The Bernanke-Obama-Keynes Toxic Triangle Dead End

Tyler Durden's picture

By Universa's Mark Spitznagel; posted originally on Forbes,

The choice for the status quo made in last week’s presidential election was an uninformed one—at no fault of the voters—made in the fog of monetary distortion and Federal Reserve Chairman Ben Bernanke’s continuous campaign of disinformation.

President Barack Obama managed to overtake Republican challenger Mitt Romney on the exit poll question “Who is better for the economy?” and a strong majority of Obama voters felt that the economy is better off than four years ago. Indeed, anyone (particularly Bernanke) would concede that without the Fed’s zero interest rate policy we would be experiencing a far worse economy—the true Obama-Keynesian economy.

The danger here, as we have seen in every other bust for a century or more, is that we can only suspend the laws of economics for so long. And in general we are only good at considering immediate consequences, while being very, very bad at considering later consequences. As 19th century French economist Frédéric Bastiat observed, “The bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.”

In the short run (and this is what is so insidious about the Fed’s artificially low interest rates), all we are seeing is an illusion of economic progress. Specifically, the Fed has manufactured a distortion intended to trap both consumers into spending more and entrepreneurs into investing more, or lengthening their production periods (becoming more “roundabout,” as the Austrian School economists said), as if savings were more plentiful. This combination would never occur in an unhampered, noninterventionist economy for the simple fact that higher consumption would mean higher interest rates (from less savings), which would discourage longer production.

Thus, investment in this illusory economy is malinvestment, or investment that always unravels with the intervention’s inevitable end, due to either untenable credit levels (such as today’s corporate debt-to-asset ratio, still at historic highs) or a resource crunch (rising commodity prices) that eliminates any advantage from printing money; and one or both of these scenarios is unavoidable.

Economic progress requires a chain reaction from lower time preferences: foregone current consumption and a higher pool of savings lowers interest rates and triggers a natural entrepreneurial response, greater productivity, and subsequent economic growth. (The “Paradox of Thrift” that warns of the hazards of higher savings is the nonsensical stuff of the ivory tower.) By circumventing this process, as we have today, we have built but a temporary façade.

This leads to another unfortunate kind of malinvestment, of a higher order, if you will: the malinvestment of an electorate in its political class and their policies. Just as entrepreneurs cannot differentiate between real economic information and monetary illusion, so too the electorate cannot differentiate between the effects of Obama’s fiscal policy (of his historic assumption of debt) and that of Bernanke’s loose monetary policy—and without the latter the former wouldn’t have even been feasible. Both Obama and Bernanke pursue a great economic evil to come, but Bernanke keeps them both cloaked as a great present good.

As the Austrian economist Ludwig von Mises noted, laboratory experiments cannot be performed in an economy; “We are never in a position to observe the change in one element only, all other conditions of the event remaining unchanged.”

This is our grievous position in the United States today, trapped in the status quo by first consequences, by what we can see, due to a cause that we cannot even see. And so we are left to learn from experience, an eventual tragic unfolding of our collective malinvestment. As Bastiat said, “Experience teaches effectually, but brutally.”

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Shizzmoney's picture
The Bernanke-Obama-Keynes Toxic Triangle Dead End

They shoudl replace, "Obama" with "POTUS", because ALL presidents will continue these neoliberal, neokeynesian policies no matter what.

Even Keynes himself, who gets a bad name IMO because of assholes like Summers and aloof academics like Krugman, wouldn't approve of whats going on.

Even Keynes couldn't price in fraud.

TruthInSunshine's picture

 "In the short run (and this is what is so insidious about the Fed’s artificially low interest rates), all we are seeing is an illusion of economic progress."


Maybe it's just me, but I can't even see an illusion of economic progress with near-ZIRP, even if I squint really hard, anymore; just the opposite, with an ominous credit/debt/leverage crisis re-building on ye horizon.

I should go see the optimistologist b/c maybe my eyes need to be re-calibrated.

BaBaBouy's picture

GOLD My Bitchies... $50K is Nice and FAIR...

(PHYSICAL And Not The Shredder Feed) ...

MillionDollarBogus_'s picture

Bernanke and Geithner should send out treasury checks to boost consumer spending.

With wage increases flat and the all important Christmas spending spree in front of us, this would go a long way toward boosting the economy and consumer confidence.

Bernanke could put on a Santa suit to sweeten the deal...


BaBaBouy's picture

Exactly Mr. MillionDollarBogus ...

Send Out $10K Cheques to EVERY Citizen, And Not To The Usual JMP And Sacks Bankers...

After All, Who Cares If Its $16 Trillion Or $25 trillion Fiats Debt, Its Only Digital Paper...



EnslavethechildrenforBen's picture

MDB suddenly on our side?


nope-1004's picture


ummm....     Oh the hell with it.


