Bernanke's Tools: "Belts, Suspenders... Two Pairs Of Suspenders" And Other Senate Testimony Highlights

Tyler Durden's picture

Key excerpts from Bernanke's first Humprehy Hawkins testimony before the Senate. Highlights obviously ours:

Exchange with Shelby:

SHELBY: Mr. Chairman... The portfolio or the balance sheet of the Fed, you said it'ss $3 trillion, more or less...

BERNANKE: I didn't say, but yes, that's about right?

SHELBY: Is that about right?

BERNANKE: Yes, sir.

SHELBY: But you said it then, didn't you? It's about $3 trillion.

BERNANKE: Yes, sir.

SHELBY: Is -- you studied the Fed a long time before you ever came to the Fed. Has there ever been that type of balance sheet close to that?

BERNANKE: I don't think so.


Does it concern you not how you put on -- add to the balance sheet, but how you might have to deleverage the balance sheet? And will that be a challenge to the Fed or could it be?

BERNANKE: Well, Senator, I should comment that although the Fed hasn't had a balance sheet this size, other central banks, like the Japanese, for example, have.

SHELBY: And they paid for it, too, hadn't they?

BERNANKE: Well, depends on your point of view. The current prime minister thinks they haven't done enough.

SHELBY: What do you think?

BERNANKE: I think that they should try to get rid of deflation. I support their attempts to get rid of deflation.

In terms of exiting from our balance sheet, we have put out -- a couple of years ago we put out a plan; we have a set of tools. I think we have belts, suspenders -- two pairs of suspenders. We have different ways that we can do it.

Belts... Suspenders... two pairs of suspenders: the future is safe.

Exchange with Corker:

CORKER: Thank you, Mr. Chairman. When the Fed decided it was going to stimulate a global currency war as it did, did you -- did you embark on that thinking, well you know, our country's in trouble and let's -- sort of the heck with everybody else, or did you think it would leverage the -- the wealth effect, if you will, if everybody had a race to the bottom?


I know the Fed has been really purposeful in trying to create this sort of faux wealth effect. Did you think it would multiply your efforts? And speaking to that, so overall wealth effect -- I know you all do calculations all the time, but could you tell us exactly what sort of the wealth effect is, the part of it that's not real, that if you were to stop doing what you're doing as it relates to monetary supply today, how much of a diminishment in national wealth would take place?


BERNANKE: On the first question, we're not engaged in a currency war. We're not targeting our currency. The G-7 put out a statement, which was very clear, that it's entirely appropriate for countries to use monetary policy to address their domestic objectives, in our case employment and price stability.


Our position is that our expansionary monetary policies, which are being replicated, of course, in other industrial countries, are increasing demand globally and helping not only our businesses but the businesses in other countries that export to us.


And so this is not a beggar thy neighbor policy; it's one that benefits our trading partners.




CORKER: ... How much -- how much wealth diminishment would take place if you were to, if you will, move away from the punch bowl?


BERNANKE: Well, there would be some, but I would point out that if you look at the stock market, for example, that the so-called equity premium, the risk premium associated with stock prices, is actually quite wide.


In other words, stock prices by that metric don't appear over-valued, given earnings and given interest rates. Now if interest rates went up some, that would have some effect on stock prices.


But the point here is not to create what you call a faux wealth effect, the point here is to stimulate the economy and create some forward momentum in growth and employment. And that, in turn, shows up in earnings and that creates a genuine increase in wealth. Same with house prices.



CORKER: So I think that, you know, I don't think there's any question that you would be the biggest dove, if you will, since World War II. I think it's something you're rather proud of.


And we have a federal government that is spending more relative to GDP than at any time since World War II.


Those are working well together, in that the Fed is actually purchasing a large portion of the new debt issuances as we live beyond our means. And so it's very -- working very well together in that regard.


Just wondering if you -- if ya'll talk at all in your meetings about the degrading effect that's having on our society and how it's basically punishing people who've done the right things and throwing seniors under the bus and others that have saved money, do ya'll ever talk about the longer-term degrading effect of these policies as we try to, you know, live for today?


