Tuesday, October 13, 2015

Bernanke's Folly, Something We Should Not Buy!

Bernanke  Is Not A Hero
If you want to appear as a hero or saint paint a picture for the world then present it in a book. This is exactly what Ben Bernanke the former Fed Chairman turned author has done in his new book “The Courage to Act: A Memoir of a Crisis and Its Aftermath.” a title he claims refers to policy-makers around the world. As expected Bernanke's creation is an effort to take credit for the best aspects of Fed Policy under his rule while distancing himself from the worst. Bernanke appears to be in the "sweet spot" as he is busy having fun and making money with his lucrative book deal. This victory lap is designed to help galvanize his place in history and in the eyes of the public as the man who got us through these tough economic times.

In an interview on the PBS Newshour, Judy Woodruff, did a softball interview that started off elevating Bernanke from the start when she said, "So, you write in this remarkable book that takes us inside not only your life, inside the Fed, a place we don’t hear about very often, that if you and your colleagues had not acted as you did in 2008, that we could have seen something like 1929 again. Do you really believe that might have happened?" Bernanke was able to hit this easy pitch out of the ballpark by responding, "Well, nobody can know for sure, but, as an academic, I studied the Great Depression. I studied how financial panics affect the economy. And I was very concerned about that, you know, even before Lehman Brothers, even before the financial panic hit its peak."

Yes, he did remind us he was an "academic" and as such reassured us he had all the right answers. Bernanke then followed with the well worn defense that consequences would have been far more dire if he had not acted and paints a rather positive picture of himself while casting the blame for our economic woes onto others. Years ago before the "Bernanke has all the answers" era, I would like to state that Japan faced major criticism for failing to face dealing with its problems. Many people, economist included, thought Japan should own up to the mess it had created and do the right thing. Broadly accepted was the idea that only by letting its zombie banks and industries fail could Japan clean out the system and move forward. Instead the Government of Japan ran huge deficits and built up a massive deficit. For decades Japan has languished and avoided disaster only by the fact that it enjoyed a large trade surplus.

Japan remains the poster child and living proof that low interest rates do not guarantee economic growth and prosperity. While they claim otherwise, in many ways Bernanke and the Fed have put America on a path that mirrors the same unsuccessful path taken by Japan. A path that avoids real reform and bails out the very people that caused many of our problems. Bernanke has upped the ante by setting the bailout and money printing machines on high and flooding America and the world with QE. By selling other central bankers on this solution he has taken the lead in an experiment that is losing traction. Real momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed. What started as a program to support and prop up the economy has morphed into the main driver of economic data and distorted financial markets across the world.

Remember this is the same Fed Chairman that totally missed all the signs of a forming housing bubble in 2006. Bernanke did concede that Fed policy has not cured all our problems concerning issues such as the "too big to fail" when he said, "I wouldn’t say the problem is solved, by any means, but it’s very much under the radar, and it’s being paid attention to and progress is being made there."  He then went on to say "obviously, a lot of the benefit of the growth and recovery has gone to the upper, more upper-income class." He then sidestepped and placed the blame for financial executives not going to jail on the Department of Justice saying the "Fed is not an enforcement agency". With his uncle like appearance and his thoughtful demeanor it seems Bernanke has a way of getting by while saying little, or by simply reassuring us.

Once again we find Bernanke bathing in the spotlight, like a rock-star, a hero, and savior of the world economy. It seems his ego has grown even larger then the quantities of money he added to the Fed's balance sheet. If he was a little more honest, and less arrogant Bernanke would of taken this opportunity to talk about how the Fed policies hurt those that did the right thing and saved. These Americans are now seeing their wealth and savings decimated by inflation. He would have told how the impact of his policies are toxic, and how we are now seeing years of hard work and savings being washed away. Be assured Bernanke will not look back upon the many people that have suffered because of his policies as he is paid to speak at economic forums and give commencement speeches at Ivy League colleges.  We need not worry about the economic future of Ben Bernanke as he is now positioned to revel in all the benefits derived from his stint as a public servant. 

1 comment:

  1. Look at it this way. We should all be glad he's bragging so much in his new book. The timing is perfect because, the more he brags about saving the world from an economic crisis, which the Fed unwittingly engineered in the first place, the more he looks like a boasting fool when it all falls apart, which it started doing in August. The first proof of that came when Janet Yellen said the Fed would continue its ZIRP, and the stock market dropped.

    That was the surest sign you could ask for that the tide was starting to change. For the first time during the ongoing Great Recession, or Great Deformation, news of stimulus caused the market to think something was wrong. It was the market's first eye opening in the morning to an awareness that the Fed cannot end its stimulus or, in the very least, to concern that the recovery is so week that the Fed doesn't trust it to bear up under the headwinds hitting it from other parts of the world.

    The real crash will come when this dawning awareness becomes full realization that this means there really has been no recovery at all -- that the Fed's "recovery" is not (and never has had a chance of becoming) economically sustainable. IF people realize that the recovery was nothing more than a mirage that will dissolve the instant the free money ends, then panic will ensue.


    The Fed's stimulus has reached that extreme part of the curve of diminishing returns where continued stimulus is now proving to have negative results. So, if stimulus ends, the stock market falls apart immediately for lack of free money that was driving the market up; but each month that stimulus CONTINUES will now cause more and more people to fear it cannot ever be ended without a crash.

    So, Bernanke's game is ending just as his book comes out. Perfect timing for him to fall flat on his face. "I saved the economy!" Ooops. What economy? Where did it go?

    --Knave Dave