a big difference whether you control your currency or not."
Yes except most Americans (and world citizens) think that politicians have control of the FED,.. they don´t.
Those who have control the FED do not have the same interest as the American people. The U.S has debt, that debt is owed to the very same people who control the FED, which is why debt forgivness through printing is the last thing that will ever happen.
Live accordingly!
Nope....
There is a base consumption pattern for every population....
and it puts to the forefront....you pay for what you consume....a fair equation....
But most importantly it does this....
It makes it possible for one to walk into WalMart and buy something made in the USA....and would this not be nice ?
For a change....?
And would it not be nice that one could go to sleep knowing this....
Do me a favor and choose which economy you rather be in....
Which economy would be much larger than the other in 10...20..50 years ?
1)Economy 1
Has the hughest corporate taxes in the world ....which are being increased by other govt. impositions such as energy taxes...health taxes....and retirement mandates.....Thus all these taxes end up in prices thus making the products much higher in price than their peers....
Economy 1 also taxes small business over $250,000 by over 50% when all of the govt. mandates are accounted for....
Individuals that make over $250,000 are taxed 50% and the rest pay 20% on average....
There is also a 10% Fed VAT tax.....which is addition to the state taxes...some of which are VAT...some are just level rates ranging from 5 to 15%....
The govt. makes up over 50% of the economy.....
.........................................
Economy 2
Economy 2 has a strong government that recognizes that their manufacturing base must be rebuilt....and that the government must dramatically downsize such that it is much smaller than the private economy....
The govt. bans all taxes except for a simple 15% consumption tax which is applied to tangible consumables only....5% goes to the Fed...and 10% goes to the states....There are no individual or corporate taxes...
Economy 2 also rebuilds its RETAIL stock exchange as a means of better wealth distribution....There are no taxes of anykind on any securities class....The rating agencies are replaced by wiki style fact based information....There exchanges are defragmented...and made easily accessible worldwide....
.................................
In short ...in just 10 years Economy 2 would be many times larger than Economy 1....and many foreign companies would have located in the US because of its tax advantages and stable govt....Labor shortages would occur in the US....
Cumulative asset valuations acroos the board would be many time the 2007 level while including credit and equity....
Wealth would be more broadly distributed and capital would be bountiful....
In 50 years....Economy 2 would be more than 100 times larger than Economy 1....
.....................................
At the moment the populist polys are selling Economy 1 to the ice cream lovers....
Everybody likes ice cream....????
bernike has a master ,, it is both the folks above and the congress,, he will obay both
why the deck do youn think he was renominated he got his marching instructions bowed hsi head and said yes ;
the paper is coming like a flood of water ,,
It matters little if the econonomic rational is valid or not. It matters what the market decides to do. If they decide to attack the us bond market interet rates will go up. I expect to see rolling debt crisis as they pick of one market after another. Just the same way they picked of one investment bank after another.
This is from the same man that told us unequivocally that
1. There is no housing bubble and
2. Subprime is contained.
Folsks--We might as well have a voodoo priest giving us economic predictions. Ben's only job is to OBFUSCATE the truth to the masses.
Scary indeed.
Sorta like the arsonist pointing out with alarm how big the fire has gotten. You have to believe these are just nice, cheap, soothing words for the deficit hawks and he has no intention of actually doing anything about it.
I recommend we start by removing AIG, Frannie, the 19 Financial Terrorists and the FHA from the public teat.
Vote down the US's $100b annual contribution to the IMF.
Close, oh, 699 of those foreign bases while we wind down our decade-long adventures in Afghanistan and Iraq.
That ought to be a pretty good start. This problem is easy if you don't view it through eyes clouded by nepotism and corruption.
Agree. Except that you left out Dept of Energy, Interior, Education, Commerce, LABOR!, HHS and HUD.
This can and should be done at the State level. And merge the EPA and FDA into one coherent agency. And FEMA needs better oversight too.
Bernanke Warned Congress On Wednesday That The United States Could Soon Face A Debt Crisis Like The One In Greece
"could soon face" means "has already suffered"
that's as much of a direct warning as a man could possibly articulate from this position. not exactly subtle. a preemptive "told ya so."
my reco to all concerned - think through the CONSEQUENCES of what is happening, and quit trying to name it. hyper-cali-fragilisti-flation. it doesn't matter what it is. its what it does that matters.