BERNANKE: I think -- I think one concern we have is about the effect of long-term unemployment on people who don't have jobs for years. That means they're never going to acquire skills, they're never going to be a productive part of our workforce. So the jobs part is very important.


You called me a dove. Well, maybe in some respects I am but on the other hand, my inflation record is the best of any Federal Reserve Chairman in the post-war period, or at least one of the best, about two percent average inflation.


So we have worked on both sides of the mandate. And we're trying to achieve a stronger economy for everybody. I don't think there's any degrading going on. ts I am, but on the other hand, my inflation record is the best of any Federal Reserve Chairman in the post-war period, or at least one of the best, about two percent average inflation.


So we have worked on both sides of the mandate. And we're trying to achieve a stronger economy for everybody. I don't think there's any degrading going on.

You mentioned in particular the issue of savers and I think that is an important issue. I would just point out that if we -- if we tried to raise interest rates to -- from, say, current 10-year yield is two percent, if we tried to raise to three or four or five percent while the economy was still weak, it could not be sustained.


Our economy's not weak (sic) enough to sustain high real returns to savers. If we tried to do that, we would throw our economy back into recession and we would have low interest rates, like the Japanese do.


The only way to get interest rates up for savers is to get a strong recovery. And the only way to get a strong recovery is to provide adequate support to the recovery.


So I don't agree with that premise.

And the conclusion:

CORKER: Do you -- or do you concern yourself at all with just the whole notion of being perceived, you know, most -- we watch regulatory capture take place here where basically the regulators end up working for the people that they regulate.


And you know, we had TARP, which most people who voted felt like that was a needed thing during our crisis. And then we've had this easy money policy, which really allowed the big institutions, especially on Wall Street, to really reap tremendous benefits in the early stages without doing anything.


And then you're getting ready, I guess, in a few years, as you alluded to, when interest rates rise, to basically have to print money to sell securities at losses and then pay interest on reserves, which people have pointed out, and I think ya'll talked about it, is going to be billions and billions of dollars going to these institutions that, again, you regulate.


Do you concern yourself at all with the Fed being viewed as, you know, not as independent as it used to be and working so closely with many of these institutions that you regulate?


BERNANKE: Well, we're concerned of our perception, that's true, that's true, but none of the things you said are accurate. For example...


CORKER: ... Oh yes, they are.

And so on.

Finally, with Warren:

I'd like to go to the question about too-big-to-fail; that we haven't gotten rid of it yet. And so now we have a double problem, and that is that the big banks -- big at the time that they were bailed out the first time -- have gotten bigger, and at the same time that investors believe with too-big-to-fail out there that it's safer to put your money into the big banks and not the little banks, in effect creating an insurance policy for the big banks that the government is creating this insurance policy -- not there for the small banks.


And now some economists, including an economist at the IMF, has started to document exactly how much that subsidy is worth. Last week, Bloomberg did the math on it and came up with the number $83 billion that the big banks get in what is essentially a free insurance policy. They borrow cheaper than the small banks do.


So I understand that we're all trying to get to -- to the end of too-big-to-fail. But my question, Mr. Chairman, is, until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they're getting?


BERNANKE: Well, the subsidy is coming because of market expectations that the government would bail out these firms if they failed. Those expectations are incorrect. We have an orderly liquidation authority. And even -- even in the crisis, we -- in the cases of AIG, for example, we wiped out the shareholders.


WARREN: Excuse me, though, Mr. Chairman, you did not wipe out the shareholders of the largest financial institutions, did you, the big banks?


BERNANKE: Because we didn't have the tools. Now we could.


WARREN: Well...


BERNANKE: Now we have the tools.

You sure do, and they are all voting members on the FOMC.

Alternatively, here is Bill Fleckenstein explaining it all in 90 seconds:

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licutis's picture

what, no dr. strangelove???

Fredo Corleone's picture

"How can you trust a man who wears both a belt and suspenders ? The man can't even trust his own pants."

- Henry Fonda. "Once Upon a Time in the West."

