Bernanke

Caught In A Lie: Bernanke Promised Congress The Federal Reserve Would Not Monetize The Debt But Now That Is Exactly What Is Happening

On June 3rd, 2009 Federal Reserve Chairman Ben Bernanke promised the U.S. Congress that the Federal Reserve would not monetize the debt of the U.S. government.  On November 3rd, 2010 the Federal Reserve announced a massive quantitative easing plan which will involve the purchase of 600 billion dollars of U.S. Treasury securities by the middle of 2011.  Creating 600 billion dollars out of thin air and using them to buy up U.S. government securities is monetizing the debt.  So Federal Reserve Chairman Ben Bernanke has been caught in a lie.  Will we ever be able to trust a single word that he says ever again?

Monetizing the debt is a desperate act.  It is a signal that we are rapidly reaching the end of the game.  Slamming interest rates all the way to the floor did not revive the U.S. economy.  Hundreds of billions of dollars in extra government spending did not do the trick either.  The U.S. economy is still dying and the U.S. government is now beginning to find it very difficult to locate buyers for all the debt that it is constantly issuing.

So the Fed apparently hopes that this new round of quantitative easing will be a way to finance the exploding U.S. government debt and spark an “economic recovery” at the same time.

But didn’t Bernanke promise that the Fed was not going to do this?

Didn’t he pledge to Congress that the Federal Reserve would not monetize the debt?

Yes, he did.  The following is video footage of Bernanke from June 3rd, 2009 promising that the Federal Reserve would not monetize the debt….

So much for keeping his promises.

But what else can Bernanke do?

The truth is that we are reaching the end of the economic rope and the Federal Reserve has already played all of the other tricks that they have in their bag.

Buying up massive amounts of U.S. government debt and showering the U.S. economy with money is a desperate attempt to keep the shell game going for a few more rounds.

Once upon a time, the U.S. dollar was the strongest currency on the planet.  The rest of the world loved to use it as a reserve currency and they were more than glad to buy up U.S. Treasuries.

But now the mood has changed dramatically.  The rest of the world does not intend to keep lending us well over a trillion dollars each and every year.  The market for dollar-denominated debt is not what it once was.

In fact, Peter Schiff, the CEO of Euro Pacific Capital, believes that the primary reason for this new round of quantitative easing is that the U.S. government is having an increasingly difficult time financing its debts….

At the end of the day, all this deflation talk is a red herring. The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem.

But the markets are not populated by a bunch of idiots.  They are going to see what is going on.  The Federal Reserve is monetizing the debt.  This is going to make U.S. government debt even less attractive to foreign investors as I wrote about yesterday….

As foreigners begin to balk at all of this nonsense, the U.S. government will either have to start paying higher interest rates on government debt in order to attract enough investors, or the Federal Reserve will just have to drop all pretense and permanently start buying up most of the debt.  Either way, once faith has been lost in U.S. Treasuries the financial world will never, ever be the same.

If there comes a point when China and Japan realize that the game is up, they are going to start bailing out of U.S. Treasuries faster than you can say “panic”.  That could create a crisis of unprecedented proportions.  Of course the Federal Reserve could just keep whipping up increasingly large batches of dollars out of thin air to soak up all the excess debt flooding the market, but that kind of a Ponzi scheme would not work for long, and it would likely set off horrific inflation.

In order for the current world financial system to maintain stability, there must be faith in the U.S. dollar and in U.S. Treasuries.  Once faith in those two pillars is gone, it is inevitable that the whole system will come crashing down.

Most Americans have no idea that the entire global financial system is hanging by a thread.  They have no idea that their futures could be radically altered if things go badly.

We like to think that we live in such a “democratic” society, but the decisions on which our economic future rest are in the hands of a group of unelected, unaccountable central bankers.

The truth is that the Federal Reserve is about as “federal” as Federal Express is.  The Fed is not part of the U.S. government.  If you watch interviews with top Federal Reserve officials, they love to talk about how “independent” they are.  In defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve objected by declaring that it was “not an agency” of the U.S. government and therefore it was not subject to the Freedom of Information Act.

The institution that has the most power by far over the U.S. economy does not answer to the American people, and the American people are so “comfortably numb” that they don’t even realize it.

In fact, most Americans do not even know that the Federal Reserve, in association with their buddies on Wall Street, caused the first Great Depression.

But Ben Bernanke does.

At a November 8th, 2002 conference to honor Milton Friedman’s 90th birthday, Bernanke actually confessed that Milton Friedman and Anna J. Schwartz were right when they wrote that the Federal Reserve caused the Great Depression….

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

So does that make you feel better?

Ben Bernanke says that the folks over at the Federal Reserve are very sorry that they caused the Great Depression of the 1930s and they promise not to do it again.

