Bernanke is Killing the Working Class

September 21, 2012

It is really quite amazing that anybody would believe anything that emanates from the mouth of Federal Reserve Chairman Ben Bernanke.  Quite frankly, the fact that Barack Obama nominated him for a second term as Fed chairman and the Senate confirmed him is proof that our leaders are either as incompetent as all get out or proof for at least one conspiracy theory – namely that the Anglo-American power elite really does run the world and wanted him to continue being their front man.

Let’s be honest.  Bernanke’s statements and predictions since assuming the helm at the Fed in 2006 have been, to be harsh, full of mistruths, to be polite less than stellar.  His absurd statements range from “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”, on March 28, 2007 to “The Federal Reserve will not monetize the debt”, on June 3, 2009.  His predictions have been even more remarkable.  Just two months before their collapse he predicted that Fannie Mae and Freddie Mac, “…will make it through the storm.”  And as the economy was spiraling into recession on January 10, 2008 he indicated incredibly that, “The Federal Reserve is not currently forecasting a recession.”

Well, old habits do die hard.  Last week Bernanke gave a press conference to answer questions about the Federal Open Market Committee decision to purchase $40 billion of mortgage backed securities per month into the indefinite future.  What was astonishing was not his defense of the purchases, but his addressing of three concerns that have been expressed about Fed policy since the Great Recession started in 2008.

The first concern he sought to ease was that Fed purchases of long-term securities are comparable to government spending.  He claims they are not because the Fed is buying financial assets, not goods and services and ultimately the Fed will sell them off when unemployment eases.  He may be technically correct, but does it matter?  The buying and selling of assets is one means the Fed uses to manipulate the money supply.  When it wants to inflate the supply of money it exchanges new money for assets and when it seeks to slow the growth of money it sells assets to mop up excess reserves in the economy.  In the end, Fed asset purchases are comparable to the Fed monetizing the debts of the federal government which of course are required because of deficit government spending and both will ultimately cause higher prices generally.

Next, Bernanke addressed the concern of those receiving very low returns on interest bearing accounts.  While he acknowledged that the Fed’s “accommodative” monetary policies were responsible, he stated that, “Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.”

Two points need to be made about Bernanke’s comment.  First off, when are those low interest rates going to produce a healthy and growing economy?  The Fed Funds Rate has been at 0-.25 percent since December 2008 and unemployment is higher now than it was then.  Secondly, is Bernanke suggesting that older Americans on fixed budgets who are getting extremely low returns on their savings just need to be patient until the values of their homes come back so they can sell them to eat? Or is it that he thinks borrowing against equity on one’s house is a sign of prosperity?  The fact is Bernanke’s policies discourage savings and those that have saved are seeing their wealth eroded and their standard of living diminished.

Which brings us to the last concern addressed by Chairman Bernanke, namely that the Fed’s “accommodative policies” will produce higher price inflation down the road.  To quell fears of price inflation he indicated that overall price inflation has been about “2 percent per year for quite a few years now, and a variety of measures show that longer-term inflation expectations are quite stable.”

All one has to do is venture to the supermarket or fill their tank with gas to know that the chairman’s claim about price inflation is hogwash.  Gas prices alone are up 7 percent year over year.  Higher energy prices mean the cost of other goods has increased as well.  Bernanke’s inflation number is absurd.  John Williams at Shadow Government Statistics produces inflation numbers based on the way they use to be calculated.  According to his calculations, if the Bureau of Labor Statistics (BLS) were figuring inflation like it did in 1980 the rate would be 9 percent.  If the BLS were using the 1990 method the rate would be 5 percent.  The point is that both calculations are much higher than Bernanke’s figure and with the Fed about to embark on infusing $40 billion per month more into the economy for an indefinite period of time, price inflation will go even higher.