Ahmeexnal's picture

There's a bag of Depends on Bernie's toolbox, just in case TSHTF.

DJ Happy Ending's picture

Good prep, you can't print diapers.

Long_Xau's picture

The US dollar has lost 96 percent of its value since the creation of the FED.
Well, I say, only 4 more to go.

TruthInSunshine's picture

Bernanke no doubt has a giant calendar on his wall, with the date of the end of his term as Fed head circled in bold, red ink, just as a common prisoner would, and he prays to Moloch each night (Bernanke has a shrine in his home with incense, candles & throw pillows dedicated to the worship of Moloch) that the massive bond, credit instrument and equity markets that he's overfilled in redonkulous fashion with 'Virtuous Circle-ness' don't have an epic & historic freefall prior to that exit date.

smlbizman's picture

you know, no matter what level these guys are on their food chain, even all the way up to the highest position....the common thread between every one of them is.....they all pass responsibility to someone else....never making a stand on their own conviction......"well according to the cbo.....well according to the fucking talking horse.....well according to doctor our leaders are to fucking cunty to even express their convictions.....fucking ben... ( acting like the wiz)...i'm the most powerful force on the earth right now me..i have a belt and suspenders.....but i still rely on the cbo....

SheepDog-One's picture

Dr. StrangeGLOVE more like it! It's OK you won't feel a thing! I'm only goin up to the elbow here!

seek's picture

If you watch the actual video

When Ben talks to Corker aroung the 1 hour 5 minute mark... His voice is shaky, his body language troubled. Honestly, watching him for just those two minutes scared me more than anything between 2008 and today.

ekm's picture

I've been saying it it's been a long time. He's not fully fit mentally. He must be on prozac or something. He's always shaky.


I strongly think that the reason he won't be re-appointed is that he's not considered healthy enough mentally to handle the situation.

He can't act at all, unlike Greenspan, he was and is a great actor.

seek's picture

Given how much he knows, I'll be surprised if he doesn't have a sudden illness remove him from the stage.

Honestly, I know I couldn't handle the cognitive dissonance required to do Ben's job. The urge to start screaming "we're doomed" at a press conference would be overwhelming.

smlbizman's picture

same impreesion when i see that asshole krugman....i think he is mental

helping_friendly_book's picture

Actor..... you say ekm?

Psycopath is more apt!

I suppose! You?

ekm's picture

He might have crossed that point

zhandax's picture

I am sure it's just a typo in the article above, but I did get a chuckle out of the quote "ts I am".

Crash Overide's picture

He doesn't even believe himself when he talks, I am pretty sure he knows that everyone else know it's all bullshit.

villainvomit's picture

I was crying from laughing so hard when I heard this on CNBDon'tC.  Two Suspenders...hahahahaha!!

tickhound's picture

WTF are we doing people............

Nothing is gonna change, bitchez, until these people NO LONGER MATTER.  No real fix will ever occur within the realm of these idiots. 

Bureaucratic bullshit is never going to solve the list of colliding problems that stem from growth models, automation, and ridiculous economic formulas. 

We won't do SMART shit like seek the advice of a room full of scientists and engineers "NOT ON ANY PAYROLL."  U know, feed them a premise... ask questions like "can it be done?"  We ask CEO's like Jaime, or silly Medicine Men like BEN.

Cuz its in BEN we TRUST.

BEN makes good medicine for our god PONZI.

History will look back and equate this shit to dumb natives building giant statues all over the fucking place.  To these ancient peoples, the process of erecting the monuments became a cause for being.  It was a reason to exist.  They believed it had a positive effect on their people and their environment.  They'd fight and sometimes kill each other over who could do it better.   

When the damage became unbearable, they believed their progress was disappointing to the god PONZI... their remedy was to build MORE statues, and to do it FASTER.  They believed this would please the god PONZI. 

SO u see class, although we need to respect ancient cultures.........

bania's picture

Takes 15min to take those suspenders off. or is it on? and is it 15min for both pairs or just the one?

