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Bernanke Knows He’s Powerless This Time Around
During Round 1 of the Great Crisis, the US tried to combat the collapse of the private banking sector (especially the TBTFs) by shifting debt onto the public’s balance sheet and printing money to buy Treasuries so we could maintain a massive deficit (north of $1 trillion).
Put another way, the powers that be attempted to solve a MASSIVE debt implosion by issuing more debt. Aside from the fact this is outright insane, the problem with this is that we’re at a point of debt saturation in the system.
Kyle Bass of Hayman Advisors notes that from 1917 to 1952 each new Dollar of US debt brought on roughly $4 worth of GDP. From 2000-2010, you got seven cents of GDP growth for every $1 in new debt issued.
Put another way, each new $1 in debt issued today is producing less and less returns. By some estimates we’ve even reached the point at which new debt issuance is actually a net drag on the economy as interest payments eat into growth.
Ben Bernanke knows this, and has started to hint at it in his recent speeches and Q&A sessions with the public. Indeed, if you read between the lines of his statements starting in May, it’s clear that he has realized he cannot solve the US’s debt problems and that QE has failed.
Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.
Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…
“The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy”
http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/
Pessimistic Bernanke Fed Admits QE Has Failed In FOMC Statement
In its latest FOMC statement, the Bernanke Fed has admitted the economy continues to remain depressed, essentially admitting that both programs of long-term asset purchases, or quantitative easing, have failed to prop up output after what has been the worst recession since the Great Depression.
“Monetary policy can do a lot, but monetary policy is not a panacea.” -- Ben Bernanke 9/29/11
U.S. "close to faltering," Fed ready to act: Bernanke
Asked whether another round of bond purchases, known as quantitative easing, was in store, Bernanke was noncommittal.
"We never take anything off the table because we don't know where the economy is going to go. We have no immediate plans to do anything like that," he said.
http://www.reuters.com/article/2011/10/04/us-usa-fed-bernanke-idUSTRE79337C20111004
Central banks may need to burst bubbles: Bernanke
Federal Reserve Chairman Ben Bernanke said on Tuesday that central banks may need to resort to monetary policy to combat asset bubbles, although regulation should be a first line of defense.
http://www.reuters.com/article/2011/10/18/us-usa-fed-bernanke-idUSTRE79H5IR20111018
Look at the progression there. As far back as May 2011, Bernanke admitted the benefits of QE were less attractive. Now he’s not only admitting that asset bubbles exist (something Greenspan never admitted) but that Central Banks may even need to “burst” them!?!?
In plain terms, the Fed will NOT be launching another round of QE or major policy changes until the next round of the Great Crisis hits in full force. And by that time it will be pointless anyway as once the defaults begin, the leverage in the global banking system will implode rapidly.
It is no longer a matter of “if” for defaults, it’s a matter of “when.” And we are going to be seeing defaults in the individual, corporate, banking, and sovereign space. This is going to be the Great Debt Reset: the time when the market calls out the global debt bubble and we enter a period of severe economic contraction accompanied by soaring interest rates.
In a best-case scenario, here’s how things will play out:
1) Greek default/ European default contagion will start before the end of 2011.
2) Japan and other major developed countries begin to face debt issues and default risks mid- to late-2012
3) US debt default/ systemic failure (2012-2013)
The worst-case scenario is that everything comes to a head in the next six months. Remember, the slow motion train wreck that is Greece has been playing out since the end of 2009. The market is already pricing in a Greek default. And Germany has even alluded to the fact that it’s preparing for a Greek default that will feature at least a 60% haircut. Heck, France has even announced plans to nationalize 2-3 banks “just in case.”
Folks, what happened in 2008 was literally just the warm up. The REAL DEAL is coming in the next 14 months. And it’s going to involve corporate, financial, and sovereign defaults.
On that note, if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on 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 my proprietary Crash Indicator which has caught every crash in the last 25 years or the best most profitable strategy for individual investors looking to profit from the upcoming US Debt Default, my reports covers it.
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Actually, assuming that you wanted the Fed and the status quo, the Bernank has done a brilliant job.. The system should have collapsed already but he has kept it alive....
