Elliott's Singer On Bernanke Destroying "The Value Of Money" And "Uprooting The Basic Stability Of Society"

Tyler Durden's picture

Previously, it was Seth Klarman, one of the most respected value investors of all time warning against the hubris of economists, the complacency of investors and the stupidity of politicians. Now, it is the turn of that other, just as legendary hedge fund manager, Paul "Commodore" Singer, to take what is an increasingly contrarian position in a field of "experts" filled with momentum-chasers, Fed apologists, and those who are convinced the world owes them a free lunch, and once again tell the full truth about the Federal Reserve and its utterly clueless, real world reject, chairman.

The Fed, Lost In The Wilderness, by Paul Singer

[T]he financial system (including the institutions themselves, products traded, and risks taken) has “gotten away from” the Fed’s ability to comprehend. The Fed is primarily responsible for that state of affairs, and it is out of its depth. Former Chairman Greenspan created – and reveled in – a cult of personality centered on himself, and in the process created a tremendous and growing moral hazard. By successive bailouts and purporting to understand (to a higher and higher level of expressed confidence) a quickly changing financial system of growing complexity and leverage, he cultivated an ever-increasing (but unjustified) faith in the Fed’s apparent ability to fine-tune the American (and, by extension, the world’s) economy. Ironically, this development was occurring at the very time that financial innovations and leverage were making the system more brittle and less safe. He extolled the virtues of derivatives and minimized the danger of leverage and risky securities and dot-com stocks, all while he should have been putting on the brakes. It was not just the disappearance of vast swaths of the American financial system into unregulated subsidiaries of financial institutions, nor was it just government policies that encouraged the creation and syndication of “no-documentation” mortgages to people who could not afford them. It was also the low interest rates from 2002 to 2005, the failure to see the expanding real estate bubble caused by an unprecedented increase in leverage and risk, and the general failure to understand the financial conditions of the world’s major institutions. Under Chairman Bernanke, the combination of ZIRP and QE completed the passage of the Fed from sober protector of a fiat currency to ineffective collection of frantically-flailing, over-educated, posturing bureaucrats engaged in ever more-astounding experiments in monetary extremism.

If you look at the history of Fed policy from Greenspan to Bernanke, you see two broad and destructive paths quite clearly. One path is the cult of central banking, in which the central bank gradually acquired the mantle of all-knowing guru and maestro, capable of  fine-tuning the global economy and financial system, despite their infinite complexity. On this path traveled arrogance, carelessness and a rigid and narrow orthodoxy substituting for an open-minded quest to understand exactly what the modern financial system actually is and how it really works. The second path is one of lower and lower discipline, less and less conservative stewardship of the precious confidence that is all that stands between fiat currency and monetary ruin. Monetary debasement in its chronic form erodes people’s savings. In its acute and later stages, it can destroy the social cohesion of a society as wealth is stolen and/or created not by ideas, effort and leadership, but rather by the wild swings of asset prices engendered by the loss of any anchor to enduring value. In that phase, wealth and credit assets (debt) are confiscated or devalued by various means, including inflation and taxation, or by changes to laws relating to the rights of asset holders. Speculators win, savers are destroyed, and the ties that bind either fray or rip. We see no signs that our leaders possess the understanding, courage or discipline to avoid this.

It is true that the CEOs of the world’s major financial institutions lost their bearings and were mostly oblivious to their own risks in the years leading up to the crash. However, as the 2007 minutes make clear, the Fed was clueless about how vulnerable, interconnected and subject to contagion the system was. It is not the case that the Fed completely ignored risk; indeed, several Fed folks made “fig leaf” statements about the risks of the mortgage securitization markets, as well as other indications that they appreciated the possibility of multiple outcomes. But nobody at the Fed understood the big picture or had the courage to shift into emergency mode and make hard decisions. In the run-up to the crisis the Fed was a group of highly educated folks who lacked an understanding of modern finance. After convincing the nation for decades of their exquisite grasp of complexities and their wise stewardship of the financial system, they didn’t understand what was actually going on when it really counted.

Ultimately, of course, as the system was collapsing and on the verge of freezing up completely, the Fed shifted into the (more comfortable and much less difficult) role of emergency provider of liquidity and guarantees.

