Federal Reserve Chairman Ben Bernanke said this week that inflation in the United States needs to be higher. Yes, he actually came right out and said that. It almost seems as if Bernanke is trying to purposely hurt the middle class. On Wednesday, Bernanke told the press that “both sides of our mandate are saying we need to be more accommodative“. Of course he was referring to the Fed’s dual mandate to keep unemployment and inflation low, but Bernanke has a very unique interpretation of that mandate. According to Bernanke, inflation in the U.S. is now “too low“. The official inflation rate is currently sitting at about 1 percent, and Bernanke insists that such a low rate of inflation is not good for the economy. He would prefer that the rate of inflation be up around 2 percent, and he is hoping that more “monetary accommodation” will help push inflation up and the unemployment rate down.
But what Bernanke will never admit is that the official inflation rate is a total sham. The way that inflation is calculated has changed more than 20 times since 1978, and each time it has been changed the goal has been to make it appear to be lower than it actually is.
If the rate of inflation was still calculated the way that it was back in 1980, it would be about 8 percent right now and everyone would be screaming about the fact that inflation is way too high.
But instead, Bernanke can get away with claiming that inflation is “too low” because the official government numbers back him up.
Of course many of us already know that inflation is out of control without even looking at any numbers. We are spending a lot more on the things that we buy on a regular basis than we used to.
For example, when Barack Obama first entered the White House, the average price of a gallon of gasoline was $1.84. Today, the average price of a gallon of gasoline has nearly doubled. It is currently sitting at $3.49, but when I filled up my vehicle yesterday I paid nearly $4.00 a gallon.
And of course the price of gasoline influences the price of almost every product in the entire country, since almost everything that we buy has to be transported in some manner.
But that is just one example.
Our monthly bills also seem to keep growing at a very brisk pace.
Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row, and according to USA Today water bills have actually tripled over the past 12 years in some areas of the country.
No inflation there, eh?
Well, what about health insurance?
Yup, that has been going up rapidly as well. Since 2010, employee health insurance premiums have been rising an average of between 8 and 9 percent a year.
So where is this low inflation that everyone has been talking about?
It certainly cannot be found in college tuition costs. Since 1986, the cost of college tuition in the United States has risen by 498 percent.
What about at the supermarket?
We all have to buy food. It sure would be nice if inflation was low there.
Unfortunately, anyone that shops for groceries on a regular basis knows exactly how painful food prices are becoming.
And over time, those increases really add up. An article by Benny Johnson details how the prices of many of the things that we buy on a regular basis absolutely soared between 2002 and 2012. Just check out these price increases…
Peanut Butter: 40%
A Loaf Of White Bread: 39%
Spaghetti And Macaroni: 44%
Orange Juice: 46%
Red Delicious Apples: 43%
Ground Beef: 61%
Chocolate Chip Cookies: 39%
So how in the world can Bernanke possibly come to the conclusion that inflation is too low?
Is he insane?
If you want to see a really good example of the impact that inflation has had on our economy in recent years, just check out this amazing chart which shows what Bernanke’s reckless policies have done to the prices of commodities during his tenure.
Meanwhile, paychecks are not rising at the same pace that inflation is. In fact, median household income in the United States has fallen for four years in a row. Overall, it has declined by over $4000 during that time span.
So the cost of living just keeps rising, but the middle class is making less money than before.
His answer to every economic problem always seems to involve printing more money. Thankfully, about 1.8 trillion dollars of that money is being stashed away at the Fed and has not gotten out into the real economy yet.
But someday that money will be unleashed on the real economy, and it will create crippling inflation.
Unfortunately, Bernanke doesn’t seem to really be too concerned about the mountains of cash that the big banks have parked at the Fed. He is just happy that his reckless money printing has pumped up the stock market to new all-time highs.
He should enjoy this little period of euphoria while he can, because this bubble will burst like all false financial bubbles eventually do.
And when this bubble bursts, the foolishness of Bernanke and the Federal Reserve will be glaringly apparent to everyone.
U.S. financial markets are exhibiting the classic behavior patterns of an addict. Just a hint that the Fed may start slowing down the flow of the “juice” was all that it took to cause the financial markets to throw an epic temper tantrum on Wednesday. In fact, one CNN article stated that the markets “freaked out” when Federal Reserve Chairman Ben Bernanke suggested that the Fed would eventually start tapering the bond buying program if the economy improves. And please note that Bernanke did not announce that the money printing would actually slow down any time soon. He just said that it may be “appropriate to moderate the pace of purchases later this year” if the economy is looking good. For now, the Fed is going to continue wildly printing money and injecting it into the financial markets. So nothing has actually changed yet. But just the suggestion that this round of quantitative easing would eventually end if the economy improves was enough to severely rattle Wall Street on Wednesday. U.S. financial markets have become completely and totally addicted to easy money, and nobody is quite sure what is going to happen when the Fed takes the “smack” away. When that day comes, will the largest bond bubble in the history of the world burst? Will interest rates rise dramatically? Will it throw the U.S. economy into another deep recession?
