Bagus' Bernanke Rebuttal - Redux

Tyler Durden's picture

At the end of December 2010, Philipp Bagus (he of the must watch/read 'Tragedy of the Euro') provided a clarifying and succinct rebuttal or Bernanke's belief in the extreme monetary policy path he has embarked upon. Bernanke's latest diatribe, or perhaps legacy-defining, self-aggrandizing CYA comment, reminded us that perhaps we need such clarification once again. Critically, Bagus highlights the real exit-strategy dangers and inflationary impacts of Quantitative Easing (a term he finds repulsive in its' smoke-and-mirrors-laden optics) adding that:

Money printing cannot make society richer; it does not produce more real goods. It has a redistributive effect in favor of those who receive the new money first and to the detriment of those who receive it last. The money injection in a specific part of the economy distorts production. Thus, QE does not bring ease to the economy. To the contrary, QE makes the recession longer and harsher.


Will There Be QE3, QE4, QE5...?

Philipp Bagus, December 2010, via the Ludwig von Mises Institute,

Recently, Ben Bernanke indicated that Quantitative Easing II (QE2) might be followed by QE3, etc. In an interview at the beginning of December, Bernanke was asked, "Do you anticipate a scenario in which you would commit to more than $600 billion?"

Bernanke's answer was startling. "Oh, it's certainly possible," he said. "And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks."

The answer is interesting because it not only indicates the possibility that the Federal Reserve (Fed) will purchase more government bonds but also implies that Bernanke thinks that inflation and QE are different concepts, because otherwise his claim would be a meaningless tautology: more inflation depends on inflation.

To make sense of Bernanke's technical talk, let us go back to the beginning of the infamous QE, to the darkest months of the financial crisis. During the boom fired by artificially low interest rates, financial institutions had financed malinvestments, especially in the housing sector. When the bubble burst and housing prices started to fall, these investments lost value rapidly. Bank losses mounted, bank equity fell, and solvency problems arose. Liquidity dried up as financial institutions started to doubt each other's solvency given the problematic loans on their books.

When credit markets dried up in September 2008, after the collapse of Lehman Brothers, loans that financed malinvestments did not serve as collateral for interbank lending anymore. The Fed stepped into the breach and accepted these bad assets as collateral for loans. In March 2009, the Fed started to buy these assets outright in what was dubbed QE1. As a consequence of this qualitative and quantitative easing, the Fed's balance sheet almost tripled within a few months.

How long would these extraordinary emergency measures be maintained? In March 2009, Ben Bernanke stated that the Fed had an exit strategy from its emergency credit policies. It could simply undo its credit policies and asset purchases, thereby reducing the size of its balance sheet to its pre-crisis level.

I have argued that such an easy exit option does not exist. The Fed's purchase of problematic assets did not solve the underlying real problems in the economy: injecting new money does not cause malinvestments to go away. By propping up financial institutions, necessary liquidations and readjustments of the structure of production are only delayed. QE1 could even cause more malinvestments and thereby aggravate the problem. The consequence could be a Japanization of the banking system, with insolvent banks held afloat by the central bank.

If the Fed would exit the emergency situation, reduce its balance sheet, and stop accepting problematic assets as collateral for loans, financial institutions would be back to the initial situation of September 2008. If housing prices do not return to their bubble level, many of the problematic assets will continue to be bad and not serve as good collateral. If valued at the market price, these assets might eat up banks' equity. If the Fed ended its emergency measures, we would effectively be back to the initial situation of frozen interbank markets and general illiquidity.

In October 2009, I concluded that the Fed could not go back to its initial balance sheet without causing the collapse of the financial system. One possible way out would be to reinflate the bubble. Rising asset prices — and especially housing prices — would make many problematic bank assets valuable again. The Fed could increase the quality of its assets by inflating the housing bubble.

In the winter of 2010 [ZH - just as now in Summer of 2012], no one is talking about reducing the Fed's balance sheet or about exit strategies anymore. On the contrary, the Fed has chosen the path of more inflation and dubbed this strategy "QE2."