Michaelwiseguy's picture

Fiscal Cliff = $700 Trillion Derivatives Blowing Up!

I'm getting real sick and tired of the Illuminati and secrete societies pulling their shit on us century in and century out.

Lets get this party started.

ebworthen's picture


Allready over the cliff we are.

Michaelwiseguy's picture

I just realized something about myself while currently watching the movie Office Space on Comedy Central. I'm a lot like the character Peter Gibbons. My favorite thing to do is nothing just like him, and I also enjoy contributing nothing to society as well. I've had at least 20 jobs in the last 40 years, and wound up quitting virtually every one of them, telling my employers over the years to go fuck themselves. I really did this.

I seem to be doing Ok, my newer 2,750sf home is paid off.

Michaelwiseguy's picture

So how many bombs have the TSA found stuffed up womens vagina's in the past 11 years of their existence? I'm not talking about the possibility.

GetZeeGold's picture



Well...none, but there's always hope for tomorrow.


Quick....slam silver....we'll think of a reason for it later.


BaBaBouy's picture

Hehehe .. Read The Handle Carefully...

emersonreturn's picture

obama, ben and timmy should publically declare they made a mistake...recant giving banks 16 trillion, demand repayment and start giving every printing to tax payers, small business and the 40% on food stamps.

tango's picture

What many ZH posters absolutely refuse to concede is the public's guilt in this fiasco. They keep whining about banks as if they were the ones who voted in these "have it all free" idiots over and over. The public clamors for more spending, more control, more programs without an atom of critical thought.

In fact it is the immediate public furor that greets attempts to stop even the RATE of growth (much less actual outlays) that makes those serious about our problems hesitant to speak. So let's stop giving the not so innocent public a pass.

venturen's picture

How does that benefit Lobbyists and investment bankers? Printed money with a FED buying their bowel movements is much more a sure thing!

lynnybee's picture

'Bernanke and Geithner should send out treasury checks to boost consumer spending.'    yea, send me some of that fake fiat money, i'd love that.   take it straight to the coin guy & swap it out for the real money and more food plus if there's any left over, off to the gun show i go.    

Oracle of Kypseli's picture

Nice to see you arround Lynny. You and many of us have learned a lot on this site the last three years.

lynnybee's picture

i received the education of a lifetime on this website.   me, an older person who couldn't even fill out a check to pay bills, can hold her own in a sophisticated conversation regarding finances.    i am now empowered thru knowledge.   & bless your heart for the kind words.

caconhma's picture

Few notes from the Russian Revolution history.


From the beginning, Lenin has instituted a monopoly on the entire financial system. His first step was to create a runaway inflation. Becoming a dictator, Lenin used the printing presses for the destruction of people's savings, redistribution of wealth people in the pocket of the State and to equalize everybody in poverty.


During the period from 1921 to 1923, Lenin used the printing press, to increase the number of rubles in circulation in about 20,000 times! In fact, the amount of monthly issued rubles has been so stunning that even Communists were unable to determine the exact amount of issued money.


The resulting inflation raised the overall price index by 160,000 times compared to 1913.  It had achieved the desired effect. In Russia, the middle class has been eliminated.


Note this method. This is a standard Jewish method. They have used his method before hundreds of times before in various countries, especially during the transition times when the Jewish Mafia has seized the power and property. Everywhere a corrupt MEDIA deliberately tells lies and false stories that supposedly the causes of inflation are the economic decline, economic devastation, the Government errors, and/or other like nonsense. And in fact, there are two reasons for inflation: objective economic problems (the significance of this cause is quite negligible) and the main reason for the inflation is targeted issuance of money by the Government and the Central Banks.


Inflation is not the result of economic problems. Inflation is a deliberate redistribution of power, property, and money.


To understand this, just look at the distribution of powers, property and money before and after the inflation. The picture is very clear. After this redistribution process reaches the desired level, it instantly stops as if by a magic. And inflation, and financial pyramids, and financial fraud suddenly disappear.


The Jews were always unrivaled masters of igniting hatred and confrontation between people and countries, especially using religious and class demagoguery. After the destruction of the Russian elite, Jews continued their hatred mongering between various segments of the Russian society using the class-war demagogy. Lenin understood the necessity to crush the peasantry who were a bastion of anti-communism. So, what did he do? Did he organize a Jewish army and send them to fight the peasants? No, the Jews almost never like to fight by themselves. They always prefer to fight with other people hands.