Federal Reserve Chairman Ben Bernanke has a long history of making absurd predictions and statements.  His attempt to ease concerns about Fed policies at last week’s news conference was no exception.  Perhaps he is out of touch with reality or maybe there is something else at play.  At the end of the day, his policies have hurt and will continue to hurt the middle and lower classes in America.  What’s startling is that these groups are the very constituencies that President Obama and members of the Senate claim to care about, yet both gave Bernanke a second term as Fed chairman.  Perhaps the president and those 70 senators that gave Bernanke a second term are incompetent or perhaps the Anglo-American power elite wanted him to continue as their front man?

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina


What does Bernanke have up his Sleeve after QE2?

June 5, 2011

One thing is for sure, Federal Reserve chairman Ben Bernanke’s second round of quantitative easing (QE2) will come to an end sometime this month.  Since November of last year the Fed has pumped close to $600 billion into the economy by buying treasury bonds from the balance sheets of banks.  This was intended to keep interest rates low, encourage lending by banks, stabilize housing prices, and consequently stimulate growth in our economy.  As of yesterday, interest rates are still low and banks have begun to lend some, but housing prices are lower than before QE2 began, economic growth has slowed, price inflation is significantly higher, and unemployment has climbed back up to 9.1 percent.  For the average American trying to eke out a living, QE 2 has been an utter disaster.  Of course for Wall Street banks it has been another bonanza courtesy of the Creature from Jekyll Island.

After all, Chase, Wells Fargo, Goldman Sachs and Bank of America are all doing fairly well given the general economic misery still experienced by the rest of us.  Interest bearing reserves of depository institutions held at the Fed are way up and the Dow Jones Industrial Average is 1100 points higher than it was at the end of the first month of QE2.  Why are these two facts so important?  You see even though banks still are not lending a lot to businesses and ordinary Americans they are making huge amounts of profits using our money courtesy of the Fed to save at the Fed and invest in the stock market.  Once again Bernanke inflates, his buddies on Wall Street cash in, and the rest of us are left holding the tab in the form of higher debt and prices.

The big question is what comes next?  After QE2 expires will we see a QE3?  Chances are good.  Let’s be honest, the economy is still in awful shape.  This is because Washington did not allow it to liquidate all the mal-investments from the financial crisis of 2008.  The only thing that has kept the economy afloat is the monetary and fiscal stimulus coming out of Washington.  The fact is that if Uncle Scam had let nature take its course and permitted the economy to crash there would have been intense short-term pain, but by now we would be well on the way to recovery.  Instead, Bernanke and first Bush then Obama have pumped trillions into the economy to “stimulate” it back to health.   What has transpired are new bubbles notably in the stock market and mergers and acquisitions.

And that is why I believe we will see QE3.  When QE2 ends the money supply’s rate of growth will slow.  Somewhat similar to an interest rate hike the end of Bernanke’s largess will put pressure on the new bubbles.   Given that a presidential election is just around the corner and member banks will see their bottom lines slashed, Bernanke will accommodate his benefactors in the White House and on Wall Street by commencing QE3 to stave off the next crisis.  The can will be kicked down the road at least until after Election Day 2012.  Hundreds of billions of dollars more will be pumped into the economy.  If you think price inflation is bad now you ain’t seen nothing yet.

The bottom line is that whichever course Bernanke chooses QE3 or no QE3 the economy will eventually have to crash.  Because it was not allowed to do so in 2008 the crash will be bigger and probably longer in duration.  So I guess I was wrong at the outset of this article.  Two things are for sure.  QE2 will end in June and  inevitably Americans are screwed economically.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

Bernanke is Still Clueless

April 9, 2011

It has been a while since I criticized my favorite Federal Reserve chairman, Ben Bernanke.  I’ve been busy teaching school and Bernanke like always has been busy destroying the dollar and with it our economy and standard of living.  So, nothing new and out of the ordinary has happened to warrant a post about the 2nd term Fed chairman.  However, last Monday night he made big news when he said that our current price inflation is “transitory”, and based on supply and demand issues in energy and commodities.  He went on to say, “Our expectation at this point is that in the medium term inflation, if anything, will be a bit low.”