QE2 has a slightly different purpose than QE1. QE1 directly supported struggling banks by buying their problematic assets. QE2 supports the government.

The inflationary policies of the Fed have been coupled with the Keynesian fiscal policies of the US government. The US government engaged in deficit spending to bail out financial institutions and automakers, disrupting a fast liquidation of malinvestments and a smooth adaption of the structure of production to consumer wants.

QE2 is a direct response to this deficit spending, which obliges the government to issue more bonds. With QE2, the Fed supports the government by buying these bonds. The Fed thereby actively helps the government in its Keynesian policies, which disrupt recovery. While QE1 supported the financial system, QE2 supports the government. Granted, this difference is not substantial given that the fates of the financial system and the government are interwoven. The banking system finances the government that in turn grants the privilege of fractional-reserve banking and implicitly gives guarantees for banks' losses.

Of course, Ben Bernanke does not say that he wants to help finance the government's deficit via money creation. The official excuse for QE2 is, yet again, the scapegoat "deflation."[2] Price inflation is too low. James Bullard, president of the St. Louis Federal Reserve Bank, states that "it's important to defend inflation from the low side as we would on the high side."

In other words, if prices rise too slowly, we must print money so that things get more expensive faster. Bernanke even denies that QE2 would be inflationary: "One myth that's out there is that what we're doing is printing money. … The money supply is not changing in any significant way."

Bernanke plays a semantic trick in this statement. Of course, the Fed does not create the bulk of its new money by literally "printing." Rather, the Fed creates money by manipulating digits in its computer. When the Fed buys a $1,000 government bond from a bank, it transfers 1,000 new dollars as a payment to the bank. It is true that the Fed does not print the money and ship it over to the bank physically. Rather, it increases the account that the bank holds at the Fed by $1,000. It is more convenient to just create the new money in a computer.

"In other words, if prices rise too slowly, we must print money so that things get more expensive faster."

However, the fact that the new money is created electronically does not mean that QE2 is not inflationary. QE2 is inflationary in several ways:

First, base money (bank reserves) increases. When the Fed buys a government bond, it creates money that it transfers to the bank selling the bond. At the end of the operation, the bank has more bank reserves and the Fed owns the government bond.


Second, the quality of money tends to decrease. The average quality of assets that the Fed holds decreases when it buys government bonds. The percentage of gold of total assets that could be used in a monetary reform decreases, while the percentage of government bonds increases. Moreover, these bonds are for a government that is ever increasing its debts.


Third, prices will be higher than they would have been otherwise. Prices would probably have fallen substantially without QE1 and QE2. The injection of new bank reserves inhibited a credit contraction and falling prices. In fact, one aim of QE2 is to bid up asset prices.


Money flows into the stock market, bidding up stock prices. In March 2009, when QE1 started, the Dow Jones was below 7,000 and rose to 10,800 until QE1 expired. When the Dow fell below 10,000 again, markets began to speculate about the possibility of QE2, and a new rally started.


While the newly created money flows to asset-price markets, consumer prices might not surge strongly. But sooner or later, these investments will flow out of asset-price markets and start to bid up consumer goods' prices.


Fourth, the exchange rate will be lower than it would have been otherwise. Market participants will value the dollar lower, given that the base-money supply increases and the dollar's quality decreases. This devaluation is another aim of QE2. It is a way to give exporters an advantage. The devaluation is not as crude an instrument as a tariff but has similar effects. It makes consumers poorer. They have to pay higher prices for imported goods.

Consequently, QE2 is, despite Bernanke's words, inflationary. In fact, it is a euphemism to call the policy QE2. The term quantitative easing conceals the true inflationary nature of the instrument. Furthermore, it sounds technical. The added number "2" makes it even more so. People who know little about economics might ignore news on QE2. Why bother to understand something so technical — let the experts deal with it. The term also has a positive connotation. Who does not want "ease"?

