Fed Policy: Bernanke Is Warming Up His Helicopter

Econophile's picture

This article originally appeared in the Daily Capitalist.

Economists cling to statistical data like barnacles in order to have some kind of anchor to explain what is going on in the world. They will try to cram the square data peg into the round holes of economic "laws" rather than abandon them when they are obviously wrong. Which is not a very satisfactory way to explain things. You might begin to think the data you measure is just coincidentally correlative for the period measured if it falls apart at some point. Instead of trying to stretch the data into what you think it should be, then maybe you might think that you've got it all wrong.

Chairman Ben Bernanke is not letting a data inconsistency get in the way of his prior conclusions about unemployment. In his speech today, he says that he's not sure why we have such high rates of unemployment, some may be just cyclical, some may be structural, but whatever it is the Fed will be available to print money to "support demand and for the recovery." Somehow QE1 and QE2 were not enough.

In his speech Bernanke tries to explain why Okun's law (a correlation between GDP and employment/unemployment) is still valid yet doesn't explain the current situation. Perhaps GDP "growth" Bernanke sees is really a figment of money steroids, something the Fed has unleashed, and that unemployment is still high because of long-term capital/savings destruction caused by QE and ZIRP. 

If you look at the rate of employment to the working population, you might wonder why it crashed so disproportionately to past cycles:

The blue line is the ratio of employment to population; the red line shows population growth. The population is still growing but the ratio fell off a cliff. The ratio of employed to population is back to 1977 levels. This is not something Chairman Bernanke wishes to hear or believe. He would rather adhere to the outdated ideas of the mainstream rather than question the dogma.

This is apropos of a conference sponsored by the Fed last Friday on, among other topics, the efficacy of quantitative easing. The conclusion coming from a Fed conference should be pretty obvious: QE is successful. The paper presented by economist Mark Gertler of NYU, a close collaborator with the former Professor Bernanke, concludes that QE works and he has an econometric model to prove it. What he does is look at what he considers to be the proper data and concludes that there is cause and effect and then he builds a mathematical model around this and believes it works. If his interpretation of the data is incorrect then the model is incorrect. 

Here is a portion, out of context, of Gertler's model:

Etcetera. You would have to be an econometrician to understand this. But it is just a way to disguise false ideology by cloaking it in mathematical formula. See Hayek and Mises on this topic. Because the formula "works" doesn't mean it is right. Believe what you want to believe.

I think this is mostly an ad hoc ergo propter hoc (A happened and then B happened, thus A caused B) kind of analysis and that his conclusions are based on incorrect theory and fail to explain anything. But it doesn't matter if he's right or wrong for our purposes because Bernanke and most of the people at the Fed believe it. We can thus be assured that the Fed will unleash another round of QE when the economy stagnates (as I have forecast that it will).

It matters if he's right or wrong for our purposes as investors though, because QE distorts the entire economy, gives an illusion of growth, destroys capital, causes more unemployment, and leaves the economy structurally impaired for a considerable time. One of the nasty little side-effects of QE that is most recognizable to investors and consumers is price inflation. It is probably higher than it is reported but it would grow much higher with more money printing. It destroys your wealth. It is possible, as we found out in the 1970s that you can have economic stagnation and high inflation at the same time.

What we are seeing now in the data is an effect from QE1 and QE2 and Operation Twist. It cannot last and it won't because you can't create wealth out of thin air as they are attempting to do. 

Bernanke's speech is another example of Mr. Bernanke's admission that he does not understand the fundamentals underlying our economic problems. Otherwise Fed policies he unleashed would have cured the problem long ago.

Just last Thursday in an econ class at George Washington University he said the Fed's low-interest-rate policies in the early 2000s didn't cause the housing boom and bust:

"There's no consensus on this," Mr. Bernanke told a class of college students at George Washington University. "But the evidence I've seen suggests that monetary policy did not play an important role in raising house prices during the upswing."

The housing boom-bust must have been caused by "irrational exuberance" which was Alan Greenspan's "animal spirits" Keynesian explanation for the Dotcom bubble. Greenspan has also denied that he caused the housing bubble. 

What can one say about this? There is actually very good evidence that the Fed's easy money policy was the fountainhead of the bubble. But readers of the Daily Capitalist are well aware of that.

These speeches are further confirmations of disastrous Fed monetary policies that won't end until the Fed raises interest rates and stops printing money. I'm betting on stagnation, more QE, and higher price inflation.