So why do I consider Bernanke’s remarks to be big news?  Because when predicting the future economic prospects of our country his prognostications have been less than stellar to say the least.  He never saw the housing bubble coming; he misjudged the seriousness of the problems in the auto industry; and was totally clueless about the potential for big bankruptcies on Wall Street.  What’s worse is that he was still spewing his pablum about how everything was okay on the eve of the financial crisis!  Thus, with his newest pronouncements on our current state of price inflation, why would anyone give his remarks any credence?

We can give Bernanke credit for one thing.  He didn’t deny prices for many things are rising.  Cotton is at its highest level in a decade.  Copper is at its highest price in forty years.  Corn, wheat, and soybeans are up.  Of course, all Americans are seeing steeper price levels at the pump as oil has risen above and remained over $100 a barrel.  But, for Bernanke to state that the situation is temporary is not credible.  To be sure, there are extenuating circumstances behind some of the cost increases.  Weather conditions in some parts of the world and Middle East unrest have had an effect somewhat on crop and oil supplies.  However, given the trillions of dollars Bernanke has injected into the stagnant economy through low interest rates, quantitative easing, and monetizing of the federal debt it’s no coincidence that these commodities which are priced in and bought with dollars are seeing price increases.

In fact, since about 2001 when George W. Bush and the Republican Congress began doubling the national debt, the Fed’s monetizing and low interest rates caused steady commodity price increases.  Prices dipped in 2008, due to the recession, but have accelerated upwards again beginning in about May of 2009.  Simply stated, the current inflation is a continuance of the long term trend begun before the financial crisis.  Given even lower interest rates, quantitative easing, and the monetizing of an even larger debt load since Obama took office, a reasonable observer would assume commodity price increases will not be temporary and will be even more significant.  But the Fed chair insists that in the long –run prices will stabilize at lower levels.

In October of 2009 this commentator wrote an article indicating that Ben Bernanke was between an overheated printing press and a hard place.  The gist of the piece was that Bernanke’s reckless monetary policies were placing him in a bind.  If he continued down the path of loose money there would be high inflation to pay.  If he reversed course and tightened the money supply the stock market bubble would burst and his benefactors on Wall Street would be harmed.  It seems that Helicopter Ben is at the point where he has to make that decision.  Taking his most recent comments into account, it seems he has made his decision.  As usual it is in the best interests of Wall Street.

Article first published as Bernanke is Still Clueless on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

Your Vote Didn’t Count last Tuesday

November 8, 2010

Did you really think it was worth your time to vote last Tuesday?  Oh, Republican partisans will of course say an unequivocal “yes” as their party “shellacked” the Democrats and in the process picked up several Senate seats, governors’ mansions, and control of the House of Representatives.  But in actuality within 24 hours of the Republicans coup d’état all those Tea Party voters and others who crave small government had their votes negated and their victory smashed. 

How?  To begin with, South Carolina Senator and Tea Party Kingmaker Jim DeMint admitted on John King’s State of the Nation on CNN that Republicans will support raising the debt ceiling currently at $14.3 trillion, but only if massive cuts are included with the vote.  Ah, Senator, there is plenty to cut in the budget that will make raising the debt ceiling unnecessary.  How about ending our quest for World Empire by ending foreign occupations, closing down bases, and bringing our troops home?  How about abolishing the Energy, Commerce, and Education Departments for starters?  How about rescinding the balance of Obama’s “stimulus” program and ending corporate welfare as we know it?  Just these moves alone would save over a trillion dollars.  If there was ever a time for Republicans to be gutsy it is now.  They are riding a wave of voter anger unprecedented in our history.  They have a mandate from those same voters to cut, eliminate, and abolish anything and everything in the way of a balanced budget.  But within 24 hours of their mandate DeMint is already cutting deals on federal spending.

Jim DeMint aside, the biggest negation of the voters’ wishes on Tuesday came on Wednesday.  The Federal Open Market Committee (FOMC) of the Federal Reserve Bank announced that it would begin a new buying spree of between $600 and $900 billion of U.S. Treasury bonds over the next 10 months. This so-called quantitative easing is necessary according to the FOMC because, “…the pace of recovery in output and employment continues to be slow”.  Thus the Fed must step in, purchase Treasury Bonds from banks so the banks in turn can loan that liquidity to businesses to get the economy moving again.

