The Big Lie

Wolf Richter's picture

Wolf Richter

Since the lousy jobs report last Friday, there has been a veritable orgy of Fed Speak with juicy morsels and contradictions, interspersed with leaks and rumors, that climaxed today with Chairman Ben Bernanke’s words of wisdom before the Congressional Joint Economic Committee. It whipped markets into a frenzy, drove the Dow up 500 points, knocked yields into historic basements, and caused gold, the safe-haven investment, to bounce up and down like a rubber ball. All this was peppered with the impending collapse and bailout of Spanish banks and an endless litany of other problems in the Eurozone whose miasma is drifting across the Atlantic and might infect the presidential campaign.

Yet Bernanke wasn’t totally gung-ho about more Quantitative Easing. The “economy must be monitored closely,” he said instead of promising the immediate restart of the printing press. On Tuesday, it was Richard Fisher, President of the Dallas Fed, who came out swinging against more quantitative easing despite the “hue and cry of financial markets.” He blamed the federal government for lack of direction in its tax and spending policies that leave businesses mired in uncertainty. The same day, James Bullard, President of the St. Louis Fed, didn’t think the jobs situation and the broader economy was bad enough for the Fed to pile into another round of ineffectual QE—maybe they were trying to stay out of a political minefield. Read.... Squeezing the Fed from both Sides.

On Wednesday, Vice Chair Janet Yellen took the opposite tack. Citing the still dismal job and housing markets, she pushed for more QE and more interest rate manipulation for an even longer period, probably for all times to come—ironically because the job and housing markets are precisely the markets that have not recovered since the Fed started its QE programs and zero-interest-rate policy (ZIRP) in December 2008, along with its massive corporate and bank bailouts.

The effect of the Fed’s policies on the job market can best be seen through the Employment-Population ratio, which measures the percentage of people age 16 and older who have jobs. It’s not perfect. But it’s the least corrupted employment number out there: it’s not seasonally adjusted, manipulated by the infamous “Birth Death Adjustment,” or mucked up in other ways. After peaking in April 2000 at 64.7%, it now hovers near its 30-year low—despite, or because of, the Fed’s policies:


The beneficial impact of QE and ZIRP on the housing market can best be seen through the Case-Shiller 20-City Composite home price index. Note the new multi-year low at the end of the line—despite the Fed’s gyrations and manipulations, and despite record low 30-year mortgage rates:


So, how can anyone still couch the justification for QE and ZIRP in fatuous language of job creation and housing market recovery? The Fed employs an army of number-crunchers who know all this. Yellen and Bernanke also know that the impact of QE and ZIRP on jobs and housing, as well as on the broader economy, has been nil, or even a negative.

However, QE and ZIRP have had a colossal impact, and not just on the financial markets and the status-quo banking system that caused the financial crisis, and on capitalism and free markets as a whole, which no longer exist, but also on the real economy.

A friend of mine is a partner at a restructuring firm. Their specialty was to take companies that were cratering and restructure them back to health. Typically, they were paid by creditors that had ended up with these companies. But a couple of years ago, his firm had to reinvent itself. With boundless amounts of money floating through the system, and with yields being so low, creditors had become enamored with “extend and pretend” where, instead of recognizing losses on these defunct loans, they would simply offer forbearance agreements, issue new loans, and pretend everything was fine.

These companies are still out there, un-restructured, burdened with even more debt, and losing even more money. The rejuvenation and cleansing process that debt-fueled capitalism needs from time to time to get rid of management deadwood, too much debt, and other problems, and that wipes out equity holders and makes creditors come to grips with reality, has not taken place. The energy and job growth that would normally sprout from the ashes have mostly faltered. And my friend, to stay relevant, became an expert in performance improvement to help entrenched management stay in place.

While preventing the economy from going through its necessary cleansing process—and the heavy losses associated with it—the Fed’s policies have in spectacular fashion enabled Congress to run up gargantuan deficits year after year that make the Eurozone, now ravaged by a debt crisis, look virtuous. Sen. Jim DeMint, a South Carolina Republican, tried to politely nudge Chairman Bernanke on that, but he shrugged it off. And Congress will once again shrug off Bernanke’s suggestion that it needs to come up, as he said, with a “sustainable” deficit—a term that has replaced the concept of “balanced budget.”