All this background presents an interesting framework in which to think about what the Fed is doing now. QE is a very high-risk policy, seemingly devoid of immediate negative consequences but ripe with real chances of causing severe inflation, sharp drops in stock and bond prices, the collapse of financial institutions and/or abrupt changes in currency rates and economic conditions at some point in the unpredictable future. However, the lack of large increases in consumer price inflation so far, plus the demonstrable “benefits” of rising stock and bond markets, have reinforced the merits of money-printing, which is now in full swing across the world. In the absence of meaningful reforms to tax, labor, regulatory, trade, educational and other policies that could generate sustainable growth, “money-printing growth” is unsound. We believe that the global central bankers, led by the Fed as “thought leader,” have no idea how much pain the world’s economy may endure when they begin the still-undetermined and never-before attempted process of ending this gigantic experimental policy. If they follow the paths of the worst central banks in history, they will adopt the “tiger by the tail” approach (keep printing even as inflation accelerates) and ultimately destroy the value of money and savings while uprooting the basic stability of their societies. Read the 2007 Fed minutes and you will understand how disquieting is the possibility of such outcomes and how prosaic and limited are the people in whom we have all put our trust regarding the management of the financial system and the plumbing of the world’s economy.

Printing money by the trillions of dollars has had the predictable effect of raising the prices of stocks and bonds and thus reducing the cost of servicing government debt. It also has produced second-order effects, such as inflating the prices of commodities, art and other high-end assets purchased by financiers and investors. But it is like an addictive drug, and we have a hard time imagining the slowing or stopping of QE without large adverse impacts on the prices of stocks and bonds and the performance of the economy. If the economy does not shift into sustainable high-growth mode as a result of QE, then the exit from QE is somewhere on the continuum between problematic and impossible.

Central banks facing high inflation and/or sluggish growth after sustained money-printing frequently are paralyzed by the enormity of their mistake, or they are deranged by the thought that the difficult and complicated conditions in a more advanced stage of a period of monetary debasement are due to just not printing enough. At some stage, central banks inevitably realize, regardless of whether they admit the catastrophic nature of their own failings, that the cessation of money-printing will cause an instant depression. Even though at that point the cessation of money-printing may be the only action capable of saving society, that becomes a secondary consideration compared to the desire to avoid immediate pain and blame. The world’s central banks are in very deep with QE at present, and the risks continue to build with every new purchase of stocks and bonds with newly-printed money.

* * *

And, as an added bonus, Singer's thoughts on gold:

There are many current theories as to why the price of gold had been drifting down and then collapsed in mid-April. We are trying to sort out various possible explanations, but we urge investors to be cautious in their thinking about what circumstances would likely cause gold to rise or fall sharply. The correlations with other assets in various scenarios (risk on or off, economic normalization, inflation, the rise and fall of interest rates, euro collapse) may shift abruptly as the macro picture evolves. Many people think that if stock markets continue rising, and/or if the U.S. and Europe restore normal levels of growth and employment, then the rationale for owning gold is weakened or destroyed. This perception may be correct, and it is certainly a topic that is currently much discussed, but ultimately another set of considerations is likely to dominate.

The world is on a seemingly one-way trip to monetary debasement as the catchall economic policy, and there is only one store of value and medium of exchange that has stood the test of time as “real money”: gold. We expect this dynamic to assert itself in a large way at some point. In the meantime, it is quite frustrating to watch the price of gold fall as the conditions that should cause it to appreciate seem more and more prevalent. Gold may not exactly be a “safe haven” in the sense of an asset whose value is precisely known and stable. But it surely is an asset that, in a particular set of circumstances, becomes a unique and irreplaceable “must-have.” In those circumstances (loss of confidence in governments and paper money), there are no substitutes, and the price of gold may reflect that characteristic at some point.

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freewolf7's picture

This is well thought out.
Never underestimate the enemy.

jbvtme's picture

how do you post a picture?

The Navigator's picture

YOU can't - there's only a handful of posters that have that ability. You can include a hyper link to a pict or web page.



flacon's picture


The "price" of gold is what you can sell it for. Currently the price that you will receive for one ounce gold eagle is: $1,513.00. The paper price is still not too far behind, but I expect the divergence to increase exponentially - $1,470.00.


The price you will receive from one silver eagle is: $27.28, but the paper price is $24.13. That's physical metal at a 13% premium to paper. That's nothing to laugh at. But I'm waiting for my billion/trillion/septillion percent pemium.... it happened in Zimbabwe and there is no reason why it can't happen here. 