As Walter Block has repeatedly pointed out, we should carefully watch our language. Language is crucial to clear communication. The use of the term quantitative easing generates a smog to hide the production of new money. Words, as Block states, can be mightier than pens or swords. They guide our thoughts and writings. The invention of the term quantitative easing prevents people from thinking about the consequences of inflation. The term distorts thinking.

"The term quantitative easing conceals the true inflationary nature of the instrument."

Why not name QE for what it is? Why not name it after the effects it has?

Money printing cannot make society richer; it does not produce more real goods. It has a redistributive effect in favor of those who receive the new money first and to the detriment of those who receive it last. The money injection in a specific part of the economy distorts production. Thus, QE does not bring ease to the economy. To the contrary, QE makes the recession longer and harsher.

The injection of new money into the economy reinflates old bubbles and generates new ones. Most importantly, QE facilitates government deficit spending — additional distortions and rigidities in the economy. Malinvestments can endure. Factors of production are not shifted to places where the consumer wants them to be most urgently.

Thus, QE2 would be better called, "Quantitative Straining," "Quantitative Destruction II," or "Crisis Prolongation III."

Or we might name it after the intentions behind it: "Currency Debasement I," "Bank Bailout I," "Government Bailout II," or simply "Consumer Impoverishment." Finally, we might also name it after its essence: "Money Printing I and II." Or, if we follow Bernanke, who pointed out that most of the new money is created in a computer, we can call it "Money Creation I and II." This might be the most neutral term.

The rhetorical tricks should not distract us from the fact that QE is simple money creation. The aim of Money Creation II is to finance government spending, debasing the dollar. We should dismiss the term QE and instead call money creation what it is: inflation.

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Precious's picture

Hey Bernanke.  Why don't you just get the fuck out of our lives.  We don't need your kind of help.  You bald little smurf.

_ConanTheLibertarian_'s picture

Well MDB, what's your take on this?

DoChenRollingBearing's picture

My take is O/T, gun show and movie review (Fringe Blogger Bearing prepares bit-by-bit, eating his own dog food):

Barron's review will come later...


mkhs's picture

Who cares what MDB thinks about anything.

falak pema's picture

depends entirely on the size of the bonus. Inflation moves the appetite.

FranSix's picture

For a moment there, I thought the article was aboot Bilbo Baggins.  Ok, so.. 'flation.  Um, inflation is going into the bond price, and some into gold. Oil prices propped up as well.

TheSilverJournal's picture

Why do we allow these central planners to centrally plan? This is all of our faults for allowing our world to be run in this terrible manner. 

Ghordius's picture

Why? Because it's easy. Resisting temptation is always hard.
Have butter and guns now, kick the bill/can to later. Easy.

"As Walter Block has repeatedly pointed out, we should carefully watch our language. Language is crucial to clear communication." good man, WB, I enjoy his videos on the Mises Institute.

The Big Ching-aso's picture



With all this QE they're gonna have to rename it Extra Labor Day.

ATM's picture

Why do we allow it? Simple. It seems right. We all plan to some extent or another and believe that planning is good in our lives. We, as individuals, have insight into what our own actions are going to be and can lay out plans accordingly.

What the majority of people cannot reconsile is that the central planners do not have enough data nor the means to handle that data even if they could get it. They can't make meaningful plans because they can't make meaningful predictions as to the actions of millions of people.

This leads to the inevitable problem. Central planning doesn't work becuase all those damn people act out in their own best interests. The central planners then have a choice to make, give up central planning or try to force people into certain actions. We now what they always choose.

delacroix's picture

the central planners, act in their own self interest as well

mammoth mo's picture


Humans are born into existing world systems.  These systems are as much cultural as they are anything else.  The first 25 years of life you spend figuring you out, then your family, then the rest of the world.   By the time you figure out what your place in the world is, you may have many other issues such as health and finances. 

Whatever solution you have will cause you to reject portions of your upbringing.  When you do you will find yourself isolated from humanity and almost alone with the truth in your former circle.  Meanwhile you will spend your time trying to convince people to make a change.