Cdad's picture

Personally, my favorite quote from Ben Bernanke today was:

"We don’t anticipate having to do that [liquidate a big portion of the Fed's holdings]. […] We could exit without ever selling, by letting it run off and we could tighten policy by raising [the] interest rates that we pay on reserves. That would be one strategy, for example. At any case, we have said we will sell slowly with lots of notice and we will, of course, be offering our forward guidance about rates so that there will not be a shift in rate expectations on the part of the market. […] "

For my money, this is the moment in time when The Bernank confesses...there really is no market.

Crash Overide's picture

"For my money, this is the moment in time when The Bernank confesses...there really is no market."



The FED is the market.

Cdad's picture

Saying "the FED is the market" is exactly the same thing as saying "there is no market."   So unless there is suddenly profit in posting redundant comments, I'm not sure what your point is.

You are supposed to reflect supply/demand dynamics, they are supposed to be forward looking economic instruments, and they are supposed to trade freely.  To say that the FED is the market denies all of these things...and replaces "the market" with "the policy tool"...which suddenly has some sort of weird connection with suspenders, I guess.

Deep....deep down in the bunny hole.  Orwell was a piker compared to Ben Bernanke.


Crash Overide's picture

You could of just called me Captain Obvious.

Forgive me for I am a product of public education, what is an economic instrument and how do I use one?

MachoMan's picture

So, when confronted with the fact that the "market" is cornered and doesn't reflect supply/demand dynamics, you still have faith in the market?  I think that's being...  pretty generous with all of human history.

A_MacLaren's picture

"Tighten policy" by paying banks MORE taxpayer funds to not lend to the taxpayers.

Isn't capitalism supposed to be about those WITH the money making loans, taking risks and making investments?

When did we clearly slip into Financial Mafiaism, whereunder the Mob keeps the money, forces the masses to pay for protection, and then breaks the knee caps of those who dare to ask for an extension, because business is slow this week?

Cdad's picture

Methinks your attitude is cashing fiatskis...that your knee caps cannot afford.

Mrmojorisin515's picture

watch those history channel things tylers been posting, we've always had an oligarchy.  The Fed was created to retard the effects of capitalism, and to make sure they never again had to save the system with their own money.

SheepDog-One's picture

No worries! They've got UNICORNS at the controls, the Hindenberg WILL land, NO PROBLEM I assure you!

Cdad's picture

Quite literally, it would seem, on those unicorns at the controls.  Today's HH Senate testimony was absolutely devistating, in my estimation.

So of course...RALLY ON!

kchrisc's picture

Wow! Seeing it like in your quote is shocking.

He says that they could exit without selling but then says that they could sell slowly.

And I like the part about tightening by raising interest rates. The $2.2 trillion in excess reserves says that they, the banks, are NOT loaning fiat so raising interest rates will have no effect. They can't raise rates without destroying the gov's income sheet either. Sort of like a season ending cliff-hanger--I wonder what he/they will do?! Guess I'll have to tune in to watch next season.



Bunga Bunga's picture

In central banking it's just the code word for diapers.

thewayitis's picture

we're all ....... This shit will hit the fan soon. ....And to think my children have no clue of whats going on. When they finally realize BOOM. Thank the bankers for ALL THIS SHIT.

Antifederalist's picture

These exchanges have to be disturbing to the Bernank. Toto is pulling on the wizard's coat. Retiring in January 2014 is probably looking better and better.......... right Ben?

km4's picture

Bill Fleckenstein on fire explaining Bernanke and the Fed bullshit in 90 seconds

Meatballs's picture

The vid of the scumbag and Warren is pretty epic. He's just dripping with sleaze.

Antifederalist's picture

Just watched the video. Wow, this is getting interesting.

1C3-N1N3's picture

You have two cows pairs of suspenders. You counterfeit trillions more pairs of suspenders and give them to your bankster buddies, and you all hang yourselves with them.

1C3-N1N3's picture

(Strikethrough "cows": Y U No Post?)

Catflappo's picture

A 30 second commercial to watch a 90 second clip.   

Cdad's picture

That would be your parasitic BlowHorn [CNBC] effect.  More fun...getting hit with 30 second commercials to watch a stupid Youtube clip.  Thank you Google for joining the crony captialism movement.