CompassionateFascist's picture

Keep on printing. Our "society" - Ponzi scheme monitized debtconomy, Zionist-collectivist politics, Hollywood Kosher Culture of Death - is beyond saving. This Crash must echo through the Ages. And it will. 

Supernova Born's picture

IIRC, Greenspan said on CNBS (Squawk Box) that the LIBOR was THE thing to watch to discern the direction of the economy. I'd bet a dollar he KNEW it was manipulated when he said it.

Somewhere there is a clip of that eternally memorable moment. One can wish?

dark pools of soros's picture

not if you are selling to a dealer you wont... if you can find a buyer on your own you get those prices

Jendrzejczyk's picture

Go to a different website.

Sam Clemons's picture

Create the problem. Offer the solution. 

Aeternus's picture

Keep the foot on the QE gas pedal Bernanke! FASTER!!!!!!!!!!!!!!!!!!!!!!!!!!



fonzannoon's picture

"Even though at that point the cessation of money-printing may be the only action capable of saving society, that becomes a secondary consideration compared to the desire to avoid immediate pain and blame"

For whatever it's worth, everyone should listen to this. He said this years ago.



Timmay's picture

What really matters is that whatever the outcome, "they" will do it to "you".

sitenine's picture

2 words, "underlying value" - if only the sheeple really knew.. or understood...

IridiumRebel's picture

They don't....trust me. 

Clowns on Acid's picture

"We see no signs that our leaders possess the understanding, courage or discipline to avoid this."

Avoid this ? This is the Cloward Piven objective as supported by Obama and indeed Hillary Clinton. Most of the rest just watch TV and "believe" that if life on tv is ok, then their lives will be ok.

Then of course the 15M illegals in the US, just hoping to get the paper and then get onto Welfare, ObamaCare, foodstamps, race based preferential treatment in schools, jobs, tuitions, etc....

What % of illegals are non white (i.e. would qualify for "minortiy status" in the US) ? 

Jendrzejczyk's picture

All the illegals I've seen work like a motherfucker. They embody the dream all of our ancestors came to this country for.

You see any unemployed worthless white kids living in their mom's basement standing in the Home Depot parking lot begging to work at six AM? 




TheMeatTrapper's picture


All the illegals I've seen work like a motherfucker. They embody the dream all of our ancestors came to this country for.

You see any unemployed worthless white kids living in their mom's basement standing in the Home Depot parking lot begging to work at six AM?


Your point is well taken. However, in addition to being hard workers, they also take full use of every government benefit that was designed to help Americans - welfare, food stamps, free medical care, etc. 

They also refuse to speak English and have no desire to be assimilated. They demand that we accomodate them, rather than insisting that they themselves accomodate us. 

When my ancestors came to this country from Germany, the father of the house forbade any German to be spoken because they were in America, and English was spoken in America. They also sent their sons to fight Germany on behalf of this nation. He also changed their name from Mueller to Miller. 

When the Mexicans decide to forbid their children from speaking Spanish; when they are willing to enlist in the US Army and go to war with their cousins back in Mexico, when they change their name from Sanchez to Smith - then get back to me. 

Until then, they need to stay the hell out of OUR country.

Learn to Trap Your Food 


longwind's picture

They busted their butts coming thousands of miles to hustle harder than I ever had to, or want to. So I bought an airplane ticket to France, where I hardly had to work at all. Guess what color I am?

Chuck Walla's picture

We see no signs that our leaders possess the understanding, courage or discipline to avoid this."

They never do when their personal power is on the line.


“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” 

 Upton  Sinclair





lotsoffun's picture

the immigrants also needs free cell phones, so they can find out where they are going to be working off the books to take the job from somebody that currently pays some taxes, for less, so they don't pay taxes and help the economy.

and they need to be able to vote also.  because they luv's big bad bama.  ain't that a whole lot of truthful frigging fun.


Marco's picture

"the exit from QE is somewhere on the continuum between problematic and impossible."

These Johny come latelys are 4 decades too late to start whining ... the exit from 4 decades of deficits (trade and budget) was somewhere between problematic and impossible, that's why we have QE.

miker's picture

Excellent article.  Spot on!

