Tuesday, June 28, 2011
Wednesday, June 22, 2011
PIMCO/ Bill Gross predicts Greek and other EU defaults
PIMCO Head Predicts Default for Greece, Others
Published: Tuesday, 21 Jun 2011 | 11:22 PM ET
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By: Reuters
The head of PIMCO, the world's biggest bond fund, predicted that Greece and other European economies would default on their debts to resolve their problems as the euro area faces a debt crisis.
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Jorg Greuel | Getty Images |
"For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default," Mohamed El-Erian, chief executive of PIMCO, told reporters in Taipei on Wednesday via a video conference.
El-Erian has suggested in the past that Greece would default and that Europe risks wasting money for nothing by pumping billions of dollars into the ailing economy.
He added on Wednesday it was "unlikely but not impossible" that a Greek default would trigger another global financial crisis.
The confidence vote in Athens came after a European ultimatum requiring the debt-choked state to implement a five-year austerity package of measures within the next two weeks or miss out on a 12-billion euro tranche of aid money.
European policymakers are also considering a second bailout package worth an estimated 120 billion euros that is meant to extend Greece's year-old 110 billion euro deal and fund it into 2014.
Monday, June 20, 2011
Dumbing down of America coming back to haunt us.
German Giant Says US Workers Lack Skills
Published: Monday, 20 Jun 2011 | 2:07 AM ET
Text SizeBy: Ed Crooks
A mismatch in the US labour market between the skills of unemployed people and the jobs available is making it hard for some companies to find the right staff despite an unemployment rate of more than 9 percent, one of the country’s largest manufacturing employers has warned.
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Eric Spiegel, chief executive in the US forSiemens [SI 131.23 
2.72 (+2.12%) 
], the German engineering group, said the problemexposed weaknesses in education and training in the US. Siemens had been forced to use more than 30 recruiters and hire staff from other companies to find the workers it needed for its expansion plans, even amid an unemployment rate of 9.1 percent
2.72 (+2.12%) ], the German engineering group, said the problemexposed weaknesses in education and training in the US. Siemens had been forced to use more than 30 recruiters and hire staff from other companies to find the workers it needed for its expansion plans, even amid an unemployment rate of 9.1 percent“There’s a mismatch between the jobs that are available, at least in our portfolio, and the people that we see out there,” Mr Spiegel told the Financial Times. “There is a shortage (of workers with the right skills.)”
He said Siemens was having to invest in education and training to meet its staffing needs, including apprenticeship programmes of the kind it uses in Germany.
His comments, made before Tim Geithner, the Treasury secretary, visits a Siemens plant in Ohio on Monday, suggest better education and training could help reduce the persistently high US unemployment rate.
The US labour market does not in general show signs of tightness: average wage growth in the year to the first quarter of 2011 was just 2 percent. Volkswagen [VKW-GB 118.85 --- UNCH ], the German carmaker, had 85,000 applicants for 2,000 jobs at its new plant on Chattanooga, Tennessee.
However, a recent survey from Manpower, the employment agency, found that 52 percent of leading US companies reported difficulties in recruiting essential staff, up from 14 percent in 2010.
In manufacturing in particular there is evidence of a mismatch between workforce skills and available jobs: while employment has fallen since January 2009, the number of available job openings has risen from 98,000 to 230,000.
Mr Spiegel’s concerns about skills are shared by many other US business leaders, and were reflected this month in the first recommendations from President Barack Obama’s advisory council on jobs and competitiveness.
Responding to those concerns, the administration this month launched a nationwide expansion of the Skills for America’s Future programme, offering training, workforce development and job placements to help people find jobs in industry.
The programme is being run with the Manufacturing Institute, the think-tank affiliated to the National Association of Manufacturers. Emily Derocco, the institute’s president, said: “There is very definitely a gap between those that are unemployed or underemployed, and the education and skills that manufacturers require today. The companies are leaner and heavily technology-intensive, and require more than a high school diploma.”
Jeff Joerres, chief executive of Manpower, said businesses were more selective while the recovery was still weak and uncertain: “Employers have a much more sophisticated definition of skill requirements. Workers need to be instantly productive, and that makes a higher bar.”
The Nobel prize-winning economist Peter Diamond of the Massachusetts Institute of Technology, who was this month forced to withdraw from seeking a seat on the US Federal Reserve board of governors after Republican opposition, has argued that it can be worthwhile to invest in more education and training regardless of the general condition of the economy.