And here is a hilarious cartoon Ben Garrison about what happened to Ron Paul when he hit one out of the ballpark.... “Ron Paul Hits A Home Run.”

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Zero Govt's picture

"So, how can anyone still couch the justification for QE and ZIRP in fatuous language of job creation and housing market recovery?"

Fatuous language indeed, because as we all know Bubble Ben needs a 'legit' reason for running the counterfeit wealth printing presses to bail out the bankrupts of Washington and Wall Street

masking the total stinking corruption in words like "helping the unemployed" and "supporting housing" just underlines what a bunch of lying scumbags the elite really are

Bernanke is a criminal and a traitor of the public and should be doing life in prison for his systemic fraud and theft

ebworthen's picture

"The FED crashed the economy and all I got was this ZeroHedge t-shirt."

steve from virginia's picture


Mish said the same thing earlier today.

What is left out: there is no restorative cleansing, only annihilation. What goes down stays down.

You cannot restructure zero. We are long-past bankruptcy.

There is no more creative destruction, only destruction. What is Greece today is USA soon enough. Maybe not tomorrow but soon enough.

Monk's picture

What happened wasn't "necessary cleansing," as if the problem was simply caused by irresponsible financiers. It's the inevitable result of a global capitalist system that requires increasing money supply, and with that, more financial speculation.


rufusbird's picture

toxic dude here

AldousHuxley's picture

Israeli Govt: Don't Marry American Jews


True colors are Israli Ministry of Immimgrant Absorption

JamesBond's picture

there are trolls, and then there is you



AnAnonymous's picture

US citizens are duplicitous people. They do not speak about what they do, hiding behind words.

So what?

The increase/upkeep of issuance of debt does not aim at solving unemployment. It aims at keeping up consumption.

It works when one looks at the charts.

US citizens not declaring their objectives or declaring false objectives does not mean they are failing.

Would be like claiming that war against Iraq was a failure because US citizens did not find the WMDs US citizens knew not to be in Iraq before launching the war.

Kayman's picture

Say, don't you have a bridge to crawl back under ?

UP4Liberty's picture

Yo Wolf,

I love how TPTB achive an EPIC FAIL with massive doses of "stimulus" and bail-outs - and their "NEW" proposed solution is to continue with even greater amounts of "stimulus"!  Jeez...

It's like a 16 year old who gets a new car for his birthday...gets drunk, smashes into a tree...and daddy sez, now worries, son - we'll just buy you a new car!

Sanksion's picture

A new car and more boozes.

disabledvet's picture

Full retard for the Tylers' Turden...i mean Durden this week i see. There were TWO Fed policies you idiot. The first LED to the collapse and THE SECOND tried to mitigate it. The first was "nut job guy" who was fired and the second was "save the country time." In no way was one AT ALL similar to the other. Now i'm sorry to hear that gold prices got slammed today...but no matter how much you tell me you hate the printing presses you can't say you don't love the result so STOP BEING A LYING SACK OF SHIT COCKTARD. Now back in the world of reality of "will my country survive because i'm from Spain" my question is this: "will there be a dollar shortage." I say yes as "total friggin chaos looms" while Europe "fiddles."

Eireann go Brach's picture

Unless you are a Mongolian mongrel, you should learn how to write and spell properly you fucking retard!

ironymonger's picture

And I bet it really tied the room together...

world_debt_slave's picture

at this point it is all about survival and the central planners are in overdrive

which reminds me

AC/DC Who Made Who (Maximum Overdrive Version)

another edition, yeah, I had a 69 Dodge Charger R/T as a teen, 383, 4 speed hurst, 50's on the rear axle, black exterior with a white interior.

AC/DC-Who Made Who

Ol Man's picture

It's not about survival yet.  We don't have price and wage controls, lines at the gas stations, empty shelves at stores or daily food riots.