+1
Brilliant statement. Totally agree.
The recent bond auctions show sufficient anomalies that I would not be surprised if the Fed bought it all, after initially thinking it would not have to do so.
Agree. Ben signaled the rate hike. It's just that we got so accustomed to 'contrarian interpretation' from the Fed that when the signals became real we didn't buy them.
The jig is up folks. In the spirit of malfeasance of biblical proportions Ben is singing like a canary.
Analysis is wonderful. ZH is a must read. But in the effort to put our arms around this parabolic fraud we perhaps over complicate very basic economic principals.
All good things must come to an end. Period.
has already suffered and will continue suffering; agreed.
Reminds me of the gold deposits under the WTC mysteriously disappearing weeks before 911. It didn't disappear, George bush drove up prior to 9/11 and put the whole shitload of gold in his limosine. You didn't see that? What the fuck were you doing. I thought everyone was watching. Its clear Obama isn't listening to Bernanke, but then Obama really wants the country to go belly up. He always wanted control of his own banana republic. Obama has read Chavez book at least 10 times. Watch Chavez, and you will see Obama following Hugo's example. Take over of the banks, Take over of the auto industry, take over of the insurance industry. Soon Obama will take control of the housing industry. Who will buy our debt? Soon no country will want to buy it unless the return on their investment starts to move higher. Marc Faber, "Were Doomed"
No, Obama is bullshit.
"Watch Chavez, and you will see Obama following Hugo's example. Take over of the banks,"
What are you smoking? Obama has not taken over the banks, I think it is the other way around.
Obama doen't know shit about economics and take his advice from the likes of Summers.
"It makes a big difference whether you control your currency or not."
That statement is true, but probably not in the way it was intended. Countries that don't control their currency have market discipline enforced at an earlier stage. They may go through a very period of economic retrenchment, but they do so when the economy is still salvageable.
We, on the other hand, are infatuated with our sense of entitlement as holder of the world's reserve currency. Our politicians and central bankers will continue to print money, spend recklessly, and delay the inevitable pain long after a lesser economy would be forced to face the structural imbalances between consumption and production. As a result, our retrenchment when it comes will be much deeper than it could have been.
From this point forward, we're just playing a game of Russian roulette, gambling that each round of fiscal and monetary stimulus is not the one that blows our brains out. There's a decent possibility that the events of the last two years have already fired the fatal bullet.
Hmmm...I don't know what he is up to!
Washington Times?
Ironic that the Moonie cult-owned newspaper publishes the "truth" about the country's sovereign risk. BS and others in the Obama administration will soon be out in the mainstream media making similar comments; failing to declare some legitimate "warnings" about a likely bond crisis here at home would mark Obama as worse than Bush in terms of crisis management.
Remember Condi and the Presidential Daily Brief she brought to Crawford before 9/11?
nicely on point: "determined to attack inside the united states". i dare say.
Benny Benny Benny....late to the game AGAIN!
With every government in the world running deficits, and I guess that private fund managers don't have collectively another $1.7 trillion laying about with nothing to do, just from where will come the "dollars" to buy up the deficit bonds for the U.S. alone...let alone the collective world government deficit funding?
Methinks sovereigns print up their own money to buy foreign bonds to lessen the appearance of monetizing their own debt.
thinly veiled threat by Bernanke.
pension to save , states to save , funding of government to save ,, who said easing ,, mouth moves , nose gets longer
When asked when such a thing could happen recall that Bennie said, 'tomorrow'...
They just gotta have faith...
Yeah, right. Not with the present batch of IDIOT slave "investors" it won't.
The Fed knows that it is only false mark to market values in its own coffers....
In other words the PAR value paid is worth ???? 20% or so of what was paid ?
What about when mortgage rates go to just 7 1/2%? 10% ?
..........................................
So if on top of this "trash inventory" problem....what about further monetization of aid to the states' municipals.....and the list just gets longer in a big way....what about extensions to the over 100,000,000 people benefitting form govt. handouts such as foodstamps ?
And how about the inflation spikes regarding SS payments which has not even been funded ?
And what about the current "lame duck" preseident who knows nothing about economics in general....and still wants to add costs to small business .....further diminishing their numbers....which also comprises the tax base ?