Judging by what happened on Wednesday, the end of Fed bond buying is not going to go well. Just check out the carnage that we witnessed…
-The Dow dropped by 206 points on Wednesday.
-The yield on 10 year U.S. Treasuries shot up substantially, and it is now the highest that it has been since March 2012.
-On Wednesday we witnessed the largest percentage rise in the yield on 5 year U.S. Treasury bonds ever. It is now the highest that it has been in nearly two years.
-We also learned that the MBS mortgage refinance applications index has fallen by 38 percent over the past six weeks.
If the markets react like this when the Fed doesn’t even do anything, what are they going to do when the Fed actually starts cutting back the monetary injections?
Posted below is an excerpt from the statement that the Fed released on Wednesday. Please note that the Fed is saying that the current quantitative easing program is going to continue at the same pace for right now…
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
So why doesn’t the Federal Reserve just stop these emergency measures right now?
After all, we are supposed to be in the midst of an “economic recovery”, right?
What is Bernanke afraid of?
That is a question that Rick Santelli of CNBC asked on Wednesday. If you have not seen his epic rant yet, you should definitely check it out…
On days like this, it is easy to see who has the most influence over the U.S. economy. The financial world literally hangs on every word that comes out of the mouth of Federal Reserve Chairman Ben Bernanke. The same cannot be said about Barack Obama or anyone else.
The central planners over at the Federal Reserve are at the very heart of what is wrong with our economy and our financial system. If you doubt this, please see this article: “11 Reasons Why The Federal Reserve Should Be Abolished“. Bernanke knows that the actions that the Fed has taken in recent years have grossly distorted our financial system, and he is concerned about what is going to happen when the Fed starts removing those emergency measures.
Unfortunately, we can’t send the U.S. financial system off to rehab at a clinic somewhere. The entire world is going to watch as our financial markets go through withdrawal.
The Fed has purposely inflated a massive financial bubble, and now it is trying to figure out what to do about it. Can the Fed fix this mess without it totally blowing up?
Unfortunately, most severe addictions never end well. In a recent article, Charles Hugh Smith described the predicament that the Fed is currently facing quite eloquently…
One of the enduring analogies of the Federal Reserve’s quantitative easing (QE) program is that the stock market is now addicted to this constant injection of free money. The aptness of this analogy has never been more apparent than now, as the market plummets on the mere rumor that the Fed will cut back its monthly injection of financial smack. (The analogy typically refers to crack cocaine, due to the state of delusional euphoria QE induces in the stock market. But the zombified state of the heroin addict is arguably the more accurate analogy of the U.S. stock market.)
You know the key self-delusion of all addiction: “I can stop any time I want.” This eerily echoes the language of Fed Chairman Ben Bernanke, who routinely declares he can stop QE any time he chooses.
But Ben, the pusher of QE money, knows his addict–the stock market–will die if the smack is cut back too abruptly. Like all pushers, Ben has his own delusion: that he can actually control the addiction he has nurtured.
You’re dreaming, Ben–your pushing QE has backed you into a corner. The addict (the stock market) is now so dependent and fragile that the slightest decrease in QE smack will send it to the emergency room, and quite possibly the morgue.
We are rapidly approaching a turning point. We have a massively inflated stock market bubble, a massively inflated bond bubble, and a financial system that is absolutely addicted to easy money.
The Fed is desperately hoping that it can find a way to engineer some sort of a soft landing.
The Fed is desperately hoping to avoid a repeat of the financial crisis of 2008.
Federal Reserve Chairman Ben Bernanke insists that he knows how to handle things this time.
Federal Reserve Chairman Ben Bernanke is on the way out the door, but the consequences of the bond bubble that he has helped to create will stay with us for a very, very long time. During Bernanke’s tenure, interest rates on U.S. Treasuries have fallen to record lows. This has enabled the U.S. government to pile up an extraordinary amount of debt. During his tenure we have also seen mortgage rates fall to record lows. All of this has helped to spur economic activity in the short-term, but what happens when interest rates start going back to normal? If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will suddenly be paying out a trillion dollars a year just in interest on the national debt. And remember, there have been times in the past when the average rate of interest on U.S. government debt has been much higher than that. In addition, when the U.S. government starts having to pay more to borrow money so will everyone else. What will that do to home sales and car sales? And of course we all remember what happened to adjustable rate mortgages when interest rates started to rise just prior to the last recession. We have gotten ourselves into a position where the U.S. economy simply cannot afford for interest rates to go up. We have become addicted to the cheap money made available by a grossly distorted financial system, and we have Ben Bernanke to thank for that. The Federal Reserve is at the very heart of the economic problems that we are facing in America, and this time is certainly no exception.