Wednesday, June 15, 2011
The ISI... I guess the truth is finally coming out about Pakistan.
Pakistan's shadowy secret service, the ISI
03 May 11 13:44 ET
Pakistan's directorate for Inter-Services Intelligence, or ISI, is once again facing accusations of double-standards over its role in the fight against al-Qaeda and the Taliban.
Many observers find it hard to believe the organisation had no idea that Osama Bin Laden had been living under the nose of the Pakistani military until his death.
As to the US special forces raid that killed the al-Qaeda leader, questions abound about what the ISI knew and when it knew it.
Similar Western doubts over the ISI's loyalties have been a recurring theme in recent years.
In documents leaked in April 2011 on the Wikileaks website, US authorities described the ISI as a "terrorist" organisation on a par with al-Qaeda and the Taliban.
In the same month the US military's top officer, Adm Mike Mullen, also accused the ISI of having links with the Taliban.
He said it had a "long-standing relationship" with a militant group run by Afghan insurgent Jalaluddin Haqqani, which targets US troops in Afghanistan.
The list does not end there.
In June 2010 the ISI was accused of giving funding, training and sanctuary to the Afghan Taliban on a scale much larger than previously thought.
The paper published by the London School of Economics said that Taliban field commanders suggested that ISI intelligence agents even attend Taliban supreme council meetings - and that support for the militants was "official ISI policy".
Much of the high level of concern among some Western countries over the role of the ISI was expressed by British PM David Cameron in 2010.
He accused the country of "looking both ways" when it came to fighting terrorism and suggested that elements in Pakistan were guilty of promoting the "export of terror".
The Pakistani government has consistently rejected all the allegations against the ISI as "negative propaganda" by the US and its allies.
It has also dismissed suggestions that the ISI is run as "a state within a state", subverts elected governments and is involved in drug smuggling.
Turbulent politics
The truth will no doubt always be murky - because like many other military intelligence organisations, the shadowy ISI zealously guards its secrets and evidence against it is sketchy.
What is not in doubt however is that the agency is a central organ of Pakistan's military machine and has played a major - often dominant - role in the country's volatile politics.
The ISI was established in 1948 - as Pakistan engaged India in the first war over Kashmir - to be the top body co-ordinating the intelligence functions of its army, air force and navy.
In the 1950s, when Pakistan joined anti-communist alliances, its military services and the ISI received considerable Western support in training and equipment.
The ISI's attention was focused on India, considered Pakistan's arch-enemy.
But when Ayub Khan, the army commander-in-chief, mounted the first successful coup in 1958, the ISI's domestic political activities expanded.
As a new state bringing together diverse ethnic groups within what some described as contrived borders, Pakistan faced separatist challenges - among Pashtuns, Balochis, Sindhis and Bengalis.
Much of the country's early history was shaped by politicians seeking regional autonomy and the central civilian and military bureaucracies trying to consolidate national unity.
The ISI not only mounted surveillance on parties and politicians, it often infiltrated, co-opted, cajoled or coerced them into supporting the army's centralising agenda.
Defeat and disgrace
The army ran the country from 1958 to 1971, when East Pakistan broke away with Indian and Soviet help to become Bangladesh.
The ISI and the Pakistani military were thoroughly discredited and marginalised after the war.
But they gained fresh purpose in 1972 when Zulfiqar Ali Bhutto, the new civilian leader, launched a clandestine project to build nuclear weapons.
A year later military operations were launched against nationalist militants in Balochistan province.
These two events helped rehabilitate the ISI and the military.
After Bhutto was ousted by Gen Zia ul-Haq in 1977, the Balochistan operations were ended but the nuclear programme was expanded.
In the dark
The Soviet invasion of Afghanistan in December 1979 transformed the regional setting.
All foreign assistance to mujahideen rebels at that time arrived via Pakistan, to be handled by the ISI whose Afghan bureau co-ordinated operational activities with the seven guerrilla militias.
This was done in such secrecy that the Pakistani military itself was kept in the dark.
Foreign money helped to establish hundreds of madrassas (religious schools) in Pakistan's cities and frontier areas.
These turned out thousands of Taliban (students) who joined the mujahideen in the anti-Soviet campaign.