The people you are convincing may be similar to these three individuals. First group people addicted to bad diets that cause diabetes and other health issues (this group may already be on medication).  Second group is people addicted to alcohol and other narcotics.  Third group people addicted to consumption of materail things.

All three groups are slowly killing themselves from waste.  They also will declare themselves just about powerless to stop themselves from self destruction.  The system you wish to change supports their "bad habits".   Add in the fact that they have been told from birth the problem is with the other race, or the other sex, or the other country, or the other anything different from you.  You get people only interested in change to support their own agenda.

Many would scrap the current system for an equally bad one if they would have access to power in the new system.   To change a system to one that is fair is frankly beyond their comprehension.  The first casualty when you become self destructive is to believe everything in the world is a different shade of things that are not fair.  One master is the same as the other one.  In the end, the master always screws you.

The beginnings of America had screw you written all over it.  It was a new system for immigrants that relied on racism and cruelty for success.  Land stolen from natives and labor stolen from others allowed this country to prosper for those in power.  Those in power accessed power elsewhere with others who had used similar systems.  The bad power structures were imported into the country to allow the business interest to prosper.  The banking system assured greed would rule. 

As time has passed those at the top continue to do what they wish.  As a result they demand more and more of the slice of the pie.  To stop Central Bankers you would have to convince enough people that they should stop destroying themselves with the trinkets in this society, devise a system based upon fairness, implement that system all the while knowing the trinkets would be offered to all members who would uphold the old system  Then vigorously defend that system against constant attacks. 

Attacks disguised often as tools for help.  It can and will be done.  It will not be at all easy.

khakuda's picture

Bernanke is a liar and is inept.  To these points, I would add that Bernanke's Jackson Hole speech further proved this.  He says some things that really stood out as just plaing wrong and should scare the crap out of people that he has NO CLUE:

1. He says every recovery has seen unemployment go back to pre-recession levels and he sees little evidence of a structural change in the economy which would preclude this from being the case this time. Are you kidding buddy? All the crap you own is made in China, there are fewer jobs here now. That's as structural as it gets. The housing bubble just masked it.

2. He says the Fed's policies created 2 million jobs. Really? From your ass to God's ears.  Did the Fed invent the Ipad and start a social media company recently?

3. Worst, is that this fool says the Fed's asset purchases will make money for taxpayers and reduce the Federal debt and deficit. Um, that sounds magical. Conjur up printed money and invest it in something with a return. Can't lose, can we? And what about the taxpayers that don't earn any interest anymore...did they win? What taxes are they able to pay to reduce the deficit? What about the fact that free money allows Congress to keep running deficits and, in fact, make them larger.

It's clear that he has no idea what he is doing and that his policies are a diaster, what's tougher is figuring out how to protect oneself, as he's moved QE from an emergency measure to an annual event.  Clearly, one wants some money in hard assets, oil prices are going well into the triple digits, inflation protection via equities, precious metals, etc.  Oddly, as bad as cash is, you may even need a chunck of cash if they end up blowing everything up.

thatthingcanfly's picture

Alternatively, Bernanke may not be inept or clueless at all. It is at least as possible that he knows exactly what you know, and that he's simply lying with the understanding that 99.99% of us will not understand what the f he's talking about.

This, of course, would mean he is something far worse than inept or clueless: evil.

James-Morrison's picture

It's also possible that he knows that without QE, the game is over.

QE is like life support for a dead patient. 


Benjamin Glutton's picture

Isn't QE nothing more than a mulligan for the banks transaction "losses" on the public's inability to borrow at a level to support the "economy"(Banks)?

ATM's picture

Sort of. It's really a tax on wealth that is directly sent ot the banks with no legistlation or nasty political discussion necessary.

