Bernanke Just Admitted the Fed Failed... Not That More QE Is Coming

Phoenix Capital Research's picture

So Bernanke provided the “QE is coming crowd with hope again this morning, using the usual ambiguous language that stock bulls convert into a definitive declaration of more QE.

 

Here’s what Bernanke said:

 

"If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited.  Even if that proves to be the case, however, we should not conclude that nothing can be done.”

 

It’s the last phrase that has the QE crowd certain QE is coming. Never mind that Bernanke has been stating QE was no longer attractive as a monetary option since MAY 2011, or that the Fed has primarily been engaging in verbal, rather than monetary, intervention for nearly a year (Operation Twist 2 was just a reshuffling of the Fed’s Treasury holdings)… this one statement from Bernanke means more QE is coming.

 

My answer to these theories is the following:

 

            Gas prices already closing in on last year's high

 

At an average of $3.90 per gallon, Americans have never paid more at this time of year and prices are expected to keep climbing with two months remaining before the traditional kickoff of the summer driving season.

 

Prices peaked last year in May at an average price of $3.98 per gallon. The all-time record is $4.11, set in July 2008 as the economy went into a tailspin.
 

http://www.google.com/hostednews/ap/article/ALeqM5hw67PO7fkqoBAVkjhINAt2rgSVpQ?docId=7ee131c3d2ff415c9466e1d731cf2372

 

Global Food Price Rally Will Drive Investment, Nestle Says

 

Global food prices rose for a second month in February on higher costs for cereals, cooking oils and sugar, according to a 55-item gauge tracked by the United Nations’ Food and Agriculture Organization. Costs may remain near current levels in the coming months as demand absorbs increased supply, Abdolreza Abbassian, a senior FAO economist, said on March 8.

 

http://www.businessweek.com/news/2012-03-18/global-food-price-rally-will-drive-investment-nestle-ceo-says

So the Fed is going to unleash more QE when gas is at a RECORD high for this time of year and food prices are rising… during an election year?

 

Folks, the days when the Fed could just unveil whatever it wants, whenever it wants are over. Bernanke isn’t going into classrooms and staging town-hall meetings to talk about how great the Fed is because he wants to… he’s doing this because public outrage towards the Fed is growing by the day.

 

Re-read Bernanke’s actual statement above. He just about admitted that we’re in an environment in which the Fed’s policies can’t do much of anything (as if this was news to anyone). Do you think he’d drop a bomb like this and then simply say that the Fed’s hands are tied? Of course not. He HAS to say that the Fed has got everything under control. That’s essentially been the only thing holding the financial system together since 2008.

 

So taking Bernanke’s statement to indicate that QE is coming in April is wishful thinking at best. Bernanke’s actual words imply, if anything, that the Fed may have failed to fix the US economy. This is more of the Fed playing damage control because the reality is that Bernanke is well aware of this, by the Fed’s own data we’re clearly in a structural Depression, NOT a cyclical recession.

 

Don’t believe me? I’ve covered this before here.

 

Again, what’s happening in the US is NOT a garden-variety cyclical recession. It is a STRUCTURAL SECULAR DEPRESSION.  If I know this, you better believe Bernanke knows it too. The fact he’s starting to hint at it in public statements is more of him working in “damage control” mode.

 

As it becomes more and more clear to the world that the Fed blew TRILLIONS propping up the big banks and that the Fed’s policies haven’t actually done much of anything for the economy, Bernanke’s going to need some strong arguments to defend himself and the Fed.

 

This is why Bernanke’s already done the following:

 

  1. Opening the Fed to Q&A sessions.
  2. Going into classrooms to talk about how great the Fed is.
  3. Blaming Congress for the US’s poor financial condition.

 

Which brings us back to one of my central theses for 2012: that the triumvirate of Wall Street/ the Federal Reserve/ and the White House is breaking down. A wave of litigation is coming for the 2008 Crisis and its aftermath.

 

These three groups are going to be turning on one another in varying degrees. And of the three, it’s the Fed and Bernanke who are the prime targets: any Wall Street CEO can claim the Fed made him or her do what he or she did (see Ken Lewis and Bank of America).

 

Moreover, the politicians aren’t about to take the responsibility for their part in the Crisis either. Their best defense is also to blame the Fed. They can always plead ignorance “we’re not financial experts… we were just taking advice from the Fed!” being the most obvious argument.

 

Aside from this, Bernanke must be aware that the situation in Europe is reaching the point at which Central Banks cannot maintain control any longer. The Spanish and Italian bond markets are flashing danger again despite the ECB cranking up over $1 trillion in LTROs. And there’s already talk of a THIRD Greek Bailout.

 

Bernanke is well aware of this, guaranteed. So he could also be laying the groundwork for explaining why the Fed couldn’t stop another Crisis from coming. Regardless of whether or not this is the case, another Crisis IS coming and it’s going to be worse than 2008.

 

Which is why smart investors are already preparing for a global debt implosion. 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: http://www.gainspainscapital.com 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: http://www.gainspainscapital.com