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David Einhorn "I Asked Bernanke Questions, And The Answers Were Frightening"

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Ben Bernanke may be gone from the helm of the world's most centrally planned economy, but his ample cluelessness remains. David Einhorn, president of Greenlight Capital, better known for comparing QE to jelly donuts and who recently confirmed what we have been saying for a long time that the second dotcom bubble is here, spoke with Bloomberg TV covering a wide range of topics, but what caught our attention was his synopsis of a private dinner he had with Chairsatan-emeritus Ben Bernanke, on March 26.

What he found, in his own words, is disturbing.

"I got to ask [Bernanke] all these questions that had been on my mind for a very long period of time, right? And then on the other side, it was like sort of frightening because the answers weren’t any better than I thought that they might be. I asked several things. He started out by explaining that he was 100 percent sure that there’s not going to be hyperinflation. And not that I think that there’s going to be hyperinflation, but it’s like how do you get to 100 percent certainty of anything?"

It goes without saying that only fools are 100% certain of anything, which in fact explains pretty much everything.

So is it too late to cross off the final "conspiracy theory" of the tinfoil hat list: that the entire world is led by clueless Keynesian economist fools, whose adherence to perpetatuing the broken and insolvent status quo means that the only outcome possible after this final, all-in (luckily) bubble finally bursts, is either systemic collapse or world war?  Or do we actually have to live through it before we are proven right once more?

That's ok, we are in no rush.

Curious for more? Here is the full transcript of the key part of the exchange between Bloomberg anchors Schatzker and Ruhle, and Einhorn.

RUHLE: ... you recently had dinner with Ben Bernanke. What went down? We didn’t get to be there.

EINHORN: Well, it was -- I watched him for years in front of Congress and speaking and watched him on TV and “60 Minutes” and --

RUHLE: And what was your opinion of him before you had dinner?

EINHORN: I was -- I’ve been critical. I’ve been critical of him for a very long time. And the dinner for me, in one way it was cathartic because I got to ask him all these questions that had been on my mind for a very long period of time, right? And then on the other side, it was like sort of frightening because the answers weren’t any better than I thought that they might be.

SCHATZKER: What did you ask him?

EINHORN: I asked several things. He started out by explaining that he was 100 percent sure that there’s not going to be hyperinflation. And not that I think that there’s going to be hyperinflation, but it’s like how do you get to 100 percent certainty of anything? Like why can’t you be 99 percent certain and like how do you manage that risk in the last 1 percent? And he says, well, hyperinflations generally occur after wars and that’s not here. And there’s no sign of inflation now and Japan’s done a lot more quantitative easing than we’ve done, and they don’t have it. So if there is a big inflation, the Fed will know what to do. That was kind of the answer.

RUHLE: What did you say?

EINHORN: That was it. Then it went to the next question. So then a few minutes later it came back and I got to ask him about the jelly donuts. And my thesis is that it’s like too much of a good thing. Like lowering rates and quantitative easing and these stimulative things, they help but with a diminishing return. And eventually you go too far and it’s like eating the 35th jelly donut. It just doesn’t help you. It actually slows you down and makes you feel bad. And my feeling has been that by having rates at zero for a very, very long time the harm that we’re doing to savers outweighs the benefits that might be seen elsewhere in the economy. So I got to ask him about this.

SCHATZKER: Okay, and what did he say?

EINHORN: Well first of all he says, you’re wrong. That was good. And then he said the reason is if you raise interest rates for savers, somebody has to pay that interest. So you don’t create any value in the economy because for every saver there has to be a borrower.

And what I came back to him was I said, but wait a minute. You said for a long time we haven’t had enough fiscal stimulus, and who’s on the other side of the low interest trade? It’s the government. And so if the government -- if we raise the rates, the government would have to pay more money to savers. You’d have the bigger deficits. You’d create the stimulus, the fiscal stimulus that you’ve been complaining that Congress wouldn’t give to you, right? And savers would benefit from the higher rates and because savings is spent at a very high rate in terms of interest -- interest income on savings is spent at a high percentage, you’d get a real flow through into the economy.

SCHATZKER: One of the questions you’ve raised about quantitative easing in one of your letters to investors was about inequality. Did you get any satisfaction from Ben Bernanke on the question of whether quantitative easing exacerbates inequality?

EINHORN: Yeah, that did come up and I don’t remember exactly what he said. So I don’t want to --

SCHATZKER: It wasn’t memorable.

EINHORN: No.