WallowaMountainMan's picture

one other thought. as i type, the us of a is winning the battle of the relatives. specifically, we are growing, everybody else is not. china not. eurogizmo not. emerging this not. emerging that not. etc not.

if the great satan bernie bernanck holds to the minimum do something ( a check to the raise....), strong dollar emerges, and us of a wins. common folk spend dollar. equates to raise. local wins. self-reinforcing.

fascinating times. no complaints here.

grid-b-gone's picture

40% of the typical public or private pension has already vanished with almost no public outcry.

The average person under 50 has no recollection of what damaging inflation feels like so inflation and PM discussions have not yet gained much mainstream traction. 

There's an emperor with no clothes sitting on an elephant in the room, but until they block the view of the big screen TV, or the price of gas holds north of $4.00 for more than a few weeks, expect no stirring of the masses.   

Tinky's picture

Thought-provoking post. Too bad that it will reach only .000001% of the population.

wandstrasse's picture

.000001% of the population... we few Austrian-minded people, blacked out by the media, outside of the US (you have RP at least) without any orientation point or organisation, nobody understanding what we are talking about (how many poeple do you know who heard about 'fiat money'??), always bearers of bad news... this tiny, un-organized crowd, gathering on fringe internet places like ZH since a few years...


another 0.000001% of the population..: elite and central bankers, who own all governments on the planet, all media, who fund all military and police, ultra-connected and informed since centuries...

This a VERY fair fight, indeed.

mammoth mo's picture

We got em right were we want em.

fourchan's picture

gold will tell us the truth about the health of the fiat system. just watch gold

e-man's picture

QE can only solve liquidity problems, not solvency problems.  Very important distinction.

akak's picture

When is somebody finally just going to walk up to this insane and traitorous bastard on the street and punch him in the face?'s picture

Those with the most cause to do so also exhibit a low time preference. So it could be a while.

Whoa Dammit's picture

"Numbers of men in every profession and trade would be blighted by his insolvency; old people who had been in easy circumstances all their lives would have no place of repentance for their trust in him but the workhouse; legions of women and children would have their whole future desolated by the hand of this mighty scoundrel. Every partaker of his magnificent feasts would be seen to have been a sharer in the plunder of innumerable homes; every servile worshipper of riches who had helped to set him on his pedestal, would have done better to worship the Devil point-blank."

Charles Dickens Little Dorrit

The best novel about the true nature of banking. It never changes.

monad's picture


Thus the Future of which we spoke at the beginning has (in England at least) always been the ally of tyranny. The ordinary Englishman has been duped out of his old possessions, such as they were, and always in the name of progress. 

This man (Jones let us call him) has always desired the divinely ordinary things; he has married for love, he has chosen or built a small house that fits like a coat; he is ready to be a great grandfather and a local god. And just as he is moving in, something goes wrong. Some tyranny, personal or political, suddenly debars him from the home; and he has to take his meals in the front garden. A passing philosopher (who is also, by a mere coincidence, the man who turned him out) pauses, and leaning elegantly on the railings, explains to him that he is now living that bold life upon the bounty of nature which will be the life of the sublime future. He finds life in the front garden more bold than bountiful, and has to move into mean lodgings in the next spring. The philosopher (who turned him out), happening to call at these lodgings, with the probable intention of raising the rent, stops to explain to him that he is now in the real life of mercantile endeavor; the economic struggle between him and the landlady is the only thing out of which, in the sublime future, the wealth of nations can come. He is defeated in the economic struggle, and goes to the workhouse. The philosopher who turned him out (happening at that very moment to be inspecting the workhouse) assures him that he is now at last in that golden republic which is the goal of mankind; he is in an equal, scientific, Socialistic commonwealth, owned by the State and ruled by public officers; in fact, the commonwealth of the sublime future.

Nevertheless, there are signs that the irrational Jones still dreams at night of this old idea of having an ordinary home. He asked for so little, and he has been offered so much. He has been offered bribes of worlds and systems; he has been offered Eden and Utopia and the New Jerusalem, and he only wanted a house; and that has been refused him.

