Ben Bernanke

The mainstream media is attempting once again to draw the public’s opinion towards issues that are ultimately fringe issues that impact a small percentage of us in order to ignore the large-scale major issues that affect all of us.

Yes, you read that correctly. High ranking members of the US Federal Reserve believe that because a one time purchase of an iPad is cheaper, the increase in the daily cost of food and energy is balanced out.

The problem we are going to face at some point as a nation and in fact as a civilization is this: there is no well-developed economic theory inside the corridors of power that will explain to the administrators of a failed system what they should do after the system collapses. This was true in the Eastern bloc in 1991. There was no plan of action, no program of institutional reform. This is true in banking. This is true in politics. This is true in every aspect of the welfare-warfare state. The people at the top are going to be presiding over a complete disaster, and they will not be able to admit to themselves or anybody else that their system is what produced the disaster. So, they will not make fundamental changes. They will not restructure the system, by decentralizing power, and by drastically reducing government spending. They will be forced to decentralize by the collapsed capital markets. The welfare-warfare state, Keynesian economics, and the Council on Foreign Relations are going to suffer major defeats when the economic system finally goes down. The system will go down. It is not clear what will pull the trigger, but it is obvious that the banking system is fragile, and the only thing capable of bailing it out is fiat money. The system is sapping the productivity of the nation, because the Federal Reserve's purchases of debt are siphoning productivity and capital out of the private sector and into those sectors subsidized by the federal government.

• RBA Cuts Rate to 3.25% as Mining-Driven Growth Wanes (Reuters)
• Republicans Not Buying Bernanke’s QE3 Defense (WSJ)
• Spain ready for bailout, Germany signals "wait" (Reuters)
• EU says prop trading and investment banking should be separated from deposit taking (Reuters)
• Call for bank bonuses to be paid in debt (FT)
• Spanish Banks Need More Capital Than Tests Find, Moody’s Says (Bloomberg) ... as we explained on Friday
• "Fiscal cliff" to hit 90% of US families (FT)
• The casualties of Chesapeake's "land grab" across America (Reuters)
• U.K. Government Needs to Do More to Boost Weak Economy, BCC Says (Bloomberg)
• World Bank Sees Long Crisis Effect (WSJ)
• UBS Co-Worker Says He Used Adoboli’s Umbrella Account (Bloomberg)
• And more easing: South Korea central bank switches tack to encourage growth (Reuters)

Ben Bernanke is so desperate to find support regarding his steal from the poor and give to the 0.01% policies he is now telling blatant lies about famous, dead economists that can’t refute what he says.  In this case Milton Friedman.  In his Q&A today, The Bernank claimed:

BERNANKE: MILTON FRIEDMAN WOULD HAVE SUPPORTED WHAT FED DOING

Well I suppose it’s easy to make things up about people that can’t claim otherwise, but he made a big mistake this time.  Why?  Because Anna Schwartz, who co-wrote the famous work “A Monetary History of the United States” with Milton Friedman in 1963, actually came on the record on several occasions calling out The Bernank and saying there’s no way Friedman would agree.  The sad part about this is it seems Bernanke waited until Schwartz died to really start spewing the lies.  This guy is not only dangerous he is despicable and increasingly desperate… Don’t take it from me though, back in October 2008 Anna Schwartz had this to say in the Wall Street Journal.

Factory output has shrunk for 14 consecutive months and businesses must continue to trim the fat of their organizations during these recessionary times. The report showed that 18.2 million people were jobless in September; this is an increase of 34,000 people versus the previous month. As living standards fall and livelihoods are being wretched voter anger is becoming increasingly palpable, especially in countries such as Spain and France. History provides countless lessons as to the political consequences of detached economic policies and their real effects.  Northern Europe’s gamesmanship in rewriting previously agreed banking debt support may set a dangerous precedent and tear apart the tenuous ties of trust between governments - who after all must act together if they are ever to forge a solution to their current economic plight.

It appears that JPM and HSBC's monopoly in the warehousing of tungsten gold is coming to an end. Just two weeks after QEternity was announced, it has become obvious that the only things, literally, that will matter in the future are the ABCDs: Anything Bernanke Can't Destroy. And as a result of a surge in physical purchases, buyers need to store their metal somewhere. Sure enough, one of the the UK's most insolvent banks - Barclays - is more than happy to provide its brand spanking new warehousing services, with the opening of what will be on of Europe's largest PM vaults. From Dow Jones: "Barclays has opened its first precious metals vault in London in a bid to satisfy growing client demand for bullion as a store of value, the bank said Thursday. The vault, which houses gold, silver, platinum, palladium and rhodium and began operating earlier this month, is one of the largest in Europe. While the bank already has extensive trading and clearing capabilities, this is the first time that Barclays has been able to offer its own precious metals storage facility to its customers, having previously relied on third-party storage." Of course, if and when the scramble comes and everyone demands their gold from the vault located in an unknown location, but somewhere in the inner loop of London's M25, Barclays will just say "Ooops." But we will cross that bridge when we get to it.