IridiumRebel's picture

American society is quickly becoming a barbarous relic. 

otto skorzeny's picture

a tale of 2 cities-except now everyone is armed to the teeth.

newworldorder's picture

There is the rub however... The banksters believe they are in control.  Congress believes that indeed the banksters are in control and most iportantly; That everything can be fixed. The fantasy is that peak oil is not here, good jobs for most will return, and financial derivatives can be netted out. They have had their "thelma and louise" moment but still believe they can jump the cliff.

lotsoffun's picture

600 trillion dollars of derivatives between the top US banks alone. but of course - they net out.   nothing to see here.

so - why bother to put them on?  net them out then and rip up the contracts.


Bam_Man's picture

They only "net out" as long as EVERY COUNTER-PARTY remains ABLE TO PAY.

The minute that A SINGLE COUNTER-PARTY becomes unable to pay, the entire $600 trillion derivatives pyramid implodes.

lotsoffun's picture

yes.  i know that.  should have made it explicit, it was part of my sarcasm.  just like AIG needed 180 BILLION - so the lions share of 'insurance' 80 billion went to goldmine.  otherwise - they would have gone under also.  the next 100 billion was split with citi, merrill, jpm, morgan, bac and a bunch of foreign banks.  notice lehman got none, or wachovia, or wamu, because they were the bunch that the fed bought shares directly.  GS remained shareholder owned.

Anusocracy's picture

The concern is not peak oil, it is whether or not we are reaching peak energy.

Not hardly.

Peter Pan's picture

They had a choice to cut out the gangrene when it had infected only the toes. It has gone past the knee now and is headed for our short and curlies.

Like any parent knows, if you give in to an unruly child to keep it quiet you end up raising a pig of a human being.

Unfortunately the escape routes have been blocked by even more piles of debt and it seems to me that we are all going to burn in the theatre as the fat lady well and truly sings her little heart out.

akak's picture


Like any parent knows, if you give in to an unruly child to keep it quiet you end up raising a pig of a human being.

Like any parent USED to know.

gwar5's picture

The only exit plan for the FED is for 2700 DHS tanks and 1.6 billion rounds of ammo to provide them cover.  

Fedaykinx's picture

can't wait to have my own armored vehicle.

nightshiftsucks's picture

That's okay,we can take them.

lolmao500's picture

No biggie! The only real threat (according to them) is deflation. Inflation, hyper-inflation or a total loss of confidence can be dealt with!

DeadFred's picture

Bernanke: Will this happen before I leave? No? No biggie.

Obama: Do I have anymore elections? No? No biggie.

You're giving them to much credit.

Stuck on Zero's picture

Central bank policy?  Is that what they call theft now?


smacker's picture


It is significant that not one central banker has ever been subjected to any democratic process. Yet these nutters are essentially 'running' the global economies and - being quasi-independent of government has given them licence to destroy their economies. Is it not past time for the elected political elites to step in and tell these maniacs that "Enough is Enough". After all - unless there are revolutions and they're all hanging from lamp posts - it will be them left having to sort out the shambles being perpetrated on societies by the central bank loons.

Let me name a few of the nutters who need bringing under control and stripping of their central bank powers:

Ben Bernanke, SIR Mervyn King, Mark Carney, Mario Draghi and whatever the Japanese guy's name is.

AllWorkedUp's picture

"Is it not past time for the elected political elites to step in and tell these maniacs that "Enough is Enough".

  Unfortunately, these are the bought and paid for elites whose very survival depends on the survival of the CB's. They will willingly destroy their societies before "taking one for the team" and doing the right thing.

 There is only one option left and that is violence. They won't understand anything other than a threat to their existence. Unfortunate but true.

MrPalladium's picture

"There is only one option left and that is violence. They won't understand anything other than a threat to their existence. Unfortunate but true."

Beginning to look that way, isn't it!

g speed's picture

listen closely---all the Gov'ts and the powerfull are steaped in corruption and murder- they are the vehicle of evil and death.  They are becoming obsolete-they will consume themselves and die like the Trex they are-- there is no need for violence on the part of the "meek"--  

JustObserving's picture

The whole problem revolves around the unsustainable debt in Western countries - hence the need for ZIRP and therefore the need for QE.  There will be no exit from QE since the Fed may lose a trillion on its holdings and interest on the debt may soar by $700 billion a year.  Then US deficit will easily reach $2 trillion a year.  And when Medicare runs out in a few years, you can add at least  $1.2 trillion to the annual deficit.  

Debt and unfunded liabilities are $446,000 a person now and increasing at $26,000 per person per year in the US.  The only two choices are default or hyperinflation.  And in the most bizarro of scenarios, US debt is trading at 237 year highs.