The Bernanke Put is a Lie

Phoenix Capital Research's picture



Now, about that Bernanke Put.


Many people believe that because Bernanke once talked about dropping money out of helicopters to fight deflation that he literally meant that he would do this if push came to shove. He didn’t. The whole thing was a bluff meant to prop up the markets: the famed Bernanke Put.


Truth be told, this bluff is probably the smartest thing Bernanke ever did. By threatening to leave a paperweight on the “print” button, he convinced the market and all of Wall Street that the Fed would always be there to step in and save the day.


Let’s say the Fed just hits “print” and prints TRILLIONS of dollars to monetize everything under the sun. If this happens then the bond market will implode taking down the US financial system with it (85% of the $224 trillion in derivatives sitting on US bank balance sheets are related to interest rates).


Moreover, it’s not as though “printing” solves a solvency crisis. Instead it results in a loss of faith in the underlying currency, which causes hyperinflation (this is exactly what happened in Weimar). Most people forget that hyperinflation is the SAME as defaulting: in both situations the underlying currency becomes worth much less if not worthless.


So printing is ultimately a useless concept. But what about debt monetization? Couldn’t the Fed just print tons of money to buy Treasuries and other debt instruments?


The answer here is ALSO a resounding “NO.”


The reasons are three-fold:


  1. Inflation
  2. Political consequences
  3. Draining Treasuries from the banks


The last time the Fed instigated QE, food prices went through the roof resulting in riots and civil unrest around the globe. Today, food prices are already soaring due to severe droughts. The Fed’s hands are tied here.


If the Fed engages in QE, the political consequences would be severe. QE 2 alone made the Fed front page news in a BAD way, resulting in the Fed going into major damage control mode: op-eds about Bernanke being a regular guy, town hall meetings, etc.


Finally, one has to question… does the Fed really want to be draining Treasuries and Agencies from the banks’ balance sheets. After all, the big banks, which sit on over $200 TRILLION worth of derivative trades, only have $7.12 trillion in assets.


If the Fed were to engage in QE it would suck some of these assets out of the banking system resulting in the banks being even more leveraged and susceptible to collapse.


Bernanke knows this. He even admitted it recently, saying, “If the Fed owned too much TSYs and Agencies it would hurt the market."


So the Bernanke Put is a lie. The markets will be realizing this in the coming months if not sooner. When they do, we’ll see the REAL Collapse: the one to which 2008 was just a warm-up.


So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called Surviving a Crisis Four Times Worse Than 2008 and it’s chock full of information on how to not only survive but thrive during if this particular black swan (or any of the others lurking in the system) comes to pass.


This report is 100% FREE. You can pick up a copy today at: under the OUR FREE REPORTS tab.


Good Investing!


Graham Summers


PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.


And ALL of this is available for FREE under the OUR FREE REPORTS tab at:



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Mon, 08/06/2012 - 08:50 | 2681290 figam
figam's picture

Sick and tired of all the haters on Grahams posts.  Yes he sells a newsletter, how dare he do all this research and post all this information without making a dollar in the process!  I agree he is a little too doom and gloom but you cannot deny the accuracy of the facts he presents.  If you are slightly intelligent you will take this information and then make your own informed decisions rather than expecting someone else to do it all for you.  Thought I'd put a few of his predictions that have come true:

He was brave enough to call the end of Bernake's endless printing, despite many comments calling him an idiot.

He stated Spain would be around $500 billion in bailouts and that is coming to fruition.

Correctly predicted the continued problems in Greece, including the political swings (in France also)

Predicated the bond crash about 2 years ago, when everyone else was focussed on housing and unemployment.

In fact about the only thing he has been wrong about is the timing of the Europe collapse and you can hardly blame anyone with a brain to be dumbfounded that this charade has continued on for so long.

I enjoy reading his posts, and I don't subscribe to his newsletter or invest in the markets at the moment.  Keep up the great work!

Fri, 08/03/2012 - 22:46 | 2677472 hr4eternity
hr4eternity's picture


The Fed only owns a little over 1/3 of the total debt.  Your assumption presumes the other 2/3'rds will be willing participants for ever or the Fed will be the only participant in the future (if no one else wants to play).  Remeber, ultimately the FED is a bank and will protect itself from poor investments.  Any near term buying is time buying.  When the other 2/3'rds wake up to the fact that they will be repaid in diluted value, they will bail, en-masse, driving yields up and prices down. Period.  Dot. 