Readers may know the Chicago Fed best for its president: arguably the greatest dove in the history of central banking, Charles Evans, for whom QEternity is so insufficient, it is just the beginning, and he is already looking forward to QEternity^infinity. In fact, just today he reiterated his support for QE3 for the second time since the program's announcement on Thursday the 13th (a day which will live in infamy), saying the recovery has so far been so "disappointing" (which at least means one can safely ignore all those pundits who claimed over the past 3 years the economy was growing, so roughly 99% of them) that the Fed should do even more. So far so good. But where it gets scary is that just today, the same Fed, which is so sure about the affirmative impact of its actions, asks "what are asset price bubbles" (answer: always and without fail the direct effect of ultra loose monetary policy combined with unleashed animal spirits, but what do we know: we have no Econ PhD), confirming it has no clue what the adverse consequences of monetary policy are. And this is the Fed - one which does not grasp the very simple nature of asset bubbles in a fiat world - that is saying Bernanke should print until he literally runs out of toner cartridge. Why whatever can possibly go wrong?

More bailouts and QE, until Beethoven writes the 10th Symphony.

It is always amazing to observe how people become less risk averse after risk has markedly increased and more risk averse after it has markedly decreased. The stock market is held to be 'safe' after it has risen for many weeks or months, while it is considered 'risky' after it has declined. The bigger the rally, the safer the waters are deemed to be, and the opposite holds for declines. One term that is associated in peoples' minds with rising prices is 'certainty'. For some reason, rising prices are held to indicate a more 'certain' future, which one can look forward to with more 'confidence'. 'Uncertainty' by contrast is associated with downside volatility in stocks. In reality, the future is always uncertain. Most people seem to regard accidental participation in a bull market cycle with as a kind of guarantee of a bright future, when all that really happened is that they got temporarily lucky. Perma-bullish analysts like Laszlo Birinyi or Abby Joseph Cohen can be sure that they will be right 66% of the time by simply staying bullish no matter what happens. This utter disregard of the risk-reward equation can occasionally lead to costly experiences for their followers when the markets decline.

Let’s review the tricks the central banks & governments have available to beat back any financial challenges presented by the debt reaper.

• Money tool # 1 = deficit spending. For years, the G7 countries have believed that spending more than you make, will create jobs and prosperity. To measure the success of this strategy, we invite you to hang out in Spain, Greece or Italy.
• Money tool # 2 = cut interest rates to 0%. All the really smart people in the World know that lower interest rates encourage people and companies to borrow more money and spend this money. To measure the success of this strategy, we invite you to hang out at the US Federal Reserve and help them count the $1.5 trillion in excess money held by the big banks.
• Money tool # 3 = when all else fails print money. Everyone knows by now the reason the Great Depression was great was because no one had the idea to print money to kick start the economy. To measure the success of this strategy, we definitely do not invite you to visit Japan. The Japanese have been printing money for over 10 years and that hasn’t shaken their economy from its funk one bit.

As we enter the always dangerous months of September and October, central bankers and governments just can’t get their heads around the fact that their cherished money tools are not shaking the World. Never one to quit, someone somewhere muttered “we must do something” – and something they did.

One of the most astute financial analysts in the world, Jim Grant, founder of highly respected Grant's Interest Rate Observer, was asked by Maria Bartiromo on CNBC yesterday “how high can gold go”? Grant responded that "there is no telling." 

It appears it is after all not Scott Sumner who 'saved the US economy' by urging the helicopter pilot to create even more money ex nihilo than hitherto. What will save us instead is Apple, or rather, its latest product, the iPhone 5. Who needs Bernanke when this wondrous device stands ready to pull the economy up by its bootstraps? A story has made the rounds lately – propagated by 'economist' (we should use the term loosely…) Michael Feroli at JP Morgan, that sales of the iPhone "could potentially add from one-quarter to one-half of a percentage point to the growth rate of U.S. gross domestic product in the final quarter of the year”. If we were to assume that he is correct, then what this would mainly tell us is how useless a statistic GDP actually is. However, what really takes the cake is a small posting of Krugman's on the same topic entitled “Broken Windows and the iPhone 5”. This view is erroneous – economic laws are not dependent on economic conditions. This is akin to arguing that the laws of nature will cease to be operational on Wednesdays. In Krugman's capable hands, a fallacy becomes a 'theory'.

Curious why nearly 4 years ago to the day Ben Bernanke and Hank Paulson told Ken Lewis to purchase Merrill Lynch "or else" (but to make sure everyone gets paid their bonuses bright and early with no cuts)? It certainly had to do with the stock price and preserving the wealth of the shareholders. It had little to do with making the company viable in the long run, unfortunately, as the just announced news of a massive tsunami of 16,000 imminent terminations at the company confirms. All BofA did then was to take on dead weight at gunpoint, which it now has to shed. It also shows that despite rumors to the contrary the US economy is not getting better, the US financial system is not getting stronger, faith in capital markets is not returning (based on future staffing needs at banks), US tax revenues by the highest earners will go down, and the closed loop that is a procyclical economic move will just get worse as there are fewer service providers providing financial services, in the process taking out less consumer debt to keep the GDP "growing." What will also happen by January 1, 2013 is that BofA will no longer be America's largest employer, with the total headcount of 260,000 at year end being the lowest since 2008, and smaller than JPM, Citi and Wells.