This week Barack Obama publicly praised Ben Bernanke and stated that Bernanke has “already stayed a lot longer than he wanted” as Chairman of the Federal Reserve. Bernanke’s term ends on January 31st, but many observers believe that he could leave even sooner than that. Bernanke appears to be tired of the job and eager to move on.
So who would replace him? Well, the mainstream media is making it sound like the appointment of Janet Yellen is already a forgone conclusion. She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is good for an economy. It seems likely that she would continue to take us down the path that Bernanke has taken us.
But is it a fundamentally sound path? Keeping interest rates pressed to the floor and wildly printing money may be producing some positive results in the short-term, but the crazy bubble that this is creating will burst at some point. In fact, the director of financial stability for the Bank of England, Andy Haldane, recently admitted that the central bankers have “intentionally blown the biggest government bond bubble in history” and he warned about what might happen once it ends…
“If I were to single out what for me would be biggest risk to global financial stability right now it would be a disorderly reversion in the yields of government bonds globally.” he said. There had been “shades of that” in recent weeks as government bond yields have edged higher amid talk that central banks, particularly the US Federal Reserve, will start to reduce its stimulus.
“Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history,” Haldane said. “We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.”
Posted below is a chart that demonstrates how interest rates on 10-year U.S. Treasury bonds have fallen over the last several decades. This has helped to fuel the false prosperity that we have been enjoying, but there is no way that the U.S. government should have been able to borrow money so cheaply. This bubble that we are living in now is setting the stage for a very, very painful adjustment…
Ten-year Treasury notes have been kicked down from their historic pedestal last July when some poor souls, blinded by the Fed’s halo of omnipotence and benevolence, bought them at a minuscule yield of 1.3%. For them, it’s been an ice-cold shower ever since. As Treasuries dropped, yields meandered upward in fits and starts. After a five-week jump from 1.88% in early May, they hit 2.29% on Tuesday last week – they’ve retreated to 2.19% since then. Now investors are wondering out loud what would happen if ten-year Treasury yields were to return to more normal levels of 4% or even 5%, dragging other long-term interest rates with them. They know what would happen: carnage!
And according to Richter, there are already signs that the bond bubble is beginning to burst…
Wholesale dumping of Treasuries by exasperated foreigners has already commenced. Private foreigners dumped $30.8 billion in Treasuries in April, an all-time record. Official holders got rid of $23.7 billion in long-term Treasury debt, the highest since November 2008, and $30.1 billion in short-term debt. Sell, sell, sell!
Bond fund redemptions spoke of fear and loathing: in the week ended June 12, investors yanked $14.5 billion out of Treasury bond funds, the second highest ever, beating the prior second-highest-ever outflow of $12.5 billion of the week before. They were inferior only to the October 2008 massacre as chaos descended upon financial markets. $27 billion in two weeks!
In lockstep, average 30-year fixed-rate mortgage rates jumped from 3.59% in early May to 4.15% last week. The mortgage refinancing bubble, by which banks have creamed off billions in fees, is imploding – the index has plunged 36% since early May.
If interest rates start to climb significantly, that will have a dramatic affect on economic activity in the United States.
And we have seen this pattern before.
As Robert Wenzel noted in a recent article on the Economic Policy Journal, we saw interest rates rise suddenly just prior to the October 1987 stock market crash, and we also saw them rise substantially prior to the financial crisis of 2008…
As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10 year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash.
As Federal Reserve chairman Alan Greenspan left the Fed chairmanship at the end of January 2006, the interest rate on the 10 year note climbed from 4.35% to 4.65%. It then climbed above 5%.
So keep a close eye on interest rates in the months ahead. If they start to rise significantly, that will be a red flag.
And it makes perfect sense why Bernanke is looking to hand over the reins of the Fed at this point. He can probably sense the carnage that is coming and he wants to get out of Dodge while he still can.
Federal Reserve Chairman Ben Bernanke has done it. He has succeeded in creating a new housing bubble. By driving mortgage rates down to the lowest level in 100 years and recklessly printing money with wild abandon, Bernanke has been able to get housing prices to rebound a bit. In fact, in some of the more prosperous areas of the country you would be tempted to think that it is 2005 all over again. If you can believe it, in some areas of the country builders are actually holding lotteries to see who will get the chance to buy their homes. Wow – that sounds great, right? Unfortunately, this “housing recovery” is not based on solid economic fundamentals. As you will see below, this is a recovery that is being led by investors. They are paying cash for cheap properties that they believe will appreciate rapidly in the coming years. Meanwhile, the homeownership rate in the United States continues to decline. It is now the lowest that it has been since 1995. There are a couple of reasons for this. Number one, there has not been a jobs recovery in the United States. The percentage of working age Americans with a job has not rebounded at all and is still about the exact same place where it was at the end of the last recession. Secondly, crippling levels of student loan debt continue to drive down the percentage of young people that are buying homes. So no, this is not a real housing recovery. It is an investor-led recovery that is mostly limited to the more prosperous areas of the country. For example, the median sale price of a home in Washington D.C. just hit a new all-time record high. But this bubble will not last, and when this new housing bubble does burst, will it end as badly as the last one did?
