Tuesday, March 5, 2013

10 Things Bernanke Should Say

Ten things that a truthful Ben Bernanke should say to clarify where our economy is, and where it is going became crystal clear as the Federal Reserve Chairman Ben Bernanke reaffirmed the central bank's commitment to its massive stimulus program recently while testifying before the Senate banking committee. He tamped down speculation of a pullback that spooked stock markets last week and touted the benefits of the Fed's efforts to keep interest rates near zero. The likeable and reassuring media figure engaged us with the idea that he had our back and would lead us forward.

Bernanke stated that sales of homes, autos and other durable goods have rebounded and that has helped reduce unemployment and build household wealth. This in turn has fueled the engine of the economy: consumer spending. He promised that the Fed would keep its easy-money policies in place "as long as needed." But critics of the central bank's policies, including some Fed officials, have warned that years of ultra-low interest rates and the Fed's monthly purchase of billions of dollars in bonds may lead to serious unintended consequences, such as inflation, massive distortion in the value of assets, and bubbles.

Remember this is the same Fed Chairman that totally missed all the signs of a forming housing bubble in 2006. Bathing in the spotlight as a hero and savior of the world economy his ego may have bested him. If he was a little more honest, and a little less arrogant he would of taken the opportunity while he testified to say;

1   Fed policies are hurting those that did the right thing and saved. They are now seeing their wealth and savings erode by inflation. The impact is and will be incredible, we are seeing years of hard work and savings being washed away. How will pension funds be able to pay out as promised billions of dollars when they are earning little or nothing on what they invest.

2   As Chairman of the Federal Reserve he would make it clear his powers are limited, and he can do little more. He has used most of the tools in his toolbox. Current policies are distorting markets and risk blow-back. We are creating an environment where values are being skewed, and manipulated. Low interest rates allows and encourages people to speculate on commodities. True demand no longer is the driver of prices 

3   Bubbles are being formed, values need to make sense, investments that may work at the low interest rates today may become a problem when rates begin to rise, locking your money into any long term investment may become a disaster. Values need to be closely questioned, he would caution people from moving their money into more risky assets.

4   He would have sounded an alarm to continuing a massive government deficit spending policy, and ever larger government, and talked about how this has artificially propped up GDP. At the same time cautioning and urging that we begin to ween ourselves off of this crutch sooner rather then later.

5   He would tell the President and Congress much of the blame for what happens in the future will rest directly upon them. He would hammer them to address the financial crisis forming before us and to reform entitlement spending. He would urge Washington to look at the math and numbers.

6   Bernanke would of pointed at how we have done nothing to reform our tax system, and that we need to simplify our tax system in a revenue neutral way as to cause capital to be invested wiser and promote growth. How ending silly loopholes and lowering corporate rates would bring back jobs from overseas.

7   He would of talked about taking the structural changes necessary for creating jobs in a mature economy and in a world where they are highly valued. He would of talked about how this dovetails with the need for long term sustainable growth and the need for Washington to step up to the plate and fulfill their responsibilities to the country.

8   He would have talked about how devastating a bond market collapse would be, and how "forced" higher interest rates would dramatically change our lives and effect the nations security. How the impact of high government deficits coupled with trade deficits is a recipe for disaster. Economic strength is as important as military strength, and you cannot have the later without the former.

9   The Fed Chairman would of defended the young and unborn who will bear the cost of our sins. The unsustainable transfer of wealth from the younger generations to the baby boomers and older cannot continue to increase. How it will end badly, by promises being broken when the burden become to large.

10 And last but not least Bernanke would of cautioned that not only America, but much of the world is trying to transfer off responsibility through currency manipulation, and that this can escalate into a currency or trade war. All of the above effect the value of the dollar, and without action the future of the dollar as the world's reserve currency is at stake.

Yes, it is a shame he did not say these things. If he had, in effect he would of said what needs to be said. Instead he choose to double down on the bet he has made. Bernanke who has been called a "student of the Great Depression" because of the time he has spent researching the subject, has forgotten that we emerged from the long and hard economic malaise only by entering a World War. Thus he continues taking us down the rabbit hole and on a journey to prove that if we just continue doing what is not working, all will turn out fine. Caution, this path leads down, and down, and down, farther and deeper then most can ever imagine.


  1. Could it be that Central Banks are suppressing interest rates next to 0% not to stimulate their economy but because there Government have defaulted on there capacity to pay market based interest payments on there debts?

    When I buy from a store I have to pay for what I purchase, why is it that they and Investment Banks get money but dont need to pay for it?
    How is this moral? This is nothing but a transfer.

  2. The idea that "Governments have defaulted on there capacity to pay market based interest payments on there debts" is very valid. A post I wrote A while back explores the unholy union of banks and governments. Governments are busy supporting banks that are in turn supporting the very Governments that bailed them out, this is all being paid for as a hidden tax on the people. Nothing moral about this! Below is the link to the post that I titled, The Financial Political Complex,


  3. Why should we reform entitlement spending when poor people didn't cause this mess? Marx warned that the bankers and rich people would blame the poor for their mistakes.

  4. "true demand no longer is the driver of prices". How true is that statement! Gas prices seem to rise in direct relationship to dropping oil prices. Could it be that the monopolization of industries has allowed the giant conglomerates to treat the entire economy as their personal "hedge fund". All the benefits of capitalism (inviting public funding in private enterprise) have been eroded and corrupted to the point that the only reasonable alternative is to pull the plug on the whole system. Sustainability needs to be the foundation of industry, not money.