Of course we have already seen how much Ben Bernanke’s promises are worth.

With people like Bernanke in charge, there is not a lot of reason for optimism.

Meanwhile, Bernanke and his fellow central bankers are heading down to Jekyll Island this weekend for a grand celebration.

That’s right.

The Federal Reserve is holding a conference this weekend entitled “A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve” to celebrate the 100 year anniversary of the infamous 1910 Jekyll Island meeting that spawned the draft legislation that would ultimately create the U.S. Federal Reserve.

They will surely be congratulating themselves on doing such a fine job of running the U.S. economy.

Yeah, they are doing a fine job of running it – right off a cliff and into oblivion.

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.

Helicopter Ben Bernanke Says Everything Is Going To Be Okay

Don’t worry everybody. Federal Reserve Chairman “Helicopter Ben” Bernanke says that the U.S. economy is going to be just fine, and that if it does slip up somehow the Federal Reserve is ready to rush in to the rescue. That was essentially Bernanke’s message to an annual gathering of central bankers in Jackson Hole, Wyoming on Friday. Bernanke insisted that even though the Federal Reserve has already cut interest rates to historic lows it still has plenty of tools that could be used to stimulate the U.S. economy if necessary. Well, considering Bernanke’s track record, the “don’t worry, be happy” mantra is just not going to cut it this time. After all, if Bernanke and his team were such intellectual powerhouses the “surprise” financial crisis of 2007 and 2008 would not have caught them with their pants down. The truth is that just before the “greatest financial crisis since the Great Depression” Bernanke was telling everyone that the economy was just fine. So are we going to let him fool us again?

But Bernanke insists that this time is different.  This time the Federal Reserve really has got a handle on things.  During his remarks at Jackson Hole, Bernanke said that the Fed will adopt “unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

Unconventional measures?

Could that be a thinly veiled way of saying that Helicopter Ben and his pals will do as much “quantitative easing” as they feel is necessary to keep the economy moving forward?

Unfortunately, most Americans have absolutely no idea what quantitative easing is.

Basically, when quantitative easing takes place the Federal Reserve creates money “ex nihilo” (out of thin air) and uses that money to buy stuff like U.S. government bonds and mortgage-backed securities.  By pumping money into the economy like this, the hope is that banks will start lending more and people and businesses will have more money to spend. 

As far back as 2002, Bernanke has been openly advocating “easy money” policies as a way to stimulate the U.S. economy out of troubled times….

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

Now, before we go on and discuss some of the problems with quantitative easing, it must be noted that the statement by Bernanke above is absolutely rife with errors. 

It is absolutely frightening that someone like Bernanke has more power over the U.S. economy than any member of Congress or even the president of the United States.

First of all, the U.S. government does not issue our dollars.  They are issued by the Federal Reserve.

Just pull out a dollar bill right now.  It says “Federal Reserve Note” on it right at the top.

Secondly, the U.S. government cannot produce as many dollars as it wants.  Whenever it wants more U.S. dollars it has to give U.S. Treasuries to the Federal Reserve in exchange.

If the U.S. government could produce as many dollars as it wants, it could just print up $13 trillion and pay off the national debt tomorrow. 

But under the current system, it cannot do that.  The Federal Reserve controls the currency, and the truth is that the Federal Reserve is a private central bank that is about as “federal” as Federal Express is.

Thirdly, there is always a cost for producing more dollars.  We’ll talk about inflation in a moment, but first it must be noted that any time “the printing presses are fired up” the U.S. government goes into more debt, and every time the U.S. government goes into more debt, more interest must be paid on that new debt.

So there is a very high cost involved in the creation of more dollars.

In addition, every time a new U.S. dollar is created, every other U.S. dollar becomes a little bit less valuable.  Essentially, the more dollars there are in existence, the less purchasing power each dollar is going to have.  This phenomenon can be masked or delayed for a while, but inflation will always triumph in the end when the money supply is constantly expanded.

The U.S. dollar has lost over 95 percent of its value since the Federal Reserve was created in 1913.  This has not been a mistake.  The Federal Reserve system is designed to slowly but surely inflate the U.S. dollar.  What they do want to avoid, however, is doing it too quickly.

And this is exactly what is in danger of happening in the years ahead.  As the U.S. money supply dramatically expands in response to the exploding U.S. national debt we are eventually going to be dealing with some very, very serious inflation.

Right now, the Bush and Obama administrations have been getting the United States into so much debt that there aren’t enough buyers in the world to absorb it all (at least at the current super low interest rates on U.S. government debt).  So, instead of raising interest rates to a point where U.S. debt would be suitably attractive to investors, the Federal Reserve is stepping in and is “buying” (once again with money created out of thin air) all the excess U.S. Treasuries that don’t sell.  This is essentially a Ponzi scheme and it keeps interest rates on U.S. Treasuries artificially low.