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ilovefreedom's picture

How can rates ever go up in the foreseeable future with the current debt levels. If we're already paying 400-500 billion interest on under 1% rates. 2-4% would eat up massive amounts of the federal budget. If rates got to 4% at current rates I'd dare say almost the entire budget would go towards interest which would obviously collapse well before that happened.

It's sad how far we've fallen when 110% maxed credit cards is the new normal and people still suggest anything BUT cutting the debt.

Let's not even mention all of the accounting wizardry to make it look like 110% instead of 400 or 500%.

DavidC's picture

If you've got any debt, pay it down as much as you can. The debt levels are unsustainable and when the crash comes (and it will) 2008 is going to look like a picnic.

Bernanke is an academic wonk who has no idea of the real world. His models will fail, because mathematical reality will win out in the end.


DavidC's picture

Ben DOES understand that the Fed is leveraged up over 50 to 1. ANY move in rates upwards and the Fed is toast.


vinu.john6's picture

Perception of US monetary policy key to gold rally: HSBC


jmc8888's picture

Cherry picking data for a model (i.e. goalseeked model) in of itself disqualifies a model...that even if done correctly (if it wasn't a goalseeked model), never tells you anything real.  So Gertler did nothing but use an incorrect methodology (a damning incorrect one) on a metric that even when done 'right' doesn't tell you crap and gives you a guaranteed wrong answer.

So lets all listen to Gertler the master of saying that the modelling process that never was going to tell you anything real, is definitely telling you QE is working, because he cherry picked the data.  Great.  Whew, thank you economists, we surely couldn't of figured out your guesses without you.

Now go serve your country and work for the IPAB using such bullshit models to say mammograms and prostate screenings are irrelevant, because you have a model that says so, and the gov't needs to save money.




Eric L. Prentis's picture

The criminals are still in charge.

banksterhater's picture

My wife said "what happened in 1977..." (that we're at the same participation rate, we had a 3 yr housing boom then also, again, the distortion caused by the Fed to fuel bubble after bubble (until 1980 recession) to benefit the wealthy and politicians, the insiders always get out and extract it before the masses get decimated. Until we kill the Fed for a better system and have slow growth all the time, helping everyone, we're doomed to try and "extract" and go to the bunker again.

dvsteenk's picture

How can he keep printing? I thought US was short breathing on its debt ceiling again, if not breaching...

Don't you have a government to stop this guy? Is none of your representatives knowledgable about what Bernanke is doing? Or are they all supporting it because there is nothing left that can be done except drown the problem in liquidity?

Money 4 Nothing's picture

Ctrl+P=Scotch Taped. That's the only math you need to know.

It's European 3 card Mario Monti!!

banksterhater's picture

The US Gov is CAPTURED by Goldman Sachs, the largest shareholder in the Federal Reserve, and the other Banksters, who OWN the Fed, the entire system is corrupt and needs to be dismantled. I think JFK wanted to go that direction, as I remember.

the grateful unemployed's picture

assuming Goldman is the major player in the stock market, as we see other hedge funds falling along the way, the individual gone, probably for good, and pension funds. (well pension funds are another story) the time should arrive when they, GS, decides there is more money to be made running the market down, instead of up. at the end of the day they could destroy Fed and UST, and replace the political status quo with their own candidates. (the only ones who receive any funds, we're close to that now). remember in a real economic crash money disappears, but in the same scenario with shorts equaling longs, the shorts capture most of the that wealth. this is why short selling is so important. if Goldman, which runs money for the pension funds, hedged their positions, then Goldman and Americas working class (whats left of it) would escape relatively unscathed, while the political crapheap in DC would be turned over. its hard not to see how it would positive except of course in major turmoil all sorts of geopolitical scenarios occur, and a lot of people (like Cramer) who were caught doing buy buy buy, but carninal barkers always find a way to make a living, so don't cry for them (argentina)

Hippocratic Oaf's picture

I think JFK wanted to go that direction, as I remember.


And we all know what happened to him.

Winston Smith 2009's picture

Hey, if what you've done umpteen times before hasn't worked, why not do it again, right Ben?