Read the Lenin’s work about the grain monopoly and the food dictatorship. The technology of suffocation through hunger is discussed quite openly. In Moscow and Petrograd, Lenin put armed roadblocks to prevent peasants’ food from reaching towns and cities. As a result, the deliberate mass hunger and starvation were created in Moscow and Petrograd. The famine was artificial, intentionally created by the ruling Jewish Bolshevik thugs. Then, using their MASS MEDIA monopoly, the rabid propaganda campaign against the kulaks (well to do farmers) and the peasants was initiated accusing them for allegedly creating the famine. After pumping workers with hatred to the kulaks and peasants, Lenin created the workers food expropriation armed units and threw them against the peasants. This became the main driver for igniting the Civil War in Russia.



GetZeeGold's picture



Why can't we be more like the Soviet Union......oh wait.....we are!!!

q99x2's picture

I want a great big QE beneath my tree.

TideFighter's picture

Negative rates unlikely to give you 20/20 either.

reader2010's picture



Did you back up your truck for AAPL?

Stoploss's picture

“Experience teaches effectually, but brutally.”

Ah yes, the school of hard knocks.

Black and blue their colors.

Obadiah's picture

This is some good copy  thx ZH

Titus Flavius Caesar Vespasianus Augustus's picture

At a basic level - and I'm not being glib, I'm maybe advertising my ignorance of academic economics - I don't understand how guys like Krugman {who may be a secret fascist and probably into deviant sex, but probably is more misguided/full of Kool-aid than evil} see no problem with printing lots and lots of money to have government spend, spend spend, or to give to banks in the hopes that they'll lend lend lend  {all of course representing more debt - not more innovation or manufacturing, etc}... but would never suggest simply printing the equivalent sum to simply pay off the debt {and 'extinguish' debt held by the fed, which is not only make believe money, but probably unConstitutional - not that anyone gives a particular fuck about that anymore}.


In other words, since Krugmanites {it's not really Keynes he's channelling, is it??} think it doesn't matter how much you print, and since they think that the economy is literally a kind of pump that can and should be primed via additional fiat/debt money...


How is it they'd summon an objection to using the fiat/debt money to simply pay off the debt, and perhaps pass a balanced budget amendment, put a reasonable tax on financial transations, close loopholes, reward corporations that retain or keep jobs in the US with tax breaks {maybe - so long as govt. is  fucking with every single aspect of the economy, anyway, at least}, make fica progressive, yadda yadda.


I'm asking - why is money printing both good and necessary when you give it to government to spend to 'create demand' but bad when you do it to pay off debt and ergo the needlessly wasteful billions squandered on interest paid to ... the... banks...


...  did I just answer my own question?  Is Krugman in fact evil, and not stupid?  Is the Fed really a cartel controlled by mostly foreign banking dynasties??



odatruf's picture

Titus - your confusion is one of agency. It is the Fed that is "printing" by simply adding ones and zeros to her books and then using those new funds to buy (lend) government treasuries. Which puts the government further into debt.

It is the government and not the Fed that is in debt. And it is the Fed and not the government doing the printing. 

See the problem?  No matter how you slice it, in order for the government to have the money to pay off debt, it has to get it first and that can only come from taxes or borrowing or asset liquidation.

Conceivably, the Fed could cancel the debt owed by the government, but then it would have a massive balance sheet issue since for every dollar that exists (including the digital ones) there is a corresponding liability of the Federal Reserve Banks, which is also backed as an obligation by Uncle Sam. See the circle jerk rabbit hole we are in?

Oh, it gets worse.  In fed land, any loss booked by the Fed (say as a result of a certain Soverign being unable to make good on the vig) will simply be reflected as a negative liability. Yup, that's a double negative if you are keeping score, which means...  Hmm... And since all net earnings are passed (weekly and weakly) on to the Treasury, a negative liability would translate as negative interest (and flow) due to said Sovereign.


Titus Flavius Caesar Vespasianus Augustus's picture

Right - I understand the basics of the Fed, etc. - what I'm asking is a little bit different.


Krugman says print away to increase demand without fearing inflation, right?


So why would he not favor simply having the Fed print the money {i.e. conjure it our of electrons}, and give that money to owners of the public debt {apart from the Fed itself} directly, to extinguish the debt, than to the banks?


I know its a basic question - but if the Fed can print and give to banks to help the economy - why not print and give to us government creditors, or maybe more simply - print, give the $ to the government epxressly for the government to give that money to holders of the public debt?


What I'm really wondering is why if we can print ad infinitum to "create demand" why we can't print to extinguish debt. 


To me, nothing is more wasteful to the system than compounded interest.

Debt-Is-Not-Money's picture

"What I'm really wondering is why if we can print ad infinitum to "create demand" why we can't print to extinguish debt. "

This is simple to answer: What is being printed is debt, not money! Why? Because all of our currency is borrowed into circulation at interest, and debt can't be retired by paying it off with debt!

Money is not encumbered with interest (it is interest-free) and therefore can be used to retire debt.

