The Bernanke Speech

When Federal Reserve Chairman Ben Bernanke gives a speech about the U.S. economy, it gets a whole lot more attention than when Barack Obama gives a speech about the U.S. economy.  Why is this true?  Well, it is because Bernanke has a whole lot more control over the U.S. economy than Obama does. It is the Federal Reserve that controls monetary policy and interest rates. It is the Federal Reserve that can create money out of thin air. It is the Federal Reserve which is going to have the most influence over whether there will be inflation or deflation. So when Bernanke gives a speech, world financial markets listen. On Friday, news of the Bernanke speech sent gold and silver soaring towards new highs and send the U.S. dollar tumbling once again.  This new Bernanke speech was yet another very strong indication that Helicopter Ben is getting ready to fire up the printing presses in an attempt to get the U.S. economy moving.   

So is it a good thing for an unelected, virtually unaccountable private central bank called the Federal Reserve to have more power over the U.S. economy than the president of the United States?

Of course not.

But that is the way our system works.

So what did Bernanke say during his speech in Boston that was so earth shattering?

Well, you can read a full transcript of what Bernanke said right here.  The following are a few key excerpts from Bernanke’s remarks….

*”Although output growth should be somewhat stronger in 2011 than it has been recently, growth next year seems unlikely to be much above its longer-term trend. If so, then net job creation may not exceed by much the increase in the size of the labor force, implying that the unemployment rate will decline only slowly. That prospect is of central concern to economic policymakers, because high rates of unemployment–especially longer-term unemployment–impose a very heavy burden on the unemployed and their families. More broadly, prolonged high unemployment would pose a risk to consumer spending and hence to the sustainability of the recovery.”

Clearly, Bernanke feels as though unemployment is way, way too high and that lowering unemployment is now the number one policy priority of the Federal Reserve.

So how will this be accomplished?  After all, interest rates are already kissing the floor and that hasn’t brought the U.S. economy back to life.

Well, as most financial analysts are anticipating, the Fed could launch a substantial new round of quantitative easing.

But wouldn’t that cause a rise in the inflation rate?

Well according to Bernanke’s speech, the U.S. economy is supposed to have a certain amount of inflation….

*”Similarly, the mandate-consistent inflation rate–the inflation rate that best promotes our dual objectives in the long run–is not necessarily zero; indeed, Committee participants have generally judged that a modestly positive inflation rate over the longer run is most consistent with the dual mandate.”

Do you understand what Bernanke is saying there? 

He is actually saying that the goal of the Federal Reserve is not to have a zero inflation rate.  Rather, he says that we should expect to always have at least some inflation and that this is normal.

In fact, in his speech Bernanke said that inflation in the United States is currently too low….

*”…inflation is running at rates that are too low relative to the levels that the Committee judges to be most consistent with the Federal Reserve’s dual mandate in the longer run.”

Inflation is too low?

Is he joking?

No, sadly he is not.

Instead, he seems ready to break out the money hoses and start showering dollars from every street corner….

*”Given the Committee’s objectives, there would appear–all else being equal–to be a case for further action.”

“Further action” being code words for the “quantitative easing” that we have all been anticipating.

The funny thing is that in the nearly 4,000 word Bernanke speech there was not a single word about the value of the U.S. dollar.

This month the U.S. dollar has been plummeting like a rock, but apparently it is not an important consideration for Bernanke.

In essence, Bernanke’s message is that the focus is on trying to “fix” the U.S. economy and if it is necessary to jack up the rate of inflation and to radically devalue the U.S. dollar then that is what we are going to do.

Bernanke also did not mention the foreclosure fraud crisis which threatens to throw the entire U.S. mortgage industry into a state of absolute turmoil.

But the rest of the financial world is definitely starting to take notice of this crisis.

All of this uncertainty is already starting to take a huge toll on U.S. bank stocks.  Several of the largest U.S. banks have seen their stock prices significantly decline in recent days.

The truth is that this could be the biggest challenge for big U.S. banks since the 2007 financial collapse.  Just consider the following very troubling signs….

*JPMorgan announced on Wednesday that it has boosted its reserves by a billion dollars in order to cover faulty mortgages that it was obligated to repurchase from Fannie Mae, Freddie Mac and private insurers.  In all, JPMorgan has set aside approximately 3 billion dollars for potential mortgage repurchases.

*But a few billion dollars may not be nearly enough for many of these big banks.  According to an estimate by Branch Hill Capital, Bank of America could be forced to repurchase up to $74 billion in mortgages.

*The losses from this crisis could be absolutely staggering.  Analyst Dick Bove is projecting that U.S. banks could lose a combined 80 billion dollars as a result of this foreclosure fraud crisis.