Federal Reserve Chairman Ben Bernanke has stated over and over that one of his main goals is to “support the housing market” (i.e. get housing prices to go up). It took a while, but it looks like he is finally getting his wish. According to USA Today, U.S. home prices have been rising at the fastest rate in nearly seven years…
U.S. home prices in the USA’s 20 biggest cities rose 9.3% in the 12 months ending in February. It was the biggest annual growth rates in almost seven years, a closely watched housing index out Tuesday said.
In particular, home prices have been rising most rapidly in cities that experienced a boom during the last housing bubble…
Year over year, Phoenix continued to stand out with a gain of 23%, followed by San Francisco at almost 19% and Las Vegas at nearly 18%, the S&P/Case-Shiller index showed. Most of the cities seeing the biggest gains also fell hardest during the crash.
But is this really a reason for celebration? Instead of addressing the fundamental problems in our economy that caused the last housing crash, Bernanke has been seemingly obsessed with reinflating the housing bubble. As a recent article by Edward Pinto explained, the housing market is being greatly manipulated by the government and by the Fed…
While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world’s largest buyer of new mortgage debt.
Thus, with real incomes essentially stagnant, this is a market recovery largely driven by low interest rates and plentiful government financing. This is eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover. Creating over a trillion dollars in additional home value out of thin air does sound like a variant of dropping money out of helicopters.
And the Obama administration has been pushing very hard to get lenders to give mortgages to those with “weaker credit”. In other words, the government is once again trying to get the banks to give home loans to people that cannot afford them. The following is from the Washington Post…
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
We are repeating so many of the same mistakes that we made the last time.
But surely things will turn out differently this time, right?
I wouldn’t count on it.
Right now, an increasingly large percentage of homes are being purchased as investments. The following is from a recent Washington Times article…
Much of the pickup in sales and prices has been powered by investors who, convinced that the market is bottoming, are scooping up bountiful supplies of distressed and foreclosed properties at bargain prices and often paying with cash.
With investors targeting lower-priced homes that they intend to purchase and rent out, they have been crowding out many first-time buyers who are having difficulty getting mortgage loans and are at a disadvantage when competing with well-heeled buyers. Cash sales to investors now account for about one-third of all home sales, according to the National Association of Realtors.
And as we have seen in the past, an investor-led boom can turn into an investor-led bust very rapidly.
If this truly was a real housing recovery, the percentage of Americans that own a home would be going up.
Instead, it is going down.
As I mentioned above, the U.S. Census Bureau is reporting that the homeownership rate in the United States is now the lowest that it has been since 1995.
For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.
The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.
“These are the people you’d expect to buy big houses,” said student loan expert Heather Jarvis. “They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already.”
And the truth is that there simply are not enough good jobs in this country to support a housing recovery. In a previous article, I used the government’s own statistics to prove that there has not been a jobs recovery. If we were having a jobs recovery, the percentage of working age Americans with a job would be going up. Sadly, that is not happening…
And as I mentioned above, the “housing recovery” is mostly happening in the prosperous areas of the country.
In other areas of the United States, the devastating results of the last housing crash are still clearly apparent.
And all over the nation there are still “ghost towns” that were created when builders abruptly abandoned housing developments during the last recession. You can see some pictures of some of these ghost towns right here.
So the truth is that this is an isolated housing recovery that is being led by investors and that is being fueled by very reckless behavior by the Federal Reserve. It is not based on economic reality whatsoever.
In the end, will the collapse of this new housing bubble be as bad as the collapse of the last one was?
Please feel free to post a comment with your thoughts below…
You can’t accuse Federal Reserve Chairman Ben Bernanke of not living up to his nickname. Back in 2002, Bernanke delivered a speech entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here” in which he referenced a statement by economist Milton Friedman about fighting deflation by dropping money from a helicopter. Well, it might be time for a new nickname for Bernanke because what he did today was a lot more than drop money from a helicopter. Today the Federal Reserve announced that QE3 will begin on Friday, but it is going to be much different from QE1 and QE2. Both of those rounds of quantitative easing were of limited duration. This time, the quantitative easing is going to be open-ended. The Fed is going to buy 40 billion dollars worth of mortgage-backed securities per month until they have decided that the economy is in good enough shape to stop. For those that get confused by terms like “quantitative easing” and “mortgage-backed securities”, what the Federal Reserve is essentially saying is this: “We’re going to print a bunch of money and buy stuff for as long as we feel it is necessary.” In addition, the Federal Reserve has promised to keep interest rates at ultra-low levels all the way through mid-2015. The course that the Federal Reserve has set us on is utter insanity. Ben Bernanke can rain money down on us all he wants, but it is not going to do much at all to help the real economy. However, it will definitely hasten the destruction of the U.S. dollar.