Do we have any money? Only our coin even though it is counterfeit (made to look like silver but it's not) all of our coin is placed into circulation debt-free and is therefore money (the difference between the two is value, but both are money).

Lincoln solved this problem by issuing "greenbacks" (US Notes) debt-free into circulation- pissed of the banksters so much he was assassinated.

Title 33 of the Federal Reserve Act empowers the government to replace FRN's with US Notes which would enable cancellation most of the federal debt but don't hold your breath as noone has the knowledge, brains or balls to do it!

Newager23's picture

I don't buy the argument that the Bernanke and the POTUS are both working in concert to crash the economy. I think they are trying to do the right thing to bring it back. The problem is that as politicians they only know the status quo. And the current status quo is about protecting our way of life. We are playing defense, when we should be playing offense (new systems, new ideas).

They both believe in what they are doing and truly think that their policies will work. They believe that America has the best economy in the world and that we are just going through a cyclic downturn. Unfortunately they are being influenced by people whose lives and beliefs are predicated on economic growth. That is all we know. We all hail the almighty dollar.

We are like the Romans at the end of their era. They became full of hubris and could not see that that their beliefs were diametrically opposed to reality. Now it is our turn to be ignorant.

Most of us here on this site are not ignorant. We can see exactly what is happening and how close we are to the fall. The sad thing is that this could have been prevented, but that time has past (perhaps as far back as the 1960s). Our innocence was lost and it will not be found again until after this nation falls.

We are now hearing talk of secession, which is not surprising (and something I expect to see unfold). The end is nigh. We are in a countdown and there is nothing that can be done to stop the downfall of this great nation. How much longer do we have? At what point does everyone realize that we are screwed and that our way of life is going to change for the worse? One year? Perhaps three? Tick tock.

What is about to transpire will be nothing short of a complete transformation of society. Every day I enjoy what we still have, because I know that “easy street” is not going to last for much longer. Enjoy those full shelves. They won’t be there much longer.  

Got gold? (for gold & silver mining stocks)



Oldwood's picture

If you believed that the only thing that could ultimately save the common man, that is preserve your concept of economic justice, was a complete and absolute controlled economy, how would you go about achieving it? It think are watching it happen. Its not about Obama being evil, its about his beliefs in what the world should look like and how to bring it about. The kind of world that many think he sees as ideal is one of socialism or communism or Marxism. We know that his upbringing was surrouded by this thinking. We know that his college activism sees the world this way and we also see it to some degree in his writing. And his association with black nationalism in rev Wright's church for twenty years surely can leave little doubt. He knows the tax increases he wants will do little to fix our deficit as well as he knows it will do untold harm to our economy, but he is dedicated to the "fairness" of it. The only way he or anyone else can gain the control they desire of the economy, without military, is through crisis and with every new crisis the government and its powers become greater. No one wants to think that the father that spanks their child is evil. We just know he's doing it for the childs own good. Obama's just getting the paddle warmed up!

ozzz169's picture

Keynes just followed a path in economics, not the right one but non the less there was logic in it.  It the responsibilty of those to come after to realize the errors and correct them or to twist them into how they are used today.  Most of the leaders today think they are "smart" cause they read a book or 2 and dont have a critical thought of there own (at least one that has any sound analysis behind it).  must be some validity to what Keynes thought, I think it just breaks down when you take it out of the scope he intended.  I dont think he ever intended to use G like it is used today.  a lot of things work for a narrow range and break down on the extremes, and I think any sane person would agree what they are doing today is going to the extreme.

Translational Lift's picture

The only thing worse than a keynesian is a Kenyan keynesian...........

firstdivision's picture

This toxic environment provides the prefect short toxic crap for paper, and turn that paper into metals

TideFighter's picture

Clearly the market is being "walked" down.

The question is how many flights of stairs. 

francis_sawyer's picture

Keep digging down until you get to China...

X86BSD's picture

China Syndrome? Meltdown to the core of the earth?

TruthInSunshine's picture

During times of significant market corrections, markets never take the stairs. It's always the elevator.

When the underlying problems are as serious & foundational as those they currently labor under, it's the express elevator.

Oh sure, the official talking heads & super-imposed "authoritative" figures will try to slow or ease the descent, but they'll sooner fail when competing with a dawning mass realization of reality.

Remember:  Escalator up during credit-fueled, crack-up booms, and express elevator down when the foundation gives way.


Some people call such statements pessimistic, but I swear that they are only reflective of reality as proven out by history, over and over again. Keepers of the truth never let emotion nor confirmation biases cloud their statements or obscure truth.

TideFighter's picture

Not when Carlton the Elevator (Doorman) is Bernanke. 

GreatUncle's picture

Elevator? Stairs?

Quickest way to the lowest level is to jump out the window.