Fed Z1 Update: They Failed


Silveramada's picture

QE1 + QE2+QE to INFINITY+LTRO+Op.TWIST+money printing+ debt ceiling+Petrodollar death+national spending+oil and energy rise+exc exc= WE ARE ALL FUCKED IN USA THE SHTF MOMENTUM IS COMING SOON MAYBE NEXT YEAR OR THE NEXT

Sutton's picture

How do we quantify putting Ben , the Fed Board, and the top 7 TBTF bosses, and Buffett in front of a firing squad?

Hippocratic Oaf's picture

.........having Soros pull the trigger.

Zero Govt's picture

Hell why not QE3 ?!!

When QE1, QE-Lite, QE2, TARP, LITRO and TWIST all failed (0% to GDP, nothing to unemployment, zero to stimulate credit and lending, sweet fuk-all to resolve anything but let political-banking bankrupts stagger on) 

it's worked 'so well' in the past, let's repeat dumb-and-dumber policy for a 7th time eh?

Cast Iron Skillet's picture

Lots of greek letters in those formulas ... and we all know what happened to Greece ...

Benjamin Glutton's picture

Bernanke is correct when he states monetary policy itself is not responsible for the bust only because the bust was caused by many failed actions/in-actions by the FED and Federal/State governments. However he does not address the fact that the bust could NOT have happened without the FEDS enabling. His semantic denial is in essence a partial admission of fault and an obvious lie by omission.. I would expect better quality lies from  geniuses like the Bernanke and Greenspan. What does it say about Americans as a viable nation that these willfully destructive men retain scholarly credibility, honor and freedom?

Just last Thursday in an econ class at George Washington University he said the Fed's low-interest-rate policies in the early 2000s didn't cause the housing boom and bust:

"There's no consensus on this," Mr. Bernanke told a class of college students at George Washington University. "But the evidence I've seen suggests that monetary policy did not play an important role in raising house prices during the upswing."

The housing boom-bust must have been caused by "irrational exuberance" which was Alan Greenspan's "animal spirits" Keynesian explanation for the Dotcom bubble. Greenspan has also denied that he caused the housing bubble.

Greenspan was a part of our government that most failed to realize existed with goals that far exceeded our mutual agreement. History will one day expose the elegance of evil intent inflicted upon the world by our leaders.


You will never convince me that these well educated men of money were surprised by the results of their actions.

rsnoble's picture

Economists have to justify their position.

Lol, hillarious math equation. How about something easier to understand like  1 available job + 4 out of work people=you're fucked.

Widowmaker's picture

Fraud science. Cause may induce effect, but in no way whatsoever can monetary policy effects attribute cause without inducing fraud and lies.

Central banks are systemic rIsk. This risk has only consolidated and increased and those faggots call it a way out. Real nice, clark.

Burn the banks, prosecute the fraud!

PAUL LEO FASO's picture

I hope this link will assist in those efforts to prosecute the fraud.



toadold's picture

I remember when conventional wisdom had George McGovern as a sure win for the US Presidency. He only got one state and lost to Richard Nixon of all people.  So now I'm reading stuff like "Obama only has to win North Carolina and he wins the Presidency".  "Intrade has Obama favored to be re-elected."  From what I see and read this based on external polling and selected reporting on the results of those polls.  What I'm seeing as far as action goes are elected Democrats  and various RINO's bailing out before the November elections, news paper articles that for the first time are offering criticism of Obama. Also consider the numbers on polling each state do not match those number from so called "National" polls.  Consider the savaging that an Obama appointed appeals court judge just gave the EPA. Some cliches linger because over time they have provent to be accurate.  "Voters vote their pocket books."  "Federal judges aren't elected but they do read newspapers." 

dcb's picture

When I read a post that starts with ben is worried about the economy, I already know the person post8ing this may have the right idea in general, but clearly doesn't understand the sociopath running the fed. if there is one clear thing that should have come across in fed minutes these people don't care or understand anything about the economy, and don't care. Hpw else does one explain their failures to act on the housing bubble over and over again, or reign in mortgage abuses, or their com[lete failure of themselves as a regular.

Ben is worried about his 0.1% of the people he represents and their hold on power. VBen is worried that if he doesn't keep printing the banks are going to be exposed as being insolvent and make him look bad, ben is worried about the mllions in speaking fees he's going to get rewwarded for showering the banks with money and putting every nirmal person in the united states in the poor house, been needs and wants to be able to justify and ever increasing dillution of the currency to each bounce goes higher that the last even though it isn't explained by fundemantals, ben is engaged in propaganda to sooth the american people.