The truth is that it would be hard to understate just how much of a financial mess this foreclosure fraud crisis could possibly become.  A recent article by Nomi Prins did a great job of discussing some of the potential implications of this crisis….

If foreclosed homes couldn’t be sold because of fraudulent paperwork or had to wait for more detailed inspections, you can imagine how difficult selling assets stuffed with faulty loans might be. If it’s tough to find a title for a foreclosed home, think how tough it is to back the related loan out of a pyramid of securities sitting on top of it.

See, the loan that might be analyzed in a foreclosure situation could be part of a chain connecting the underlying home to 20 or 50 different securitized assets, all depending on it for either the interest payments the loan was supposed to provide, or the value of the foreclosure property if those payments stopped (in Wall Street speak, the “recovery value”). If a foreclosed property isn’t selling, it’s not recovering any money back to any asset waiting for it. Think what that can do to the value of toxic assets living at the Fed and the Treasury Department.

This foreclosure fraud crisis is extremely complicated, but the reality is that this could be the thing that breaks the back of the U.S. financial system.  For much more on the specifics of this crisis, please check out the following articles that I have previously posted….

#1 Foreclosure-Gate

#2 Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds

#3 The Real Horror Story: The U.S. Economic Meltdown

The truth is that the U.S. economy is headed for extreme danger and what Bernanke wants to do is douse it with gasoline and light it on fire.

Once the Federal Reserve starts down the road of trying to “stimulate inflation” in order to get the U.S. economy going, it is going to be really hard to turn back around again.

But the truth is that this is what the U.S. Federal Reserve has always done.  They have always destroyed the value of the U.S. dollar.  The U.S. dollar has lost over 95 percent of its value since the Federal Reserve was created in 1913, and now Bernanke says that we need to actually accelerate the pace of the destruction of the dollar in order to “help” the economy.

In the end, this whole thing is going to fall apart.  In the end, all of the juggling and fancy financial moves by the Fed are going to fail. 

The U.S. financial system is a pyramid of fraud built on a mountain of debt.  By definition it is unsustainable.  At some point it is going to dramatically collapse.  The only real question left to answer is when it will happen.

Is The Federal Reserve Out Of Control? Markets Across The Globe Brace For Impact As The Federal Reserve Powers Up The Printing Presses

What in the world is going on over at the Federal Reserve?    Has it gotten to the point where the Federal Reserve is completely and totally out of control?  There is increasing speculation in the financial community that the Federal Reserve is on the verge of unleashing another round of quantitative easing.  In fact, at their September meeting, Federal Reserve officials hinted very strongly that quantitative easing is very much on their minds when they stated that the Federal Open Market Committee “is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”  You might want to reread that quote a couple of times just to let it sink in.  Do you see what the Fed is saying there?  The Fed is actually saying that it has a mandate to maintain a certain level of inflation.  Not that this is a secret to anyone that has seriously studied the Federal Reserve.  Since 1913, inflation has constantly gone up, U.S. government debt has increased exponentially and the U.S. dollar has lost over 96 percent of its value.  But for Federal Reserve officials to openly state that a certain amount of inflation is part of their mandate is absolutely stunning.

Even though the U.S. economy is still in pretty decent shape at this point (for the moment at least), the Federal Reserve still seems obsessed with trying to stimulate it.

In the past, the Federal Reserve would just cut interest rates whenever the economy needed a bit of a boost, but at this point the Fed has cut rates to nearly zero.  There just isn’t any more room to cut rates.

So what else can the Federal Reserve do?

Well, it can create money out of thin air and use it to buy U.S. Treasuries, mortgage-backed securities and other assets.  This is known as quantitative easing, and many analysts fear that it is quickly becoming more than just an emergency measure.

Back in March 2009, the Federal Reserve announced that it would purchase $1.7 trillion worth of U.S. Treasuries and mortgage-backed securities over the next 6 to 9 months.  That was the first round of quantitative easing and Fed officials believe that it helped the U.S. economy avoid an even worse downturn.

But now Federal Reserve officials are talking about making quantitative easing a regular thing.  An article in the Wall Street Journal recently described the current thinking inside the Fed…. 

Rather than announce massive bond purchases with a finite end, as they did in 2009 to shock the U.S. financial system back to life, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.

Quantitative easing that is open-ended?

What kind of insanity is this?

Is quantitative easing going to become a permanent part of our financial system?

And what does “smaller-scale” actually mean?

Well, according to James Bullard, the president of the St. Louis Federal Reserve Bank, “small-scale” is actually pretty darn large.  According to the Wall Street Journal, a “small-scale” quantitative easing program would be somewhere in the neighborhood of $100 billion a month….