PUD's picture

He is sick and pathological or evil or all three but congress, bankers, financial types and most of you (no offense) are equally clueless.

There is only one problem and not one in a million either understands it or admits as debt.

There is no 'right" interest rate other than zero. There is no reward to "savers' that doesn't come from the pockets of borrowers. It is a zero sum game in that respect. 

However, since all money is created via debt, there can be no "growth' without expansion of debt. It is impossible by definition. Therefore debt will always grow. 

The problem is the matter of interest (usury) 

Since all money is in fact created via debt and all debt carries interest, that interest money has to be created too...out of more debt!  it is a compounding function just like a savings account but in reverse. The more "growth' you have, the more debt you incur, the more interest is owed, the more money from debt has to be created to service that interest which in turn requires more money creation by more debt to pay the interest on that interest created via debt

This is the one and only problem. There is no escape from it other than an entirely new system of non debt based money

Any other conversations are pointless

The fed cannot create wealth, savers do not create wealth, borrowers do not create wealth no one creates wealth so long as the measure of that wealth is money and that money is entirely created by debt!

it will all implode no matter what anyone does...there is no fix

You cannot stop borrowing and you cannot keep borrowing. The Kobiashi moru..the no win situation.

That is the japan experience. That will be the world experience until the insolvent start imploding causing the final cascade

No fiscal policy can change this, no monetary policy can change this. it can only be delayed for a time.

This is why you have a student loan bubble and a consumer credit bubble and record corporate debt and record sovereign debt...all bubbles of debt desperate to keep the clock ticking

Peak debt is a real thing. The point at which not one more penny can be carried at interest by anyone on the planet...we're pretty much there

So spare the heavy analysis and eclectic solutions and rants against zirp etc....all side as debt is the cause and there is no one even hinting that they understand this

Vidar's picture

The problem is fiat. As long as money is not a commodity, we will have problems. As long as money can be printed at virtually no cost, we will have problems. As long as the state is able to create money and give it to its friends, we will have problems. The interest rate is a price, and like all prices, should be set on the market by supply and demand, not by central planners.

PUD's picture

you do not get it either. debt money carries interest (cost of money if you like) that interest has to be by more debt since the only way money comes into existence is by being lent into existence

this is a compound function which is why you see the world awash in debt and stalling out

You don't seem to get this either

new game's picture

and that is why they will never ty money to a fixed barameter(gold, widgets) because the system relies on this very expansion of credit to keep the wealthY in CONTROL, CONTROL, CONTROL.  IT IS POWER OVER YOU AND I...


exartizo's picture

Your attempt to define money strictly in terms of debt is interesting but flawed.

The concept of money does not exist simply as a function of debt alone.

You are missing the greatest understanding and underlying root of the problem:


Which destroys all fiat currencies eventually because the love of money, as the root of all evil causes some (any)generation to be controlled by greed, as the current one is.

Gold is money.

It does not function as a multiplier of debt.

The so called "cost" of money is not necessarily paid by debt.

Money is also paid for indirectly by "equity". It is the imbalance of debt and equity that GREED causes.

Dr. No's picture

You are being kind of harsh.  Yes, for some reason the FED decided to only issue cash dollars by purchasing debt notes (it didnt have to, it could just print fiat on a whim).  There is a mountain of debt on their books.  One day, the debt wont be serviceable.  There will be a "default" to the lender (FED).  On that day, debt value will be reduced (the amount the note is worth). However, cash money (paper with presidents on them) will sky rocket in value.  Why? because people need a medium of exchange, regardless of some debt counter some where.

luna_man's picture



Thanks, "PUD"...I feel more enlightened! (on the serious)


not that it will make any difference

Dr. No's picture

you are confusing "money" with "fiat".  The Byzantine empire had realtively stable money (gold coins) for hundreds of years.  It was truely "money" and not fiat.

maskone909's picture

I get it PUD.
A great explanation for what you are explaining comes from the documentary film The Secret of OZ about the fed reserve system