...................................
My friends there is only one solution to the economic ills of the US....
The US has to make a decision as to whether or not they are going to cut down the remaining trees in the orchard while demanding more fruit....which is not possible to begin with....
Or
They can make the decision to rebuild....which would mean total and complete simple tax structure change...
ie 15% consumption tax only
This is the only warranted move the govt. can make to replant the orchard and thus have more fruit to pick in the future....
And this you can take to the bank....
Any other move...you can with full conviction SS the US economy....
Guaranteed
and then when people stop consumption and economy goes into tank??
you got all these old farts wanting consumption taxes since they just sit on their crapper all day thinking the rest of the country will be dumb and keep playing and paying
Further, those that can will just purchase from Canada, or Mexico, (or Paris or Florence) to circumvent the tax. Even further, 15% consumption on all goods, even food, will be implemented, crushing the destitute to dust. (Back from whence they came, huh?)
and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.
Between what BSB says and what he does is ,as usual, a huge gap. He also said the fed will investigate on GS CDS for Greece. You can bet already now that strictly norhing will come out from this investigation. Yes, you are shameful,Mr.Bernanke !
WHAT THE HELL WAS THE MARCH '09 "QE" ANNOUNCEMENT ALL ABOUT THEN ?!?!?!?
technically speaking, and this is very important
to understand, qe is not fiat printing.....the
reason why folks don't understand qe is that they
think the usd is a fiat currency....in truth it
is not....it is a debt based currency and although
the long term effects of both types may be similar,
the fact of the matter is that fiat and debt
currencies are quite different...the usd is a
recursion currency because all of its conversions
are into debt the money itself being an obligation -
not an extinguisher of debt.....
the reason qe is not money printing is that credit
is issued against debt....so instead of backing
the currency with gold it is backed with debt....
fed went into private and public markets to buy
junk debt....it essentially traded one type of
asset for another without creating any new
assets - i.e. money....credit was created thus
liquifying the banking system....(a fool's errand
if ever there were one )...
the fed expanded credit without expanding the
money when it did qe....this may be why
m3 is declining in the face of burgeoning fed
balance sheet....
so in this respect, qe is not inflationary per
se....nonetheless its effects may be similar when
all of the credit is loaned...at this time it
is sitting in the fed as excess reserves....some
of course is being loaned but m3 and credit are
declining...
i understand the part about not expanding the M3, however, the 'assets' Fed purchased with QE money were fundamentally mispriced. They take in total rubbish, unusable for any sort of barter and replaced it with 100% fine hard currency.
Lets say I have a 10 dollar bill and a friend of mine (lets call him Ted) decides to pay me 100 bucks for it. This way I end up with $100 and he ends up with something 'worth' $100. Did we just create 90 dollars out of thin air? Yes as long as Ted carries that 10 dollar bill on his personal balance sheet and does not try to sell it on because he would quickly find out it is not worth the $100 he paid for it.
What Fed did was an unhedged 2 trillion bet. Until the value of crap on their balance sheet returns to the original 100% (not likely due to defaults ruining the time value), there is extra money in the system.
Very nice ratava and anonymous, excellent posts.
GG - We discussed this very topic just days ago. QE V whatever is all about maintaining the auspices of a "jobless recovery" between central bank system/their member institutions and the taxpayers of the societies where they operate, or more importantly, influence operations. Obviously so in the expressed opinion of Bernanke, Paulson, Bush, Obama, Summers, Rubin, Geithner & Co. by this and other congressional testimony. The response should be that the commitments of the central bank systems, their member institutions and the related actions of governments under their control regarding these TBTF institutions are the sole responsibility of these organizations, their member institutions, their closed share holders, current managing partners and the estates of those who have held any of these positions previously . This will be realized when all deposit/settlement taking activities are made into a national utilities temporally integrated for the purposes of determination and settlement of just debts prior to the reestablishment of sound private enterprise banking world wide and the separation of national money making & management from the their parasitic embrace.
Bernanke, Paulson, Bush, Obama, Summers, Rubin, Geithner & Co.
Sounds like the name of a 1960s investment bank.
just a head fake to prop up gold for IMF to sell out
Now that the banksters have gotten bailed out, time to start worrying about deficits...