Fri, 08/31/2012 - 23:09 | 2754504 Pejorative Requiem
Pejorative Requiem's picture

Sooo, the Fed has protected itself from poor investment. Yes.......... like us housing. Just like in 2007.....fed owenes lots of houses and has it's own appraisal system. What a nice balance sheet! Until no one wants to own the paper. What's 250 house worth if best offer is 125? hmmm

Fri, 08/03/2012 - 14:31 | 2676431 Jack Sheet
Jack Sheet's picture

Das ist Krapp
C'est grande merde
Eto nastoyarshshee dir'mo

Fri, 08/03/2012 - 14:23 | 2676401 MrBoompi
MrBoompi's picture

Ben is motivated by his employers and their interests, not the interests of the other 7 billion.

Fri, 08/03/2012 - 13:31 | 2676282 CEOoftheSOFA
CEOoftheSOFA's picture

They ARE dropping money out of helicopters.  What else do you call the payroll tax cut, paid for with printed money and debt?  This has to be the most inflationary way to print, ie. putting money in the hands of people who can't afford to save.  But inflation isn't spiking because there is too much credit destruction.   

Fri, 08/10/2012 - 22:31 | 2696140 andrewp111
andrewp111's picture

Also, Federal Government salaries are frozen, and have been for years now. The payroll tax break was our 2% pay increase. A non-event if you ask me.Yip yip.  But if the annual tax break is not reenacted, it will be an actual pay decrease for DOD and other Federal employees.

Fri, 08/03/2012 - 12:51 | 2676180 XitSam
XitSam's picture

"Many people believe that because Bernanke once talked about dropping money out of helicopters to fight deflation that he literally meant that he would do this if push came to shove."

Graham, no one believes he would take some cash in a helicopter and throw it out the door. It was a metaphor and everyone with a reasoning brain knows it was a metaphor.

Fri, 08/03/2012 - 11:58 | 2676016 derek_vineyard
derek_vineyard's picture

this newsletter is making of a fool of itself and becoming a standing joke



Fri, 08/03/2012 - 11:21 | 2675908 Squids_In
Squids_In's picture

3 Trillion ballance sheet - that is one hell of a lie.

Fri, 08/03/2012 - 10:52 | 2675820 Paul451
Paul451's picture

It's not a lie. It's a matter of timing. AFTER the election in November, that wont be a paperweight on the PRINT button. It will be a lead bar.

Fri, 08/03/2012 - 10:48 | 2675804 jimod
jimod's picture

Graham -

You're just peddling a newsletter.   Or maybe you're hoping to drum up a band of "greater fools".

Ultrashort? And choose your own time to make your ultrashort bet?  That's how to preserve your wealth and sanity when the SHTF, Really?

More like "Gamble harder" advice for market gambling addicts.





Fri, 08/03/2012 - 14:06 | 2676361 Gloomy
Gloomy's picture

I never read Graham's posts, but look forward to reading all the snarky comments in response to him. He's such a blithering idiot-he deserves all the scorn that can be heaped on him.

Mon, 08/06/2012 - 08:41 | 2681263 figam
figam's picture

A blithering idiot is someone who bags a persons posts without reading them! Nothing like an informed decision Gloomy, i'm so looking forward to your financial insights when is your next post?

Fri, 08/03/2012 - 10:24 | 2675697 brandy night rocks
brandy night rocks's picture

The cake is a lie.

Fri, 08/03/2012 - 09:44 | 2675564 minosgal
Fri, 08/03/2012 - 09:44 | 2675562 alp
alp's picture

Graham is always talking about the FED not being able to drain treasuries from the system. But I wonder: isn't the US government willing and in desperate need of issueing more treasuries day by day?

And given that USD is still a major reserve currency and their debt is in US dollars, aren't they more than incentivized and actually forced to do exactly that: issue more treasuries and money at the same time until everything blows up?