That is why I compare him to Randall Flagg in "The Stand".... the last magician...
Edit: Should have added.... Ben Bernanke... "The Printin' Dude"
Heh, but what did Flagg do in the end ... ? ;-)
Regards,
Cooter
Such optimism.
What if it doesn't happen? What if the Europeans buy bonds, Bernanke and The Japanese buy more US assets, the cost of running three wars is off, housing markets stabilize? How's this going to play out for you then?
What if my ass starts spitting out dollars and I pay down the national debt for everyone?
Aren't war costs GDP positive?
Google "broken window fallacy". Try out the neat animated videos.
No, not "broken window fellation", "fallacy"...
No. http://antiwar.com/paul/?articleid=13009
They don't do QE for economy. They do it to support government spending. Therefore, it will continue along in massive quantities, as it has been going on for the last ten years. Even when the Fed says nothing, they are doing QE.
Something I learned in a past life: Criminals never confess like you see on TV. They will tell you what serves them. If you expect the Fed to announce it is still doing QE while we are hyperinflating, forget it. They will do it. They will not announce it.
Why can’t live in a world where everything is constant and stable, Why do we have to have growth in money supply and GDP ?
All we need is a gold standard and everything will be more or less stable.
Fuck growth
The formula for growth is "low taxes, stable money". See
http://www.newworldeconomics.com/archives/2011/031711.html
No, the formula for growth is increasing energy supplies, i.e. oil. The cheaper, the better....
Edit: Maybe the asshat who junked this would like to explain how you can create *real* growth from nothing.... After all we just had 10 years of "growth" created by pulling forward demand via debt....
You present some points that make me think.
1) Is there any formula for growth at this point in the Debt Super Cycle?
2) "pulling forward demand" Was that demand or just a game bankers and others used to continue a game that had quit working?
3) "create *real* growth" The elites that manipulate our government and economy believe they have the power and knowledge to create growth and other forms of reality. Are these powers real and if not do we fall into the trap of essentially believing as they do?
Thanks. No Junk.
I believe that growth defined in a neo-classical way and expressed as GDP is kaput, finished, over.
Yes, it was real demand in so far as it consisted of people being told that they "needed" something and that something could be made "affordable". Hey, who doesn't want to live beyond their means, especially when it looks like it can be made possible.
The people that are selling growth are charlatans that are telling the people what they want to hear. The American people have never had it any other way and that it what they expect. Problem is that that game is over....
Agreed. The correlation between global economic growth and global oil production is clearly evident if you go back over 100 years. Even if oil production has simply plateau'd (possible, but unlikely) the economic system is still built around growing energy inputs (i.e., energy inputs = viable credit production). When credit production exceeds that viable level, you are in essence eating your seed corn, and as a consequence introducing credit into the system without any means of paying this credit off. Interest rates only accelerate this trend. In a "perfect" linear world, this traces out a sigmoid curve. In the non-linear world, when the overshoot deviates too far from the available credit, you get a discontinuous drop in the economy - a crash or a "correction". If there's an overshoot in the correction, higher order terms may cause a partial "recovery" (or governments may attempt to intervene) but these serve primarily to protect one portion of the population or another from the worst effects of the correction. As resource depletion becomes more of a factor, the crashes occur more frequently, with more severity, and with less recovery, until a new equilibrium is met.
This process may take the next 50-75 years to play out fully. We may be in for a lot of hurt moving forward.
Yes, the saw tooth economy... and it wont take 50 years... maybe 20.
Adjusted for the true money supply, we haven't had any growth.
Hyper-Deflation
Ultra-Mega-Bi-Flation
We've got a bigger problem now: Uber-Alles'flation
With all the facial hair, Ben and Corzine look like the Taliban of finance.
so, what's the best way to short this?
http://expose2.wordpress.com
Hey Graham, when doesn't a 50% haircut constitute a default? I say the Greeks have already defaulted, otherwise as you say it's only the timing of this thing now, the bomb is in place the fuse is lit, we only just don't know how long it is.