Bernanke is Killing the Working Class

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?

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

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 2^nd 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