Fri, 08/03/2012 - 13:05 | 2676209 XitSam
XitSam's picture

Graham lists reasons why the Fed won't print, but the Fed cares nothing for those reasons. Printing, or equivalent schenigans, is all that's left. As long as there is a miniscule chance of it working, they will print. Hyper-inflation is a default, so is plain old inflation, but it is not an admitted default, and that matters a lot (to them). They can, and will, inflate.


Fri, 08/03/2012 - 10:49 | 2675809 KidHorn
KidHorn's picture

Exactly right. The number of treasuries in circulation grows by a $trillion or so every year. If the FED doesn't vacuum a lot of it up, then we'll have a problem.

Fri, 08/03/2012 - 09:33 | 2675528 GOLDTEETHSILVER...

Follow the yellow brick road...

Fri, 08/10/2012 - 22:37 | 2696155 andrewp111
andrewp111's picture

Exactly. I am expecting a massive, worldwide, coordinated central bank purchase of gold bars at some point. Trillions and trillions of Dollars/Euros/ Renminbi/Yen/Rupees/Reals/Pounds worth of gold bars. Nearly all the gold bars and coins in existence, in fact. Follow the yellow brick road, indeed!

Fri, 08/03/2012 - 09:27 | 2675508 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

The whole banking system is a lie.  There, fixed it for U.

Fri, 08/03/2012 - 09:26 | 2675505 The Reich
The Reich's picture

What about the Euro and Yrope,  and Germany in paricular?

Enquiring minds want to know...

Fri, 08/03/2012 - 09:25 | 2675501 XtraBullish
XtraBullish's picture

Graham - you have to forget about "yesterday's trade" because this market has just shrugged off two MAJOR "no-QE" events with the hedgies short out the ass and is up 155 Dow points going into the opening. This market is all about getting RID of fiat - getting SHORT cash - and that means owning anything that is real - gold, stocks, depressed houses, copper, ANYTHING non-cash. That's why you are toasting your book with this constant drivel about "the world coming to an end". You never short into reflation or you cover with more and more depreciating currency - = LOSS.

Fri, 08/03/2012 - 12:06 | 2676046 GAAPpreNixon
GAAPpreNixon's picture

This market is not a bull market. It is not an "extra" Bullish market either. It is a BULLSHIT market. Keep believin'!

Zimbabwe, here we come!

Fri, 08/03/2012 - 09:21 | 2675486 mrktwtch2
mrktwtch2's picture

as ususall we get to hear from chicken little again..

Fri, 08/03/2012 - 14:05 | 2676357 pupton
pupton's picture

I'm just here for the heckling comments...Graham is a vaginal blood fart.

Fri, 08/03/2012 - 14:07 | 2676363 Gloomy
Gloomy's picture

On his best days!

Fri, 08/03/2012 - 11:53 | 2675999 engineertheeconomy
engineertheeconomy's picture

and he's never wrong...

Fri, 08/03/2012 - 12:48 | 2676167 Dingleberry
Dingleberry's picture

Bernank's put is alive and well......the bond vigilante is the one who is dead. Ben expanded the Fed's balance sheet by trillions of worthless bullshit.  Trillion dollar-plus annual deficits......the fed/gov is now the bank. Would you loan your money for 30 years at under 4%? I didn't think so......Ben will print and print and print......who will stop him?

Fri, 08/03/2012 - 22:48 | 2677477 hr4eternity
hr4eternity's picture


The Fed only owns a little over 1/3 of the total debt.  Your assumption presumes the other 2/3'rds will be willing participants for ever or the Fed will be the only participant in the future (if no one else wants to play).  Remeber, ultimately the FED is a bank and will protect itself from poor investments.  Any near term buying is simply time buying.  When the other 2/3'rds wake up to the fact that they will be repaid in diluted value, they will bail, en-masse, driving yields up and prices down. Period.

Fri, 08/10/2012 - 22:48 | 2696178 andrewp111
andrewp111's picture

The Fed is a US Government Agency created by Congress, and acts as the Franchise Master for all banks in the USA. Congress can, simply by passing legislation, delete any US Government debt that is owned by its own central bank. It is analogous  to a troubled company buying back its own bonds at a discount on the open market. If the interest payments on the Federal debt become too onerous, they will do this. What part of Article I Section 8 "....To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;..." do you not understand?

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