And the Federal Reserve is apparently very eager to get QE3 going. Purchases of mortgage-backed securities are going to start on Friday.
In the coming months, hundreds of billions of dollars that the Federal Reserve has zapped into existence out of nothing will be injected into our financial system.
So what will happen to all of this new money?
If banks and financial institutions use that money to make loans then it could have somewhat of a positive impact on the economy in the short-term.
However, the truth is that it isn’t as if banks are hurting for cash to loan out. In fact, right now banks are already sitting on $1.6 trillion in excess reserves. Just like with the first two rounds of quantitative easing, a lot of the money from QE3 will likely end up being put on the shelf.
But the stock market loved the news because they know that the previous two rounds of quantitative easing have been great for the financial markets. On Thursday, the stock market soared to levels not seen since December 2007.
There is much rejoicing on Wall Street right now.
And this stock market bounce is great for Bernanke’s good buddy Barack Obama.
Obama nominated Bernanke to a second term as Fed Chairman, and this might be Bernanke’s way of paying him back.
But of course the Fed is supposed to be “above politics” so that would never happen, right?
The Federal Reserve essentially “crossed the Rubicon” today. No longer will quantitative easing be considered an “emergency measure”. Rather, it will now be considered just another “tool” that the Fed uses in the normal course of business.
Considering how vulnerable the U.S. dollar already is, announcing an “open-ended” round of quantitative easing is utter foolishness. According to the Fed, when you add the 40 billion dollars of new mortgage-backed security purchases per month to all of the other “easing” measures the Fed is continuing to do, the grand total is going to come to about 85 billion dollars a month. The following is from the statement that the Fed released earlier today….
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
The Fed also promised to keep interest rates at “exceptionally low levels” until mid-2015….
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
It seems that whenever the U.S. economy gets into trouble, Bernanke and his friends at the Fed only have one prescription and it goes something like this….
“Print more money and promise to keep interest rates near zero even longer.”
Of course a lot of Republicans are quite disturbed that QE3 was announced with just a couple of months remaining in a very heated election battle.
Even big news organizations such as CNBC are commenting on this….
Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.
And without a doubt the mainstream media will be proclaiming this to be “good news” for the economy in the short-term.
But is QE3 really going to help the average person on the street?
Well, first let’s take a look at employment. We are told that one of the primary reasons for QE3 is jobs.
But did QE1 and QE2 create jobs?
The answer is clearly no.
As you can see from the chart below, the percentage of working age Americans with a job fell dramatically during the last recession and has not bounced back since that time despite all of the quantitative easing that has been done already….
So why try the same thing again when it did not work the first two times?
But what more quantitative easing is likely to do is to pump up stock market values because a lot of the money from QE3 is going to end up being put into stocks and other investments.
This is going to help the wealthy get even wealthier, and it is going to make the “wealth gap” between the rich and the poor even larger in America.
QE3 is also probably going to cause commodity prices to rise just like QE1 and QE2 did.
That means that you will be paying more for gasoline, food and other basic necessities.
So there may not be more jobs, but at least you will get the privilege of paying more for things.
The inflation that QE3 will cause will be particularly cruel for those on fixed incomes such as retirees.
None of the extra money from QE3 is going to go into their pockets, but they will have to pay more to heat their homes and fill up their shopping carts.
And the “exceptionally low interest rate” policy of the Federal Reserve is absolutely devastating for those that have saved for retirement and that are relying on interest income for their living expenses.
In short, quantitative easing is very good for the wealthy and it is very bad for the average man and woman on the street.
Perhaps the biggest danger from QE3 is that it could greatly hasten the day when the U.S. dollar ceases to be the reserve currency of the world.
The rest of the world is not stupid. They see that the Federal Reserve is now firing up the printing presses whenever they feel like it. They can see the games that we are playing with our currency.
Why should the rest of the world continue to use the U.S. dollar to trade with one another when the United States is constantly debasing it and playing games with its value?
As I wrote about the other day, China and Russia have been calling for a new reserve currency for the world for several years. They have been leading the charge to conduct international trade in currencies other than the U.S. dollar, and I have documented many of the major international agreements to move away from the U.S. dollar that have been made in the last couple of years.
The status of the U.S. dollar in the world has already been steadily slipping, and now Helicopter Ben Bernanke pulls this kind of nonsense.
We are handing the rest of the world an excuse to abandon the U.S. dollar on a silver platter.