Such an apologue is literally no exaggeration of the facts of English history. The rich did literally turn the poor out of the old guest house on to the road, briefly telling them that it was the road of progress. They did literally force them into factories and the modern wage-slavery, assuring them all the time that this was the only way to wealth and civilization. Just as they had dragged the rustic from the convent food and ale by saying that the streets of heaven were paved with gold, so now they dragged him from the village food and ale by telling him that the streets of London were paved with gold. As he entered the gloomy porch of Puritanism, so he entered the gloomy porch of Industrialism, being told that each of them was the gate of the future. Hitherto he has only gone from prison to prison, nay, into darkening prisons, for Calvinism opened one small window upon heaven. And now he is asked, in the same educated and authoritative tones, to enter another dark porch, at which he has to surrender, into unseen hands, his children, his small possessions and all the habits of his fathers.

Whether this last opening be in truth any more inviting than the old openings of Puritanism and Industrialism can be discussed later. But there can be little doubt, I think, that if some form of Collectivism is imposed upon England it will be imposed, as everything else has been, by an instructed political class upon a people partly apathetic and partly hypnotized. The aristocracy will be as ready to "administer" Collectivism as they were to administer Puritanism or Manchesterism; in some ways such a centralized political power is necessarily attractive to them. It will not be so hard as some innocent Socialists seem to suppose to induce the Honorable Tomnoddy to take over the milk supply as well as the stamp supply - at an increased salary. Mr. Bernard Shaw has remarked that rich men are better than poor men on parish councils because they are free from "financial timidity." Now, the English ruling class is quite free from financial timidity. The Duke of Sussex will be quite ready to be Administrator of Sussex at the same screw. Sir William Harcourt, that typical aristocrat, put it quite correctly. "We" (that is, the aristocracy) "are all Socialists now."

But this is not the essential note on which I desire to end. My main contention is that, whether necessary or not, both Industrialism and Collectivism have been accepted as necessities - not as naked ideals or desires. Nobody liked the Manchester School; it was endured as the only way of producing wealth. Nobody likes the Marxian school; it is endured as the only way of preventing poverty. Nobody's real heart is in the idea of preventing a free man from owning his own farm, or an old woman from cultivating her own garden, any more than anybody's real heart was in the heartless battle of the machines. The purpose of this chapter is sufficiently served in indicating that this proposal also is a pis aller, a desperate second best - like teetotalism. I do not propose to prove here that Socialism is a poison; it is enough if I maintain that it is a medicine and not a wine.

G.K. Chesterton  What's Wrong With The World (1910)



marketblip's picture

There's a lot happening for the Eurozone next week!!

proLiberty's picture

Don't forget that it is official policy of the Federal Reserve Corporation to create however much money it takes to achieve the "targeted rate of inflation" of 2%.  

A Google search with the compound terms "targeted rate of inflation" "federal reserve" returns 19,300 results.  The first on my personalized search was:



Remarks by Governor Laurence H. Meyer

At the University of California at San Diego Economics Roundtable, San Diego, California 

July 17, 2001

Inflation Targets and Inflation Targeting


There is a section where the targets of various central banks are explained, followed by the following statement: "... I would set the inflation target at what I refer to as true price stability plus a small cushion. Specifically, for the CPI, I would set it at 2 percent, 1 percentage point for the measurement error and 1 percentage point for the cushion.16 This would correspond roughly to a 1-1/2 percent inflation rate for the price index for personal consumption expenditures, based on recent differentials of this measure relative to the inflation rate for the CPI. The precise magnitude of the cushion should also be subject to adjustment over time to reflect ongoing research about its optimal size."" Putting aside that deliberate inflation is embezzlement of wealth by dilution of the valule of the currency, what we see documented here is deliberate "co-inflation" by all the major central banks, to mutually inflate at about the same rate.  This is collusion on a world-wide scale to embezzle wealth without setting off the alarms that foreign exchange ratios normally are useful for to third party observers.


ptoemmes's picture

2% - seems so little, so harmless.  I believe the current lie is that inflation is running at 1.4%

A few calcs presented without editorial comment.