You see Congress and the president are not the only big spenders in Washington.  The Federal Reserve also exercises the power to essentially spend our money through monetizing government debt.  Thus, on the very day voters across the country were saying no more reckless spending and voting spendthrifts out of Congress the unelected Fed decided to usurp the People’s power by deciding to spend hundreds of billions of dollars to purchase Treasury bills from member banks.

Based on past experience, here is how the Fed’s spending spree will work.  The Fed will create between $600 and $900 billion of liquidity (dollars) out of thin air.  It will then use that liquidity to buy up massive amounts of Treasury bonds from the big banks.  The banks are supposed to use the proceeds from the sales to make new loans and to get the economy moving again.  Keep in mind that what the Fed is about to do, it has already done in the not so distant past. Beginning in March of 2009 the Fed injected about $2 trillion into banks to buy up toxic assets.  Precisely at that time, the S&P 500 stock index bottomed out after falling by 57 percent from its historic high.  Since the Fed began that round of “quantitative easing” in March of 2009 the S&P has rebounded a remarkable 80 percent.  With the economy still stuck in a deep sewer there is no reasonable explanation for the sudden, renewed health of the stock market except that Wall Street invested their Fed funds in themselves instead of in Main Street.

And that is what banks are going to do this time as well.  It is bad enough that an unelected central bank has the power to print our money like crazy with no Congressional restrictions placed on it, but to give it to the big banks without any stipulations like they have to make loans or face penalties is just plain criminal.

Look, our political and financial systems are corrupt and rigged.  They make a Mafia bookmaker look honest.  Think of it like a happy love triangle between Congress, the Fed, and Wall Street.  To protect itself politically Congress has contracted out management of our money supply to the Federal Reserve.  In return, the Fed prints money out of thin air to support Congress’ deficit spending which ensures its high reelection rate.  The Fed supports big banks by loaning them our money at very low rates.  It bails them out when they don’t have enough reserves to meet obligations.  It allows fractional reserve banking whereby banks are guaranteed solvency by the Fed even though they loan out up to 90 percent of deposits on their books.  The final link in the cycle is the contributions given by Wall Street banks to members of Congress.  We’ve heard DeMint, McConnell, Cantor, Boehner and other Republicans decry the deficit spending of Democrats but when have we ever heard them decry the Federal Reserve?  Never.  There is a good reason for this:  the Fed is their meal ticket to reelection through the financing of deficit spending and campaign kickbacks from Wall Street.

This whole rigged system has been destroying our standard of living for decades.  By adding more dollars to a low producing economy the value of our currency will continue to deteriorate and prices will spike.  Previous “stimulus” spending of Congress and quantitative easing by the Fed has already caused commodity prices to rise hugely in the last year:  Agricultural Raw Materials up 24%, Industrial Inputs Index up 25%, Metals Price Index up 26%, Coffee up 45%, Barley up 32%, Oranges up 35%, Beef up 23%, Pork up 68%, Salmon up 30%, Sugar up 24%, Wool up 20%, Cotton up 40%, and Rubber: 62%.  You get the idea.  Imagine price increases after this next round of easing.  But don’t worry, because the Fed’s member banks will know when to pull out of the stock market before it busts.

At the end of the day, if you voted for smaller, less expensive government last Tuesday your vote was negated by the unelected economic central planners at the Federal Reserve.  It took the FOMC just 48 hours in closed door meetings to undo what candidates across the country spent billions of dollars on in the last year to achieve on Election Day.  What a pity since you thought your vote was really worth your time.

Article first published as Your Vote Didn’t Count Last Tuesday on Blogcritics.

Stimulus Spenders and Their Silly Excuses

August 28, 2010

This past week the government announced that existing home sales plunged 27.2 percent in July while new home sales were down 12.4 percent.  The numbers surprised most “mainstream” economists who expected more modest losses.  Of course, with the housing market still in shambles the value of homes is expected to drop further than the $6 trillion already lost by American homeowners.  This development coupled with continuing high unemployment and low consumer confidence is making many economists predict we are headed for a double-dip recession.