And when the rest of the globe rejects the U.S. dollar as a reserve currency, the dollar will crash, the cost of living will increase dramatically, our standard of living will go way down and we will never fully recover from it.
So if you think that things are “bad” now, just wait until that happens.
The U.S. dollar is one of the best things that the U.S. economy still has going for it, and Helicopter Ben Bernanke is doing his best to absolutely destroy that.
What is your opinion of QE3? Please feel free to post a comment with your thoughts below….
The Federal Reserve says that everything is going to be okay. The Fed says that unemployment is going to go down, inflation is going to remain low and economic growth is going to steadily increase. Do you believe them this time? As you will see later in this article, Federal Reserve Chairman Ben Bernanke has been dead wrong about the economy over and over again. But the mainstream media and many Americans still seem to have a lot of faith in the Federal Reserve. It doesn’t seem to matter that Bernanke and other Fed officials have been telling the American people lies for years. As I always say, most people believe what they want to believe, and many people seem to want to have blind faith in the Federal Reserve even when logic and reason would dictate otherwise. The truth is that things are not going to be getting much better than they are right now. When the next wave of the financial crisis hits, the U.S. economy is going to fall back into recession, financial markets are going to crash and unemployment is going to absolutely skyrocket. But you will never hear any of that from the Federal Reserve.
The following are 5 new lies that the Federal Reserve is telling the American people. After each lie I have posted what The Economic Collapse Blog thinks is actually going to happen….
#1 The Federal Reserve says that the labor market has improved and that unemployment is going to decline significantly over the next few years.
The following is a quote from the FOMC press release that was released on Wednesday….
Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated.
The Federal Reserve is projecting that the unemployment rate will fall within the range of 7.8 percent and 8.0 percent by the end of 2012.
The Federal Reserve is also projecting that the unemployment rate will fall within the range of 6.7 percent and 7.4 percent by the end of 2014.
The Economic Collapse Blog says that the labor market has not improved. In March 2010, 58.5 percent of all working age Americans had a job. Exactly two years later in March 2012, 58.5 percent of all working age Americans had a job. If the labor market was improving, the percentage of working age Americans with a job should have gone up.
The Economic Collapse Blog also says that while there is a chance the official unemployment rate may go down slightly in the short-term, the truth is that it is going to go up into double digits once the next wave of the financial crisis hits us.
#2 The Federal Reserve says that that U.S. economy is going to experience solid GDP growth over the next couple of years.
In fact, the Federal Reserve is projecting that U.S. GDP will be rising at an annual rate that falls between 3.1 percent and 3.6 percent by the end of 2014.
The Economic Collapse Blog says that a great economic cataclysm is coming….
“When the European banking system crashes (and it will) it is going to reverberate around the globe. The epicenter of the next great financial crisis is going to be in Europe, and it is getting closer with each passing day.”
#3 The Federal Reserve says that we can expect low inflation for an extended period of time.
The Federal Reserve is officially projecting that the annual rate of inflation will not be higher than 2.0 percent by the end of 2012. Federal Reserve Chairman Ben Bernanke reinforced this projection during his press conference on Wednesday….
“But we expect that to pass through the system, and assuming no new shocks in the oil sector, inflation ought to moderate to about 2 percent later this year.”
The Economic Collapse Blog says that the Fed is being tremendously dishonest and that if inflation was measured the exact same way that it was measured back in 1980, the annual rate of inflation would be more than 10 percent right now.
The truth is that most middle class families know that we do not have low inflation right now. This is hammered home millions of times a day when average Americans visit the gas station or the grocery store.
At the beginning of the next recession inflation will likely subside, but that will only be because economic activity will be slowing down dramatically.
#4 The Federal Reserve says that it has built up a 30 year reputation for keeping inflation low.
Ben Bernanke actually had the gall to make the following claim during his press conference on Wednesday….
“We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable in that we’ve been able to take strong accommodative actions in the last four, five years to support the economy.”
The Economic Collapse Blog says that the Federal Reserve has nearly a 100 year reputation for destroying the value of the U.S. dollar. Even using the Fed’s doctored numbers, the value of the U.S. dollar has declined by more than 95 percent since 1913.
To get a really good idea of just how much the dollar has been destroyed by the Fed over the years, just check out this chart.
#5 Federal Reserve Chairman Ben Bernanke says that we should trust him because the Federal Reserve stands ready to do whatever is necessary to support the U.S. economy.
“If appropriate… we remain entirely prepared to take additional action”
The Economic Collapse Blog says that Federal Reserve Chairman Ben Bernanke is doing a great disservice by not warning the American people about the tremendous crisis that is coming. In a recent article I stated that this next crisis will blindside most Americans just like the last one did….
“Sadly, just like back in 2008, most people will never even see this next crisis coming.”
So who should you trust – the Federal Reserve or all of the half-crazed bloggers out there that are warning about the “serious doom” that is coming.