Under a small-scale approach, Mr. Bullard says, the Fed might announce some still-undecided target for bond buying—say $100 billion or less per month. It would then make a judgment at each meeting whether continued action was needed.

If the Fed injected $100 billion a month into the economy through quantitative easing, that would mean that by the end of the year over 1 trillion dollars would have been created.

That does not sound like “small-scale” to me.

In fact, if the Federal Reserve purchased $1 trillion in U.S. Treasuries next year that would be an amount nearly equal to the total amount of new debt that the U.S. government plans to issue during the year.

Can anyone say Ponzi scheme?

When we get to the point where the Federal Reserve is “buying” a large percentage of new U.S. debt with money that is created out of thin air there is simply no denying the fact that the Fed is running a massive Ponzi scheme. 

But the truth is that the U.S. government is in so much debt and the U.S. economy is in so much trouble that something must be done.  It is really tempting to “inflate away” the debt and to pump up GDP figures with a flood of paper money, and Helicopter Ben Bernanke has certainly shown that he is not shy about pulling the trigger.

Of course more debt, more paper money and more inflation will only make our long-term economic problems even worse.

But right now Federal Reserve officials appear to be absolutely obsessed with the short-term.

And without a doubt world financial markets are certainly expecting a new round of quantitative easing to begin soon.

CNBC recently polled 67 economists, strategists and fund managers about what they think is going to happen.  The following is a summary of what CNBC found…. 

The Federal Reserve will boost its balance sheet by about half a trillion dollars over a six-month period beginning in November and keep it inflated for up to a year, according to a survey of leading markets participants by CNBC.

But many analysts believe that the Fed will take even more substantial action than that.  According to the Wall Street Journal, economists at Goldman Sachs are projecting that the Federal Reserve will end up buying at least another $1 trillion in assets during this next round of quantitative easing.

Stephen Stanley of Pierpont Securities in convinced that it will be even worse than that.  Stanley believes that the Fed will add another $3 trillion to its balance sheet by next August.  The following is what he recently told CNBC….

“If the Fed pulls the trigger, they will go big.”

In an interview with the Economic Times of India, Marc Faber painted an even bleaker picture….

“I believe that if the S&P in the US drops 15-20% to around 900-950, the Fed would come out not with this quantitative easing No. 2, but with quantitative easing No. 2, 3, 4, 5, 6, 7, 8, 9, 10 until the asset markets go up again. They are going to print and print and print.”

It seems like almost everyone is anticipating that the Federal Reserve is going to fire up the printing presses.

Now, even some of the Federal Reserve’s staunchest defenders are now abandoning them.

Ambrose Evans-Pritchard, perhaps the most respected financial columnist in the U.K., recently penned an article entitled “Shut Down the Fed (Part II)” in which he absolutely lambasted Bernanke and other Federal Reserve officials for considering another round of quantitative easing….

I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.

In fact, Ambrose Evans-Pritchard is now openly accusing the Federal Reserve of being out of control….

So all those hillsmen in Idaho, with their Colt 45s and boxes of krugerrands, who sent furious emails to the Telegraph accusing me of defending a hyperinflating establishment cabal were right all along. The Fed is indeed out of control.

On behalf of those who believe that the Federal Reserve is “a hyperinflating establishment cabal”, I accept Ambrose Evans-Pritchard’s apology.

The truth is that the Federal Reserve is out of control.

The Federal Reserve system was designed to get the U.S. government into a perpetually expanding spiral of debt.  Wealth is slowly but surely transferred from the American people to the U.S. government (when we pay taxes) and ultimately into the hands of those who own U.S. government debt.

As long as the Federal Reserve system exists, U.S. government debt will keep going up, the value of the U.S. dollar will keep going down and wealth will be slowly transferred into the hands of the ultra-wealthy.

And why in the world would the American people allow an unelected, privately-owned central bank to run the U.S. economy, control the money supply, set interest rates and print all U.S. currency?

It simply does not make any sense.

The Federal Reserve has not been shy about declaring that it is “not an agency” of the U.S. government and not directly accountable to the American people.

So why do the American people put up with this kind of nonsense?

The truth is that the Federal Reserve has become far too powerful.  U.S. Representative Ron Paul recently told MSNBC that he believes that the Federal Reserve is actually more powerful than Congress…..

“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”

The truth is that the U.S. economy will never be fundamentally “fixed” simply by electing another “Bush” or another “Obama”.  Something needs to be done about the Federal Reserve system, but right now our politicians in Washington can’t even muster enough support to pass a bill to audit the Fed. 

So what do you think about the Federal Reserve?  Please feel free to leave a comment with your thoughts….

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