The ISI managed this operation, handling tens of thousands of tons of ordnance every year and co-ordinating the action of several hundred thousand fighters in great secrecy.
In 1989, the Soviet Union withdrew its forces.
The 10-year-long Afghan war not only bestowed on the ISI huge experience of covert warfare, it also created for it a vast reserve of motivated manpower that could be used as its proxy in the geo-strategic horseplay of regional powers.
Despite denials from Islamabad, correspondents say there is plenty of evidence that in 1988, without directly involving Pakistan in a conflict, the ISI moved Islamic militants from Afghanistan to Indian-administered Kashmir to start an insurgency there.
India has repeatedly accused Pakistan, and especially the ISI, of involvement in Kashmir and in attacks elsewhere in India - including the 2008 Mumbai (Bombay) attacks in which gunmen killed 165 people.
Monday, June 13, 2011
US Is in Even Worse Shape Financially Than Greece: Bill Gross of PIMCO
Published: Monday, 13 Jun 2011 | 10:33 AM ET
Text SizeBy: Jeff Cox
CNBC.com Staff Writer
CNBC.com Staff Writer
When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries, Pimco's Bill Gross told CNBC Monday.
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The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.
Taken together, Gross puts the total at "nearly $100 trillion," that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won't find a solution overnight.
"To think that we can reduce that within the space of a year or two is not a realistic assumption," Gross said in a live interview. "That's much more than Greece, that's much more than almost any other developed country. We've got a problem and we have to get after it quickly."
Gross spoke following a report that US banks were likely to scale back on their use of Treasurys as collateral against derivatives and other transactions. Bank heads say that move is likely to happen in August as Congress dithers over whether to raise the nation's debt ceiling, according to a report in the Financial Times.
The move reflects increasing concern from the financial community over whether the US is capable of a political solution to its burgeoning debt and deficit problems.
"We've always wondered who will buy Treasurys" after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. "It's certainly not Pimco and it's probably not the bond funds of the world."
Pimco, based in Newport Beach, Calif., manages more than $1.2 trillion in assets and runs the largest bond fund in the world.
Gross confirmed a report Friday that Pimco has marginally increased its Treasurys allotment—from 4 percent to 5 percent—but still has little interest in US debt and its low yields that are in place despite an ugly national balance sheet.
"Why wouldn't an investor buy Canada with a better balance sheet or Australia with a better balance sheet with interest rates at 1 or 2 or 3 percent higher?" he said. "It simply doesn't make any sense."
Should the debt problem in Greece explode into a full-blown crisis—an International Monetary Fund bailout has prevented a full-scale meltdown so far—Gross predicted that German debt, not that of the US, would be the safe-haven of choice for global investors.
$600 Billion from QE2 was a shadow bailout of European Banks!!
The claim that QE 2, and more specifically the $600 billion (to date, and $750 billion through maturity) in reserves generated as a result, was nothing more than another European bank bailout smokescreen is starting to pick up steam with the contrarian intelligentsia. Here is Sean Corrigan's take on a topic which we have a very distinct feeling will be the cause of substantial Q&A between the Chairman and the Monetary Policy Subcommittee shortly. From Corrigan: "Note that while Large domestically-chartered banks have cash assets of some $509 billion v non-cash ones of $6.840 billion (a ratio of around 8%), and small domestics hold $293 billion in cash against $3,595 billion in no-cash (a similar ratio of approx 9%), foreign banks have the startling sum of $940 billion piled up against non-cash assets of $998 billion for a ratio of an incredible 94%. Put another way, despite the fact that all domestics’ combined non-cash assets amount to getting on for ten times those of foreign banks ($9,633 billion v $998 billion), they actually hold 15% LESS cash ($803 billion v $940). Once again, European banks have a lot for which to thank Mr. Bernanke, even if his fellow citizens have far fewer reasons to be grateful!"
Full note from Sean:
There has been a great deal of misplaced commentary about how the presence of some $1.6 trillion in commercial banking deposits with the Fed has somehow meant that its QE programmes were NOT increasing they money supply (they have been, by 30% since the panic first broke out) but were merely effecting some kind of wholly neutral ‘asset swap’ (yes, but the point is the Fed has been swapping bonds for MONEY!).