Ben is a fucking sociopath, and what ben says means nothing, Ben is worried about his ass, and his clinients ass. If ben was in fact worried about the ecoinomy he would have written something along the lines of what the dallas fed wrote and spoke about the continued problems with too big tooo fail, etc.


The poster, and the media don't get it because they really don't unerstand and haven't aswsociated with sociopaths enough. The first thing the op needs to do is ignore what ben says, look at what he does, or doesn't say, and then decide what ben means.



dcb's picture

sorry for the typo's. ButI was so pissed to read a statement everyone knows is false, and when people on Zh say he cares about the economy. We know better and we come to Zh not to have th deal with such silly statements

Dingleberry's picture



At least according to the FED.

BOHICA, bitchez.

Money 4 Nothing's picture

Jobless recovery declaration from the White House should have been everyones first hint...

johnnymustardseed's picture

He never landed the helicopter....If you don't think a FED Funds rate of a quarter of one percent is not a helicopter, you really do not understand what a helicopter is...

Azannoth's picture

He only landed his Huey so he can switch to a Chinook

HellFish's picture

Johnny, I believe the Helicopter was specifically intended to represent a last gasp distribution of cash to individuals - no one is saying QE has hever stopped.

XitSam's picture

If he thinks interest rates did not play an important part in the housing bubble, then he is clinicaly delusional.

spinone's picture

low interest rates were secondary to securitization of mortgages.

XitSam's picture

Even if interest rates were secondary, they were still important which Bernanke denies.

Dingleberry's picture

Low interest rates caused a bubble in RE. People buy payments, not houses (or anything else they finance).

Securitization made FRAUD the accepted business model of the entire financial sector, which propelled the bubble even higher.

bank guy in Brussels's picture

Someone posted this on another thread, six great alternative photo views of Ben Bernanke. Very, very funny.


One World Mafia's picture

Will he print more during an election year with already high gas prices?

ISEEIT's picture

Sure, why not? Understand that it's all about electoral votes. The left basically has 250+ electoral votes locked up. That means targeted 'shock and awe' propaganda focused on only one or two states puts barry over the top. The ministry of truth can largely spin away inflation noise as being caused by some culprit such as say..speculators, or instability generated by any event or cause it chooses (or even manufactures). Toss in direct , active fraud and 270 should not be all that difficult (particularly in light of the 'competition').

Their preferred candidate is nearly certain to stay in place regardless of what big ben does or does not do.

Bear in mind that in this nation of 300+million individuals, likely not more than 500,000 have ever even contemplated the nature of fiat currency, let alone made the connection between dilution/devaluation of paper and rising prices.

Uchtdorf's picture

Perhaps the number is over 1MM, but I agree with your premise that a very small minority understand and accept the reality that the US is totally doomed if it maintains its curent course. Even a Ron Paul victory in November would not likely save the country.

Once lost, liberty is difficult to regain. I type those words not even understanding how bad it will get. I just missed the Vietnam draft and didn't volunteer when I came of age making me feel like just another unprepared prepper. Heaven help us.


sodbuster's picture

By Bankster Ben saying he will continue to print, he is admitting that it has been a failure up to this point. The great thing about being a Keynesian- you are NEVER wrong! Because if printing fiat fails at some point- they will just say- "Well! We didn't print enough!"- " We weren't allowed to print enough!! It's not OUR fault!" It will NEVER be enough! And they will never admit they are wrong. It's an endless loop- kinda like those old 8-track tapes!! 

YesWeKahn's picture

When you have to deal with an unelected unaccountable junk like Bernank, nothing can stop him doing damages to his own country (is it his country? really?).

Vampyroteuthis infernalis's picture

Ben comes from a line of professors who have convinced themselves they are the intellectual elite and are never wrong. Once you have deluded yourself into believing such things an individual is ruined.

ReactionToClosedMinds's picture

and Blackrock's Bob Doll said on B'berg:  in this environment .... 'I want to be overweight equities versus Treasuries' (or thereabouts)

and Bob Doll & Blackrock are 'plugged in" (wink, wink) as they/he regularly consults with Washington DC FedResrv & WhHse-Team44 econ team/Treasury

that is all you need to know on the 'playbook' side of things .....


infiniti's picture

Bob Doll: all-in, all the time.