Well, come back to this article in a year or two and compare how accurate the predictions were.
In the end, time will tell who is telling lies and who is not.
If we do not learn from history, we are doomed to repeat it.
For example, let’s take a quick look at Ben Bernanke’s track record over the past several years.
#1 (July, 2005) “We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”
#2 (October 20, 2005) “House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.”
#3 (November 15, 2005) “With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.”
#4 (February 15, 2006) “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
#5 (February 15, 2007) “Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.”
#6 (March 28, 2007) “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
#7 (May 17, 2007) “All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.”
#8 (January 10, 2008) “The Federal Reserve is not currently forecasting a recession.”
#9 (June 10, 2008) “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”
But don’t worry, Ben Bernanke insists that he knows exactly what is going on this time.
We have been living in the greatest debt bubble in the history of the world and that debt bubble has been facilitated by the Fed.
Over the past three decades, the total amount of debt in America has increased by about 50 trillion dollars. By stealing from future generations, we have been able to live like kings and queens, but there is going to be a great price to pay for our foolishness.
Ben Bernanke and the other folks running the Federal Reserve are just going to keep insisting that everything is going to be okay for as long as they possibly can. They are going to tell you that they know exactly how to fix things and that the economy will be back on track very soon.
Ben Bernanke has decided that he needs to teach all of us why the Federal Reserve is good for America and about why the gold standard is bad. On Tuesday, Bernanke delivered the first of four planned lectures to a group of students at George Washington University. But that lecture was not just for the benefit of those students. Officials at the Fed have long planned for this lecture series to be an opportunity for Bernanke to “educate” the American people about the Federal Reserve. The classroom was absolutely packed with reporters and just about every major news organization is running a story about this first lecture. So the Federal Reserve is definitely getting the publicity that it was hoping for. You can see the slides from the presentation that Bernanke gave to the students right here. It is pretty obvious that one of the primary goals of this first lecture was to attack those that have been critical of the Fed over the past few years. In doing so, Bernanke “stretched” the truth on more than one occasion.
The entire event was staged to make Bernanke and the Federal Reserve look as good as possible. Prior to his arrival, the students gathered for the lecture were actually instructed to applaud Bernanke….
The 30 undergraduates at George Washington University sent up a round of applause. It was, they’d been told beforehand, “appropriate, even encouraged, to politely applaud” Tuesday’s guest lecturer.
But as noted above, this lecture was not for the benefit of those students. A USA Today article even admitted that “addressing the public directly” was one of the real goals of this lecture….
For Bernanke, the GW lectures serve a dual function:
They give him a chance to reprise the role of professor he played for more than two decades, first at Stanford and then at Princeton, where he eventually chaired the economics department.
And they give him a way to expand his mission of demystifying the Fed. As part of that campaign, Bernanke became the first Fed chief to hold regular news conferences and conduct town-hall meetings.
In addressing the public directly, Bernanke has also sought to neutralize attacks on the Fed, some of them from Republican presidential candidates.
So what did Bernanke actually say during the lecture?
Well, you can read all of the slides right here, but the following are some of the highlights….
On page 6 of the presentation, Bernanke makes the following claim….
“A central bank is not an ordinary commercial bank, but a government agency.”
Well, that is quite interesting considering the fact that the Federal Reserve has argued in court that the Federal Reserve Bank of New York is not an agency of the federal government and that the various Federal Reserve banks around the country are private corporations with private funding.
So did the Federal Reserve lie to the court or is Ben Bernanke lying to us?
And what other “agency” of the federal government is owned by private banks?
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
The Federal Reserve always talks about how it must be “independent” and “above politics”, but when they start getting criticized they always want to seek shelter under the wing of the federal government.
It really is disgusting.
On page 7 of the presentation, the following statement is made….
“All central banks strive for low and stable inflation; most also try to promote stable growth in output and employment.”
Right now, if inflation was measured the same way that it was back in 1980, the annual rate of inflation would be more than 10 percent.
And when you take a longer view of things, the inflation that the Federal Reserve has manufactured has been absolutely horrific.
Even using the doctored inflation numbers that the Federal Reserve gives us, the U.S. dollar has still lost 83 percent of its value since 1970.
The truth is that inflation is a “hidden tax” that is constantly destroying the value of every single dollar that you and I hold. Those that attempt to save money for the future or for retirement are deeply penalized under such a system.
As far as employment goes, the total number of workers that are “officially” unemployed in the United States is larger than the entire population of Portugal.
The average duration of unemployment is hovering near an all-time record high and almost every measure of government dependence is at an all-time record high.
So the Federal Reserve is failing at the exact things that Bernanke claims that it is supposed to be doing.