SCHATZKER: How about this notion that Warren Buffett has propagated that the Fed has become with its $4 trillion balance sheet the greatest hedge fund in history?

EINHORN: Yeah. I’m not sure that’s meant as a compliment.

SCHATZKER: But did that issue come up?

EINHORN: Yeah. There were people who were asking, yes, and he says the Fed can manage their way out of it when the time comes.

SCHATZKER: But in a persuasive way? Did he convince anyone?

RUHLE: Or did he say Janet’s problem now, not mine? I’ll have another drink.

EINHORN: He was very supportive of Janet.

SCHATZKER: No doubt.

RUHLE: Are you?

EINHORN: I want to keep an open mind here. I saw her speak at the Economics Club a couple weeks ago and I was impressed by her speech. I thought -- she said, look, we have a base expectation, but things change. And when things change, we’re going to change our policy. I thought that was good. She’s -- I don’t look at one economic factor to drive things. I’m going to look at all of the factors. I thought that was good. I think the way she’s approaching problems at least conceptually is very good. I’d love to see if she has a better reason why rates should remain at zero at this stage in the economy, but you take these things and see where she goes. She’s just gotten started.

* * *

Yes. She "just" has. And yes, Bernanke's problems are now her problems.

 

Full Bloomberg TV interview below:

 

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Wed, 05/07/2014 - 01:52 | 4735033 Miggy
Miggy's picture

The reason he can't be 100% sure is because hyperinflation is just the opposite of extremely high inflation. With extremely high inflation money is in demand because the economy is too hot and goods, services,  wholesale products and the complete supply chain can garner higher prices.

Hyperinflation occurs when nobody wants the currency and has lost faith in it and will do anything to get their hands on anything but the currency. That coupled with a boatload of it floating around.

Both produce high velocity of money but are on opposite ends of the spectrum. So reserve currency status has everything to do with the hyperinflation scenario, something which even the Fed does not have 100% control over.

Wed, 05/07/2014 - 01:54 | 4735044 socalbeach
socalbeach's picture

It seems like Einhorn is 100% certain that only fools are 100% certain of anything.

.

"It goes without saying that only fools are 100% certain of anything ..."

Wed, 05/07/2014 - 02:33 | 4735079 damicol
damicol's picture

So Einhorn,, You wasted time talking to a Moron.

Anfd what did you learn in the time you spent talking to a Moron.

Exactly, SFA.

 

 So now I have to ask myself,

 

 Who is the bigger Moron, You an as yet undefined Moron, or the Moron who cannot help being a Moron

Wed, 05/07/2014 - 03:24 | 4735116 Euro Monster
Euro Monster's picture

Fuck Bernanke, and Einhorn as well. Let them dine together and disagree on certain things, but it still makes them two wizards who create nothing! Unproductive beings, well respected because the world is fucked up!

Yes im angry! And please tell me once again that markets are not manipulated...

Wed, 05/07/2014 - 03:58 | 4735139 Magooo
Magooo's picture

What you needed to ask him is:

 

'WHY DID YOU ENGAGE IN WHAT ARE OBVIOUSLY POLICIES THAT WOULD LEAD TO ECONOMIC SUICIDE?' 

 

His answer - if he were honest would have been:

 

'We could not just stand around and allow civilization to collapse - we had to try to keep the system going for as long as possible - because when it collapses there will be no recovery - this is what we are fighting against:'

 

HIGH PRICED OIL DESTROYS GROWTH

According to the results of a quantitative exercise carried out by the IEA in collaboration with the OECD Economics Department and with the assistance of the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.iea.org/textbase/npsum/high_oil04sum.pdf

Wed, 05/07/2014 - 04:14 | 4735148 james.connolly
james.connolly's picture

Thai's LOSE THAILAND - OBAMA/CIA WINS - THAI PEOPLE LOSE - Voting Now Means NOTHING

Court removes Thai PM Yingluck Shinawatra from office
GMA News? - 30 minutes ago

Majority of Thailand's population supports Yingluck Shinawatra as ...
The Voice of Russia?
Prime Minister Yingluck Shinawatra is at the national Constitutional Court this ... That is one thing that is clear now after their peace proposition ...

Wed, 05/07/2014 - 06:23 | 4735230 smacker
smacker's picture

Not sure who wins on this. Her father is in Dubai last time I heard, on the run from Thai justice after being convicted of fraud. Her aim was to pass a law to let him off the hook so he could return to Thailand and become bossman again.