We have often tried to point out that while this excess reserve accumulation may mean that the classic, fractional reserve multiplication of the Fed’s injections has not been taking place to its theoretical maximum, the Fed’s programmes were, nonetheless exerting sufficient inflationary impetus all by themselves - albeit with the severe impediment that they were funding government-sponsored profligacy and zombiehood, rather than aiding the recuperation of a vibrant private commercial and industrial sector.
A breakdown of the cash ‘hoarding’ by bank origin further reinforces the point, for here we find that much of the extraordinary rise in precautionary cash holding has been undertaken by foreign, not domestic, banks.
After the salutary lesson given banks across the word when they suddenly found they could no longer roll over their short-date eurodollar funding at the height of the LEG-AIG crisis, this is hardly inexplicable. We suspect, too, that if you were to squint at the two side by side you would see the pattern of reserve holdings for this group would make for a passable a facsimile of the chart of the path of European sovereign CDS prices!
Meanwhile, US banks are notable in having added nothing more to their own backstop over the last two years or so, meaning THEY are not really holding up American creditisation to the extent some would have us believe.
To make the contrast even more clear, note that while Large domestically-chartered banks have cash assets of some $509 billion v non-cash ones of $6.840 billion (a ratio of around 8%), and small domestics hold $293 billion in cash against $3,595 billion in no-cash (a similar ratio of approx 9%), foreign banks have the startling sum of $940 billion piled up against non-cash assets of $998 billion for a ratio of an incredible 94%.
Put another way, despite the fact that all domestics’ combined non-cash assets amount to getting on for ten times those of foreign banks ($9,633 billion v $998 billion), they actually hold 15% LESS cash ($803 billion v $940).
Once again, European banks have a lot for which to thank Mr. Bernanke, even if his fellow citizens have far fewer reasons to be grateful!
NB, A year before the crisis (Sept 07), large domestic banks’ cash:non-cash ratios stood at 3.7% and small domestics’ at 3.1%, for a combined 3.5% which they have since just more than doubled. Foreign bank equivalents, however, rocketed from 7.7% to 94%.
What is also telling is that non-cash asset growth at large domestics in the intervening period has amounted to 38%, small ones’ to 18% - incidentally, not only proof that there has been no overall credit ‘deflation’ generated here, but a clear sign that TBTF corporatism and asset speculation has been the main outlet for Fed largesse – while the corresponding entries on foreign banks balance sheets have only grown a derisory 4.3%
Thursday, June 9, 2011
The Bernanke history...or how I destroyed a nations economy in 3 short years!!
From Jim Quinn of The Burning Platform
QE2 - The Bernanke Chronicles
Our self proclaimed “expert” on the Great Depression, Ben Bernanke, seems to be feeling the pressure. His theories worked so well when he modeled them in his posh corner office at Princeton. He could saunter down the hallway and get his buddy Krugman to confirm his belief that the Federal Reserve was just too darn restrictive between 1929 and 1932, resulting in the first Great Depression. I wonder if there will be a future Federal Reserve Chairman, 80 years from now, studying how the worst Federal Reserve Chairman in history (not an easy feat) created the Greatest Depression that finally put an end to the Great American Military Empire. Bernanke spent half of his speech earlier this week trying to convince himself and the rest of the world that his extremist monetary policy of keeping interest rates at 0% for the last two years, printing money at an astounding rate, and purposely trying to devalue the US currency, had absolutely nothing to do with the surge in oil and food prices in the last year. Based on his scribbling since November of last year, it seems that Ben is trying to win his own Nobel Prize – for fiction.
His argument was that simple supply and demand has accounted for all of the price increases that have spread revolution across the world. His argument centered around growth in emerging markets that have driven demand for oil and commodities higher, resulting in higher prices. As usual, a dollop of truth is overwhelmed by the Big Lie. Here is Bernanke’s outlook for inflation:
“Let me turn to the outlook for inflation. As you all know, over the past year, prices for many commodities have risen sharply, resulting in significantly higher consumer prices for gasoline and other energy products and, to a somewhat lesser extent, for food. Overall inflation measures reflect these price increases: For example, over the six months through April, the price index for personal consumption expenditures has risen at an annual rate of about 3.5%, compared with an average of less than 1% over the preceding two years. Although the recent increase in inflation is a concern, the appropriate diagnosis and policy response depend on whether the rise in inflation is likely to persist. So far at least, there is not much evidence that inflation is becoming broad-based or ingrained in our economy; indeed, increases in the price of a single product–gasoline–account for the bulk of the recent increase in consumer price inflation. An important implication is that if the prices of energy and other commodities stabilize in ranges near current levels, as futures markets and many forecasters predict, the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory.”