When we get to survival mode, DC will be under siege and Bernanke and crew will be running half naked through the woods with a mob of angry citizens chasing them and carrying torches pitchforks and a lot of rope...

Lets have a party...


Blue Dog's picture

I don't see any relationship between QE and employment. The federal government is killing the economy with higher taxes and additional regulation. Continuing job losses are the result.

Ned Zeppelin's picture

I hear alot of complaints about excess regulation holding down what would otherwise (presumably) be some incredibly vigorous economy, and I don't buy it.  As for taxes,  I tend to agree but wonder how it is we dig ourselves out of a debt hole and a hole consisting of alot of promises to fund Social Security and Medicare without everyone paying some fair share of the burden.  I think the rich have gottent off too easy for a long time, but in exchange for them shouldering a fair burden, it is equally fair that the taxes they (and all of us) pay, not be blown on bullshit.  Adults need to have a conversation about what we can afford, and our politicians are not adults. As for regulation, the chorus of protests about "overregulation" seems a theme funded and advanced by greedy and unchastened bankers about how terrible a burden Dodd Frank and the Volcker Rule are on them - this argument (in my case) falls on deaf, entirely unsympathetic and progressively more angry ears.

Mad Mad Woman's picture

Excellent post!  When the "Day of Reckoning" finally does get here, Helicopter Ben and all his banker friends better hide. The people who have been shafted will be coming after them all with pitchforks, AK-47's and all sorts of lethal weaponry. They will be dead men for ruining this country.

The Alarmist's picture

Tell it big, tell it often.  The lie is the truth.

If we had not adopted ZIRP and QE, things would no doubt have been worse.  OK, I tasted a little vomit as I typed that.  But still, look at where things were going ... only down. And then they bottomed out once we adopted ZIRP and QE, so that must be a good thing, right?

Kayman's picture

Bankers are part of the economy, they are not The economy. If you don't take the pain and cut out the gangrene, then the whole body dies.

But Bernanke has succeeded at rewarding failure.  Too bad you get the bill.

Sabibaby's picture

The world would have ended!

Sabibaby's picture

forgot /sarc for the noobs...

jeff montanye's picture

zirp and qe are not, imo, the worst of it.  

it is the mark to myth, destruction of glass/steagall, retention of failed bank management, refusal to recognize losses to stock and bondholders, and, most important, the inability of lenders to know the real solvency of counterparties.  

again, compare the results of twenty years plus of japanese zombies against the successfully reorganized/restructured nordic banks in the late nineties.  it is like night and day.

yet the corrupt campaign contribution systems of most of the advanced world give us the wrong answer because it lets corrupt politicians retain their unearned salaries, armani suits and access to the shrimp cocktails and champagne (and, for some, the blow and hookers -- you know who you are).

Kayman's picture

ZIRP, the disease that purports to be the cure.

Arnold Ziffel's picture

Ask your Doctor if ZIRPle Cream is right for you.

Precious's picture

Ben.  You're too early.  Slutty Friday is tomorrow.

MeetTozter's picture

C'mon, Ben is just trying to keep hope alive, have you lost all trust and optimism in our Financial System?


I'm going out now, have some paper money that is just burning a hole in my pocket.

Pinto Currency's picture


Bernanke's view is that financial institutions need to be bailed-out.  To save what? Well, the financial institutions:

From "Deepening Debt Crisis: The Bernanke Reappointment: Be Afraid, Very Afraid"

Today, however, a declining dollar would make imports (including raw materials as well as key consumer goods) more costly. This would squeeze the budgets of most families, given America’s rising import dependency as its economy is post-industrialized and financialized. So Mr. Bernanke’s favored policy is to get banks lending again – not for the government to spend more on deficit spending on infrastructure, social services or other full employment projects. The government spending that Mr. Bernanke has endorsed is pure bailouts to the banks, insurance companies, real estate packagers and other Wall Street institutions so that they can support asset prices and thereby save the economy’s financial balance sheet, not its employment and living standards.