In addition, the Federal Reserve has been handing gigantic sacks of cash to very large banks and financial institutions such as Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup at almost zero percent interest and those big banks and financial institutions have been turning around and investing a large percentage of that cash in U.S. Treasuries.  This has created a gigantic U.S. Treasury carry trade bubble, and it has enabled many of these giant financial monsters to make massive piles of essentially risk-free cash.  This is another Ponzi scheme.

But these Ponzi schemes are not sustainable and they cannot last forever.  Right now Bernanke and his cohorts have been able to finance trillions in U.S. government debt and still keep interest rates on U.S. Treasuries and inflation very, very low.  At some point, their juggling act will come to an end and we will have a gigantic mess on our hands.

But for right now, Bernanke seems quite please with himself.  The following is how Bernanke concluded his speech at Jackson Hole….

As I said at the beginning, we have come a long way, but there is still some way to travel. Together with other economic policymakers and the private sector, the Federal Reserve remains committed to playing its part to help the U.S. economy return to sustained, noninflationary growth.

In Bernanke’s fantasy world, the U.S. economy is going to roar back to life and will soon be stronger than it ever has been.

But don’t you believe him.

The truth is that every single month the U.S. economy is seeing large numbers of jobs leave the country.

The truth is that thanks to our exploding trade deficit, the U.S. economy is poorer at the end of every single month than it was at the beginning.

The truth is that every single month the U.S. government (along with the vast majority of state and local governments) gets even deeper into debt.

The United States economy is not on the road to prosperity.

The United States economy gets poorer and deeper in debt every single month and is slowing bleeding to death.

Ben Bernanke can run around all he wants and try to convince us that “the sky isn’t falling”, but at some point the American people are going to wake up and simply not believe him anymore.

Federal Reserve Chairman Ben Bernanke Warns Congress That The Federal Reserve Will Not “Print Money” To Pay For The Exploding U.S. National Debt

On Wednesday, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to “print money” to help Congress finance the exploding U.S. national debt.  In fact, Bernanke told Congress that the U.S. could soon face a debt crisis as bad as the one in Greece if the U.S. government does not get things in order financially.  This represents a fundamental change in policy for the Federal Reserve, because they have been enabling the massive borrowing by the U.S. government over the past couple of years by “buying” the majority of new U.S. government debt that has been issued.  But now the fat cats over at the Federal Reserve have apparently changed their minds.  Using uncharacteristic bluntness, Bernanke told Congress that the Federal Reserve is “not going to monetize the debt”.

So why is the Federal Reserve changing course?

Well, there are a couple of possibilities.  One is that the Federal Reserve could legitimately be concerned that the exploding U.S. debt could actually collapse the U.S. economy and ultimately the U.S. government.

You see, the Federal Reserve is a parasite.  They make money for their owners by sucking money out of the U.S. government and out of U.S. taxpayers.  So, just like any parasite, they must strike a delicate balance.  They have to keep feeding off the host without killing off the host completely.  If the host dies it could end up killing the parasite.  So the Federal Reserve actually needs to try to keep the U.S. economy alive so that it can slowly keep draining it.

In fact, during his remarks to Congress, it certainly sounded like Bernanke honestly desires that the U.S. government will come up with a sustainable financial plan for the future….

“It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position.”

The second possibility is a bit more insidious.  As we have written previously, it looks like “the financial powers that be” have decided to reduce the money supply, tighten credit and hoard cash.  All of those things reduce economic activity. 

This new public stance by Bernanke is right in line with that.  If the Federal Reserve will not finance the exploding U.S. government debt, then either the U.S. government will have to dramatically cut back on spending (which would seriously slow down the U.S. economy) or the U.S. government will have to borrow from other sources at much higher interest rates (which will have very serious negative effects on the U.S.. economy).  Either way, this new stance by the Federal Reserve is not good news for those hoping for U.S. economic growth.     

The truth is that someday the exponential growth of the U.S. national debt will basically force the Federal Reserve to “print money”, but for now it looks like the financial powers have another agenda. 

From all indications, it look like that agenda is seriously going to slow down the U.S. economy.

That is likely to seriously anger American voters.  Already, millions of Americans have lost their homes and their jobs, and things are probably only going to get worse.

The result is that there is likely to be an overwhelmingly strong anti-incumbent mood in the nation as we approach the election season of 2010.  Even now, only 10% of American voters say that Congress is doing a good or excellent job.

That is not good news for the fat cats in Washington.

Not that we should feel sorry for them when they get voted out.

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