So our Federal Reserve Chairman, with a supposedly Mensa level IQ, declares that prices have risen due to demand from emerging markets. He also declares that US economic growth will pick up in the 2nd half of this year. He then declares that inflation will only prove transitory as energy and food prices will stop rising. I know I’m not a Princeton economics professor, but if US demand increases due to a recovering economy, along with continued high demand in emerging markets, wouldn’t the demand curve for oil and commodities move to the right, resulting in even higher prices?
Ben Bernanke wants it both ways. He is trapped in a web of his own making and he will lie, obfuscate, hold press conferences, write editorials, seek interviews on 60 Minutes, and sacrifice the US dollar in order to prove that his economic theories are sound. They are not sound. They are reckless, crazy, and will eventually destroy the US economic system. You cannot solve a crisis caused by excessive debt by creating twice as much debt. The man must be judged by his words, actions and results.
November 4, 2010
With the U.S. economy faltering last summer, Ben Bernanke decided to launch a desperate attempt to re-inflate the stock market bubble. The S&P 500 had peaked at 1,217 in April 2010 and had fallen 16% by July. This was unacceptable to Bernanke’s chief clientele – Wall Street and the richest 1% in the country. At Jackson Hole in August he gave a wink and nod to his peeps, letting them know he had their backs. It was safe to gamble again. He’d ante up the $600 billion needed to revive Wall Street. It worked wonders. By April 2011, the S&P 500 had risen to 1,361, a 33% increase. Mission accomplished on a Bush-like scale.
Past Federal Reserve Chairmen have kept silent about their thoughts and plans. Not Bernanke. He writes editorials, appears regularly on 60 Minutes, and now holds press conferences. Does it seem like he is trying too hard trying to convince the public that he has not lost control of the situation? QE2 was officially launched on November 4, 2010 with his Op-Ed in the Washington Post. He described the situation, what he was going to do, and what he was going to accomplish. Let’s assess his success.
“The Federal Reserve’s objectives – its dual mandate, set by Congress – are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.” - Ben Bernanke – Washington Post Editorial – November 4, 2010
Ben understands his dual mandate of high employment and low inflation, but he seems to have a little trouble accomplishing it. Things were so much easier at Princeton. Since August 2010 when Ben let Wall Street know he was coming to the rescue, the working age population has gone up by 991,000, while the number of employed Americans has risen by 401,000, and another 1,422,000 people decided to kick back and leave the workforce. That is only $1.5 million per job created. This should get him a spot in the Keynesian Hall of Shame.
The official unemployment rate is rising after Ben has spent $600 billion and stands at 9.1% today. A true measurement of unemployment as provided by John Williams reveals a true rate of 22%.
Any reasonable assessment of Ben’s success regarding part one of his dual mandate, would conclude that he has failed miserably. He must have focused his attention on mandate number two – low inflation. Bernanke likes to call inflation transitory. Inflationistas like Bernanke will always call inflation transitory. His latest proclamations reference year over year inflation of 3.5%. This is disingenuous as the true measurement should be since he implemented QE2. The official annualized inflation since December 2010 is 5.3%. The real inflation rate as calculated exactly as it was in 1980 now exceeds 10%.
Mr. Dual Mandate seems to have slipped up. As he stated in his editorial, he wanted to fend off that dreaded deflation:
“Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy – especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.”
He certainly has succeeded in fighting off deflation. Let’s list his anti-deflation accomplishments:
- Oil prices have risen 35% since September 2010.
- Unleaded gas has risen 50% since September 2010.
- Gold has risen 24% since September 2010.
- Silver has risen 85% since September 2010.
- Copper has risen 20% since September 2010.
- Corn has risen 67% since September 2010.
- Soybeans have risen 40% since September 2010.
- Coffee has risen by 44% since September 2010.
- Cotton has risen 88% since September 2010.