Wed, 05/07/2014 - 04:17 | 4735150 kurt
kurt's picture

How long until this shit ages off? 

What, are you wakin' off to this pretty boy.

There's nothing to see here. Move along.

Don't taze me bro

Wait, if the pretty boy does it, go ahead but hold me close, hold me oh so close.

Wed, 05/07/2014 - 05:55 | 4735214 AdvancingTime
AdvancingTime's picture

I did not see the question: HOW CAN I PROTECT MYSELF FROM MASSIVE INFLATION?   Never before has mankind diverted such a large percentage of wealth into intangible products or goods.  I contend this is the primary reason that inflation has not become a major economic issue. 

The modern economy is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and  money suddenly flows into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled. This could really shake up the world, more on this subject in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos.html

Wed, 05/07/2014 - 06:59 | 4735257 Silverhog
Silverhog's picture

"hyperinflations generally occur after wars and that’s not here." 

 

When did the wars ever end? They all blend together in one long running deficit. Where does after fit in? 

Wed, 05/07/2014 - 07:26 | 4735280 CHX
CHX's picture

<<< before 2020

<<< after 2020

Wed, 05/07/2014 - 07:31 | 4735287 overmedicatedun...
overmedicatedundersexed's picture

bernanke, now back to your secure bunker..MF'er will never be able to be in public without a disguise and fed reserve security thugs, some people just need kill'in.

Wed, 05/07/2014 - 07:05 | 4735260 mfields111
mfields111's picture

this interview gets me angry because both men are assuming that fiat currency is real money which it is not.  so for example the candy bar analogy that Einhorn uses to explain hyperinflation is meaningless because fiat currency is a promise to pay...it is not a consumer item like a candy bar. Once you eat the candy bar, it no longer has value  whereas currency is supposed to retain its value no matter how many uses it undergoes.  If you are producing candy bars you have to consider the market for them..if you produce more than the market , your price will go down...if you produce less your price will go up.. simple. THIS IS NOT TRUE WITH MONEY which should have the same unit of account no matter how many units you produce...These two men don't get that distinction. When you produce too much money you degrade the marketplace's confidence in your currency and its this lack of confidence not the finite amount of money you have in your system that produces hyperinflation!  We already are seeing this happen..Bernanke is 100% sure something won't happen that has been happening..

Second, the argument turns on getting lower vs higher interest rates as to whether you will get hyperinflation or not.  It did not occurr to either of these two that interest rates can be manipulated and in fact are being manipulated.  But what can't be manipulated is how much faith the people in the economy have in the growth potential of that economy. Whether they are willing to invest in it with their effort and with their savings.  How come neither of these two even consider that issue is the classic failing of any system including ours.  These two don't care about the viability of the real economy because that is a non issue for a long time...they are only interested in the appearance looking good so they are into illusion.  That fact is what annoys me the most.

Wed, 05/07/2014 - 07:19 | 4735271 medium giraffe
medium giraffe's picture

Yeah, well, welcome to the club Dave.

 

These guys must know that the show's over if they're openly talking about these issues in public.  Dave's probably getting short.

Wed, 05/07/2014 - 08:11 | 4735342 vyeung
vyeung's picture

surely he read the bernarrrrks tell.

He's obviously not saying shitttttt to anyone else. Well, thats the business he's in and the advantages he percieves he has.

Wed, 05/07/2014 - 08:32 | 4735384 truth serum
truth serum's picture

David Einhorn knows "The Bernank" is dishin out the BS, he's just a 'Judas goat' for the sheepel,feeding them more drivel while he makes his exit!

Wed, 05/07/2014 - 10:01 | 4735680 TrustWho
TrustWho's picture

Bernanke is a fearful cowardly professor. Einhorn pulls the curtain back more for all to see this coward and small small man. Bernanke says he was following the Japanese money printing model. Do you know what Bernanke advised the Japanese to do in early 90's? His advice is close to the philosophy you read on ZH for the 2007/08 financial crisis. This required to much strength and fortitude for a fearful cowardly professor to execute in the heat of the moment. QE1 saved the world in people's mind. Maybe so and Maybe not, but once you start printing how do you stop?

By the way, how is the Japanese experiment working? Intellectuals say America's major solution to our economic malaise is more education. Using Bernanke as a model, I believe our intellectuals are wrong--once again.

Wed, 05/07/2014 - 10:27 | 4735830 message2gowri
message2gowri's picture

I am 100% Sure Allways Governments Screw its Citizens!! 

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