Inflation over a presumed working life from 1972-2012 resuited in $1.00 being inflated to $5.48:

At 2% over 40 years, $1.00 will inflate to $2.21:





Hedgetard55's picture

Ben is the "Napoleon of Crime". The Professor Moriarty of financial crimes. May he rot in hell.

AGuy's picture

"The Professor Moriarty of financial crimes"

Hardly! Bernanke is dumb, and the character of Moriarty was a genius, and Napolean was very smart (except that he let his pride and ego get in the way). Bernanke is just the head of the banking mafia with a printing press. There is no strategy, no intelligence, no planning, just lots of printing, kickbacks, and extortion. Bernanke is just a two-bit hood that managed to rise to the top.



max2205's picture

Ben is wrongfully getting credit for a bounce off 667 which was to be a 1100 top and Ben kept it going to 1400 but did anyone think it is just overshoot?! The Fed does nothing but grasp credit when shit looks good.

You never hear from them except excuses when it all goes to crap.

tuttisaluti's picture

The can kick's back now.

matrix2012's picture

"The consequences of printing press money are horrendous. If you could make the world rich by having all the central banks print unlimited money, then we have been making a mistake for the last several thousand years of human history." -- David Stockman, 2012

JohnKing's picture

Money printing cannot make society richer


Yes, we know that but this is not nor has it ever been about society or the "greater good", this is and always will be about making a handful of people rich at the expense of society. I see all these eloquent arguments against QE3, QE3, 4, 5 as nothing but bullshit. Does anyone here really think The Fed has ever acted in the best interest of "society" that they are somehow unschooled about how the scam works?

These are not economic arguements, mere philisophical quandaries, this is outright theft in broad daylight.

SilverNoob's picture

Can we please stop calling fiat, money? Mike Maloney is quite particular on this, and I have to agree. 


Silver and Gold - money

fiat - currency, toilet paper, etc.

Tinky's picture

Nonsense. As the IRS makes clear, gold and silver are mere "collectibles" (with sales profits taxed at a 28% rate).

Pseudolus's picture

Nice humour. Might is right, especially wrt legal tender. But watch the hands, dont read the lips: what Tier is this 'collectible' again...

socalbeach's picture

I would add to the comment in the article,

"Money printing cannot make society richer; it does not produce more real goods. It has a redistributive effect in favor of those who receive the new money first and to the detriment of those who receive it last..."

that QE, by supressing interest rates, also redistributes wealth to those with access to cheap credit. Those would be not just the banks who can borrow at nearly 0%, but those with sufficient income, good credit, and knowledge who can borrow at negative real interest rates to purchase income producing assets.

cxp's picture 

More upside for all EURO crosses as they expect ECB to do the impossible of bond purchases

theprofromdover's picture

Presumably he thinks that eventually the banks will be so healthy and profitable, they will be able to buy back this crapola collateral.

Unfortunately the only way they can reach that state of nirvana, is to increase their charges and accelerate the outright theft from the public. So either way, Ben has decided the taxpayer will foot the bill. Ben, my boy, the banks and the 1% have to be destroyed. Otherwise you will need an army of millions, to keep the rest of us down.


marketblip's picture

I wonder what Merkel's next move will be - September is make or break for the Eurozone!

dcb's picture

belongs on the nytimes editorial section calling for berneneke to do more. I wrote something like thins this am, but of course space limitatioins and not as well written

Scalaris's picture

I don't think that an exit strategy was meant to exist, for this self-imposed fiscal paralysis of a zero-bound accommodation, which some may find ironic, considering Bernanke's studies on the deteriorative Japanese economy.

As the article states, the economy cannot and will not return to its previous state, after the new, post-crisis imposed, normality.

And since quantitative easing's outcomes have already proven their disproportionate effects on a social scale, by accommodating inflating prices for asset owners, and distributing zero-interest funds to certain entities, while impairing lower socioeconomic groups' ability to derive income from savings, while lowering their purchasing power and increasing prices of vital commodities.