But instead of directly addressing many of the specific criticisms that have been leveled at the Fed, Bernanke instead chose to spend much of his lecture talking about the problems with adopting a gold standard. The following are statements that were pulled directly off of the slides he used during his speech….
-“The gold standard sets the money supply and price level generally with limited central bank intervention.”
-“The strength of a gold standard is its greatest weakness too: Because the money supply is determined by the supply of gold, it cannot be adjusted in response to changing economic conditions.”
-“All countries on the gold standard are forced to maintain fixed exchange rates. As a result, the effects of bad policies in one country can be transmitted to other countries if both are on the gold standard.”
-“If not perfectly credible, a gold standard is subject to speculative attack and ultimate collapse as people try to exchange paper money for gold.”
-“The gold standard did not prevent frequent financial panics.”
-“Although the gold standard promoted price stability over the very long run, over the medium run it sometimes caused periods of inflation and deflation.”
-“In the second half of the 19th century, a global shortage of gold reduced the U.S. money supply and caused deflation (falling prices). Farmers were squeezed between declining prices for crops and the fixed dollar payments for their mortgages and other debts.”
Bernanke spent more time on the gold standard during his speech than on anything else. At one point during the lecture, Bernanke made the following statement….
“To have a gold standard, you have to go to South Africa or someplace and dig up tons of gold and move it to New York and put it in the basement of the Federal Reserve Bank of New York and that’s a lot of effort and work”
Bernanke even blamed the gold standard for the Great Depression. On a slide entitled “Monetary Policy in the Great Depression”, Bernanke made the following claims….
•The Fed’s tight monetary policy led to sharply falling prices and steep declines in output and employment.
•The effects of policy errors here and abroad were transmitted globally through the gold standard.
•The Fed kept money tight in part because it wanted to preserve the gold standard. When FDR abandoned the gold standard in 1933, monetary policy became less tight and deflation stopped.
Bernanke seems to want to frame the debate over monetary policy is such a way that the American people are given only two alternative systems to consider: the Federal Reserve and a gold standard.
But the truth is that there are a vast array of both “hard money” and “soft money” systems that would not include a central bank or a gold standard at all.
So the truth is that the American people would have many different systems to choose from if they wanted to shut down the Federal Reserve and set up something new.
In the past the U.S. government has issued debt-free money and it could certainly do so again.
But in his lecture, Bernanke did not even mention how the Federal Reserve creates money or how whenever new money is created more debt is created.
Under the Federal Reserve system, the money supply is designed to continually increase, and whenever more money is created more debt is also created.
In a previous article I discussed how more money is created on the federal level….
For example, whenever the U.S. government wants to spend more money than it takes in (which happens constantly), it has to go ask the Federal Reserve for it. The federal government gives U.S. Treasury bonds to the Federal Reserve, and the Federal Reserve gives the U.S. government “Federal Reserve Notes” in return. Usually this is just done electronically.
So where does the Federal Reserve get the Federal Reserve Notes?
It just creates them out of thin air.
Wouldn’t you like to be able to create money out of thin air?
Instead of issuing money directly, the U.S. government lets the Federal Reserve create it out of thin air and then the U.S. government borrows it.
Talk about stupid.
The designers of the Federal Reserve system intended to trap the U.S. government in a debt spiral that would expand perpetually.
So has their design worked?
Well, just look at the chart below….
Today, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was first created.
So I guess you could say that the results have been spectacular.
The Federal Reserve system also greatly favors the big Wall Street banks that it is designed to serve.
When those big banks get into trouble, the Federal Reserve snaps into action.
According to a limited GAO audit of Fed transactions during the last financial crisis, $16.1 trillion in secret loans were made by the Federal Reserve to the big Wall Street banks between December 1, 2007 and July 21, 2010.
The following list is taken directly from page 131 of the GAO audit report and it shows which banks received money from the Fed….
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
What about all the rest of us?
Did we get bailed out?
No, we were told that if Wall Street was rescued that the benefits would trickle down to the rest of us.
Unfortunately, that has not exactly worked out. In article, after article, after article I have detailed the horrible economic suffering that the American people are still going through.
But what Bernanke and the Fed have done is create inflation in commodities such as oil which is affecting the household finances of nearly everyone in America.
The average price of a gallon of gasoline in the United States is now up to $3.87. That is an all-time record high for the month of March.
So far in 2012, the price of gasoline in the United States has risen by 17 percent.
Over the past several decades, every time there has been a major spike in gasoline prices in the United States, a recession has always followed. If you doubt this, just check out this amazing chart.
So will we soon see another recession?
If we are lucky. Hopefully the next downturn will not be a full-blown depression.
The truth is that the Federal Reserve does not help us avoid booms and busts. Rather, it creates them. The Fed was at the heart of the housing bubble which helped bring on the last financial crisis when it crashed, and the current ultra-low interest rate policies of the Fed are creating more bubbles which will have devastating long-term consequences.