Now, naturally, proponents of the government’s failed stimulus policies have their excuses for why it didn’t work all lined up.  They are not even waiting for the double-dip to officially hit.  They are already claiming that the stimulus wasn’t spent on the right things and was simply “too small” to actually make any difference in “stimulating” the economy.

Here are the facts.  First to address the issue of sinking home sales, no one should be surprised by the numbers.  Home sales are way down for several reasons.  First of all, Obama’s first-time home buyer’s tax credit expired in April.  Folks are now waiting to see if Congress will enact a new credit before they buy.  Second, all the signs are there that housing prices will continue to drop, so why rush into purchasing a property that in a few months might be gotten at an additional discount?  Lastly, given the number of people in America who are unemployed, underemployed, and just downright broke it is no wonder that a huge expense like homeownership is not high on many people’s minds.

So the massive drop in home sales in July should not be surprising.  Anyone who understands human behavior and even the most basic fundamentals of economics knows the president’s housing stimulus program was doomed to failure.  During the time it was effective there was an increase in home sales and a leveling off of home prices, but once the program ended the bottom fell out.  No lasting growth ensued. Additionally, many first time buyers who took advantage of the tax credit used it for a down payment.  Essentially, the government was once again encouraging folks to buy houses who didn’t have the ability to save for a down payment.  This probably represents a misallocation of scarce resources and we can expect to see many of these homebuyers on a list of foreclosures in the future.

But, the president’s homebuyer tax credit is just a small part of the overall massive stimulus Washington has injected into the economy since 2008.  The entire stimulus “invested” by the feds has had a similar effect on the whole economy.  It stabilized things for a while and then wore off.  Because economic priorities are determined by politics and not the free market, we are left with a whole lot of mal-investments and possibly new bubbles.  So when stimulus proponents say the money was not spent on the right things they are technically correct.  After all, stimulus money has been spent on things like converting an abandoned train station into a museum, the development of interactive dance software, new windows for a visitor’s center that closed 3 years ago, and a study to determine the effects of cocaine on monkeys.   If these expenditures are not mal-investments, I don’t know what is.

But this is one reason why government stimuli never work.   Bureaucrats and elected officials don’t operate in a world of profit motives, competition, and the consequences of failure.  Ultimately, the allocation of taxpayer funds is doled out based on what they think is needed and to feather their own nests with the folks back home.  This is obvious given the aforementioned stimulus expenditures.

Besides the stimulus wasn’t spent on the right things argument, proponents of the policy are also saying the government’s effort was not big enough thus rationalizing its failure.  They always only point to the president’s $850 billion program passed by Congress shortly after he took office.  But, there is a lot more that has been “invested” in the economy since the depression began.  Federal spending has included everything from the Troubled Asset Relief Program (TARP) to Cash for Clunkers to GSE mortgage-backed securities purchases by the Fed.  The total of all federal stimulus spending as of December 2009, exceeded $3 trillion!  This represents more than 20 percent of annual gross domestic product.  $3 trillion actually spent and all we have to show for it is sustained high unemployment, sinking home sales, low consumer confidence, foreclosures through the roof, food stamp expenditures at all time highs, and a looming sovereign debt crisis.  The problem is not that we haven’t spent enough.  The problem is that we spent the money in the first place.

At the end of the day, government spending, quantitative easing or whatever the political establishment wants to call it simply doesn’t work.  As economist Robert P. Murphy has written we have a great comparison between the depression of 1920-1921 and the Great Depression of the 1930s to prove this point.  In the former, government cut its budget and the Fed raised interest rates.  The crisis was over within two years.  In the latter, Hoover increased government spending and the Fed slashed rates to all time lows at the time.  The result was the beginning of 15 years of economic misery.  Given the amount we have spent this time, get ready for a long rocky economic ride. 

Article first published as Stimulus Spenders and Their Silly Excuses on Blogcritics.