Amazing how supply and demand got out of balance at the exact moment that Bernanke unleashed a tsunami of speculation by giving the all clear to Wall Street, handing them $20 billion per week for the last seven months. Another coincidence seemed to strike across the Middle East where the poor, who spend more than 50% of their meager income on food, began to revolt as Bernanke’s master plan to enrich Wall Street destroyed the lives of millions around the globe. Revolutions in Tunisia, Egypt, Libya, Yemen, Bahrain, and Syria were spurred by economic distress among the masses. Here in the U.S., Bernanke has only thrown savers and senior citizens under the bus with his zero interest rate policy and dollar destruction.
Bernanke’s Virtuous Circle
“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.” Ben Bernanke – Washington Post Editorial – November 4, 2010
Ben Bernanke could not have been any clearer in his true purpose for QE2. He wanted to create a stock market rally which would convince the public the economy had recovered. As suckers poured back into the market, the wealth effect would convince people to spend money they didn’t have, again. This is considered a virtuous cycle to bankers. He declared that buying $600 billion of Treasuries would drive down long-term interest rates and revive the housing market. His unspoken goal was to drive the value of the dollar lower, thereby enriching the multinational conglomerates like GE, who had shipped good US jobs overseas for the last two decades. Bernanke succeeded in driving the dollar 15% lower since last July. Corporate profits soared and Wall Street cheered. Here is a picture of Bernanke’s virtuous cycle:
Whenever a talking head in Washington DC spouts off about a new policy or program, I always try to figure out who benefits in order to judge their true motives. Since August 2010, the stock price of the high end retailer Tiffany & Company has gone up 88% as its profits in the last six months exceeded its annual income from the prior two years. Over this same time frame, 2.2 million more Americans were forced into the Food Stamp program, bringing the total to a record 44.6 million people, or 14.4% of the population. But don’t fret, Wall Street paid out $21 billion in bonuses to themselves for a job well done. This has done wonders for real estate values in NYC and the Hamptons. See – a virtuous cycle.
Do you think Bernanke mingles with Joe Sixpack on the weekends at the cocktail parties in DC? Considering that 90% of the US population owns virtually no stocks, Bernanke’s virtuous cycle only applied to his friends and benefactors on Wall Street.
But surely his promise of lower interest rates and higher home prices benefitted the masses. The largest asset for the vast majority of Americans is their home. Let’s examine the success of this part of his master plan. Ten year Treasury rates bottomed at 2.4% in October 2010, just prior to the launching of QE2. Rates then rose steadily to 3.7% by February 2011. I’m not a Princeton professor, but I think rising rates are not normally good for the housing market. Today, rates sit at 2.9%, higher than they were prior to the launch of QE2.
I’m sure Ben would argue that interest rates rose because the economy is recovering and the virtuous cycle is lifting all boats (or at least the yachts on Long Island Sound). Surely, housing must be booming again. Well, it appears that since Ben fired up his helicopters in November, national home prices have fallen 5% and are accelerating downward at an annual rate of 10%. There are 10.9 million home occupiers underwater on their mortgage, or 22.7% of all homes with a mortgage. There are over 6 million homeowners either delinquent on their mortgage or already in the foreclosure process. It certainly looks like another Bernanke success story.
Bernanke’s conclusion at the end of his Op-Ed in November 2010 was that his critics were wrong and his expertise regarding the Great Depression trumped rational economic theory. By enriching Wall Street and creating inflation, his virtuous cycle theory would lead to job creation and a chicken in every pot.
“Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation. But the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability. Steps taken this week should help us fulfill that obligation.” Ben Bernanke – Washington Post Editorial – November 4, 2010
Anyone impartially assessing the success of QE2 would have to conclude that it has been an unmitigated failure and has put the country on the road to perdition. In three weeks, the Federal Reserve will stop pumping heroin into the veins of Wall Street. The markets are already reacting negatively, as the S&P 500 has fallen 6% and interest rates have begun to fall. As soon as Bernanke takes his foot off the accelerator, the US economy stalls out because we never cleaned the gunk (debt) out of the fuel line. Jesse puts it as simply as possible.
“The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.” – http://jessescrossroadscafe.blogspot.com/
Bernanke and his Wall Street masters want to obscure the truth so they don’t have to accept the consequences of their actions. The economy and the markets will decline over the summer. Bernanke is a one trick pony. His solution will be QE3, but it will be marketed as something different. He will appear on 60 Minutes and write another Op-Ed. Ben Bernanke will go down in history as the Federal Reserve Chairman that brought about the Greatest Depression and hammered the final nails into the coffin of the Great American Empire.
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