From Michael Krieger of KAM LP
All quotes below are taken from a Bernank paper written in 1999 titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?”
Although it is not essential to the arguments I want to make—-which concern what monetary policy should do now, not what it has done in the past—-I tend to agree with the conventional wisdom that attributes much of Japan’s current dilemma to exceptionally poor monetary policy-making over the past fifteen years.
Indeed, as I will discuss, I believe that a policy of aggressive depreciation of the yen would by itself probably suffice to get the Japanese economy moving again.
On the issue of announcement effects, theory and practice suggest that “cheap talk” can in fact sometimes affect expectations, particularly when there is no conflict between what a “player” announces and that player’s incentives.
Suppose that the yen depreciation strategy is tried but fails to raise aggregate demand and prices sufficiently, perhaps because at some point Japan’s trading partners do object to further falls in the yen. An alternative strategy, which does not rely at all on trade diversion, is money-financed transfers to domestic households—-the real-life equivalent of that hoary thought experiment, the “helicopter drop” of newly printed money.
Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take—-namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—-in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done.
What Did You do Tuesday Night?
Well you probably had a lot more fun than I did. I spent part of the later hours of the evening reading a paper written by The Bernank in 1999 titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” While I have never doubted for a second that this man will print the dollar into oblivion, I have been shocked by the amount of players in the market that have fallen for what I like to call the “Bernank Bluff,” which simply is my view that he needs cover to print more and therefore will tell the market he is going to stop while QE2 is still in action so that he can push undesirable asset price inflation down (commodities) while continuing to print! I went and read this paper to confirm what I already knew about this man. Namely, that he is an extremely dangerous psychopath who believes proper monetary policy can save the world from all ills and he is the superman that will implement the appropriate policies for the first time in history. This is how he sees himself. In reality, he is nothing more than a parlor magician brainwashed by his own bullshit and who is doing nothing novel, but rather the same thing all bankrupt governments have done since the beginning of time. He is merely printing money and causing devastating inflation, yet he seems to think he is the first person to come up with this idea!
As you can see from the first quote above, he basically blames Japan’s woes on bad monetary policy. He doesn’t take into account the prior booms and bubbles and amazingly can’t seem to comprehend Newton’s third law of physics that each action has an equal and opposite reaction. But indeed it is this simple inability to understand the basic laws of the universe that has poisoned the economics profession around the world and has spread to the thinking of governments. This faulty Keynesian religion is exactly why our politicians believe in this preposterous notion of the higher the nominal GDP growth the better and makes them think they can take on infinite amounts of debt with no consequences. Remember this is the same man who also blames the entire Great Depression on monetary policy failures. He probably thinks bad monetary policy caused the Japanese tsunami. The reason this man is so dangerous is he really believes his own crap. He really does think he has figured it out. Just like the guy that comes up with a “system” to beat the casino. Unfortunately for The Bernank, the house always wins and he will go home just as penniless and discredited as that poor sap after his intellectual pockets are emptied out. Except unlike the gambler the whole world will witness The Bernank crash and burn and it will be written about for centuries to come.
Ok, so back to the speech. As you can see in third quote above The Bernank talks about how “cheap talk” can be used successfully by Central Bankers. This is KEY. This is exactly what these bozos are doing when they say no more QE. It is a boldfaced lie and they know it. People in the markets will believe anything. Do investors do any critical thinking anymore? Next, in quote four he discusses how basically Centrals Banks can directly or indirectly just give money to households. Is this the form QE3 will take? It will be interesting to think about. Or maybe that is QE4. In any event, both are coming whether disguised as something else or not.
Finally, there is the last quote and this is a real winner. He basically shows all his true colors. He cheers FDR as some sort of god when in reality the U.S. NEVER got out of the depression in the 1930’s and in fact stagnated as a result of this polices like the 1933 confiscation of the American people’s gold (money). This is the key. He singles out the one president in American history that CONFISCATED THE PEOPLE’S MONEY. The Bernank is a fascist and he is confiscating your money right here right now by slaughtering the purchasing power of the dollar right under your nose. Baaaah.
So What is Bill Gross Talking About?
So the biggest bond guy on the planet, the same guy that has repeatedly been saying there won’t be QE3 apparently “tweets” that the Fed could actually move to rate caps on 2-3 year treasuries which is actually QE to infinity (as predicted by me and many others). So why would he tweet this rather than just wait until his next monthly letter? Well he is a pretty connected guy and there is a Fed meeting next week. He also isn’t the type of fellow that likes to look like a fool in public so clearly he wanted to put this “out there” so he is seen as on top of things. While many people are talking about this, people don’t seem to be getting the joke. If this is indeed the Fed’s next step, it is a game changer beyond game changers. First of all it would mean a policy to print infinite money if necessary without having to announced further rounds of QE. Even more importantly, I am willing to bet that wherever the Fed announces a rate cap along the curve will be exactly where the Chinese holdings of treasuries are situated. The Chinese probably told Tiny Timmy Geithner and The Bernank that they want out and this would guarantee them an out at the highs! It’s brilliant. Plus, with the terms of trade going against China and other Asian nations as a result of higher commodity prices, this will provide much need cash to then go buy up resources all over the world. This would make commodity prices absolutely explode through the roof as China would without a doubt use a lot of this money to buy the necessities of life and then subsidize them at home to quell unrest. How is no one talking about this!
While I spend a lot of time highlighting TPTB’s plan to form a world government, currency and central bank that doesn’t mean I think they will succeed. In fact, just as Wall Street played their hand too aggressively after being bailed out and are now going to go down for the count this round, The Powers That Be have also played their hand way too aggressively and not only will their dream of planetary control through a global fiat money system run by them completely fail, but their policies will fail so spectacularly and publicly that it will lead to what I call ”peak government.” Governments right at the moment are as big as they will ever be in our lifetimes. This is in my opinion a great thing for humanity and freedom but the transition to more localized rule of law will be tricky. We must be rational and help the sheep out as their world crumbles around them. They will be scared and looking for mommy. Governments won’t be in a position to help so we will need to do the heavy lifting.
Peace and wisdom,