Incidentally, money creation did not provide the intended impacts, regarding expansion of credit availability from the banking system, decrease in unemployment numbers, or actuation of investment by side-lined money that expect a more fundamental restructuring of the economy, regarding taxation and employment.

What it did achieve was for the global equity and credit markets to rely solely on central banks' rhetoric, for their speculative positioning for riskless yield, while abolishing all pre-existing, strategic equilibria.

Now, the faintest renegation from Fed, concerning the already established mandate of a promised and indeterminate monetary easing, will be nothing less of a catastrophic impact, causing for a collective retraction of capital allocation, and since nobody expects for such policy to materialize, one has to wonder if a future strategy will be a continuation of the current climate.

And if I was to surmise, I would start wondering why Michael Woodford's theory of Nominal GDP Level Targeting, is gaining so much traction on the mainstream sphere, which despite refuting Bernanke's quantitative easing programs on some level, supports that solidification of the Fed's rhetoric regarding the economic metrics' required for unemployment decrease and GDP targeting, as well as the accommodation required, and which will promptly be provided in order to reach said targets needed, to, allegedly, bring the economy back on track and instil a permanent level of confidence, to the participants.

JR's picture

“It is much easier to establish a zero interest rate policy, the ultimate accessory for a moral hazard economy, than to discard one.”—Peter Warburton, Debt and Delusions, former consultancy with JP Morgan Chase.

Pseudolus's picture

Bagus' Bernanke Rebuttal


sounds like a Vivid production....

JR's picture

James A. Kostohryz, in a series on monetary policy and Weimar’s inflation experience, makes the case that there are very substantial, historically proven limits in terms of how far Bernanke can go with QE “without provoking very high rates of inflation or even hyperinflation.”

And it now appears, on the evidence, we are nearly there.

Writing on Seeking Alpha, Kostohryz documents the pre-inflationary history of Weimar Germany that has been “mirrored by many other nations that have subsequently experienced high inflation or hyperinflation.”

The process of “debt monetization” - sometimes called QE - can reach a critical inflection point in which confidence in the currency is eroded. This loss of confidence can provide the “spark” which can lead to an inflationary spiral. Historically, a key element in this loss of confidence usually involves the central bank purchasing government securities at a rate of interest that is below the actual and expected rate of inflation (i.e. negative real interest rates).

It is at this some point that some members of the public come to understand “that the assets purchased by the central bank with the newly issued currency are not worth the face value of the currency issued in present value terms,” with the realization that the currency they are hoarding is being ‘debased.’

Explains Kostohryz in Fed Primer: Could The U.S. Repeat Weimar's Inflation Experience?: As confidence in the currency is eroded individuals and businesses that had been hoarding cash start to “disgorge” it in anticipation of future price increases… Related to the phenomenon, as interest rates rise, individuals rush en masse to borrow and “lock in” low rates on loans for cars, homes and etc. The loss of confidence in the currency stimulate spending at an accelerated pace as people disgorge hoarded funds. The increase in spending (i.e. monetary velocity) causes aggregate demand to outstrip supplies in key areas of the economy and the “spark” of inflation is ignited.

 “In the case of Weimar Germany, as in the case of other nations,” explains Kostohryz, “a key inflection point came when the German central bank started to purchase government securities - long-term government securities in particular - at negative interest rates. When a central bank does this, it is engaging in a clear and transparent case of ‘debasement’ of the national currency.” 

Kostohryz concluded in his 2011 series: I believe that 2.0% is a line in the sand. Bond purchases at yields below those levels could place the U.S. in a Weimar-type scenario.

Here are the precursors to inflation listed by Kostohryz (with explanations) that “were clearly evident in Weimar Germany”:

Economic contraction and unemployment.

High debt and deficits.

Debt monetization.

Shrinking money multiplier.

Moderate inflation or deflation despite rapid growth of monetary base.

Cash hoarding.