Bernanke Signals What Is Coming

BernankeThe HeroIt looks like Ben Bernanke is getting ready to exit. That is Mr. Bernanke, not the Federal Reserve. He is leaving before the roof caves in.

Bernanke is getting ready to vacate his position. Apparently Janet Yellen is dumb enough to replace him, although that is not yet confirmed. What kind of a person steps in front of a speeding train when there is nothing that can be done to stop it?

The Federal Reserve has no plans to exit. It is not possible based on simple economic observation. Even Mr. Bernanke agrees:

“I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low,” Bernanke told the House Financial Services Committee.

“If we were to tighten policy, the economy would tank.”

(Courier Mail)

By my count we are now in our fifth “Recovery Summer.” Of course this summer is no different than the previous four. There is no recovery, there can be no recovery and there will be no recovery.

The Fed has no way to reverse the expansion in its balance sheet. Nor does the government have the means to service its debt and promises. All that the Fed has achieved is to extend the terminal patient’s life by providing life support. Once the plug is pulled, the patient dies. The economy, the financial system and government’s ability to pay its bills will die simultaneously.

Yes, it is that simple. Nothing can be done to avoid this fate! We are too deep into an economic death spiral.

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2 Comments

  1. The very outer reaches of the death spiral if at all. Who knows how large the Fed’s balance sheet can get? If the 10 yr creeps up to around 4%, there could be lots of willing buyers.
    As long as congress remains divided, there aren’t going to be any large new spending programs. Wouldn’t be surprised if Obamacare is delayed further. Was talking with local Blue Cross provider rep., they’re still trying to work out what plans to offer in the state exchange. As far as the the big problem of entitlements goes, an immediate increase in the retirement age to 70, and a 10% cut in benefits, and a 10% increase in premiums for the top 33% of beneficiaries would extend the life of the program for as long as any of us need worry about. Medicare needs to be transitioned to a voucher system to introduce more market forces into the system. Otherwise there are going to have to be significant premium increases especially for high earners and probably limitations on care for recipients under the guise of “treatments not shown to be beneficial. These things are going to happen one way or another, either through the present representative process or by dictatorial fiat.

    1. Your confidence in the criminal class doing the right thing exceeds mine. They always act in their own best interests.

      From the standpoint of a citizen, it makes sense to “save” the country. I am not sure it does from theirs. Politicians merely “rent” as opposed to own. Renters have no interest in preserving the capital value of an asset, only maximizing their enjoyment while they “own” it. Have you ever washed or changed the oil on a Hertz rental car?

      Politicians do not want the country to die on their watch. That is why they always engage in temporary fixes, ones which defer the problem(s) while ultimately making them bigger some time down the road. That is rational behavior for them, but not the country.

      I hope you are right, but, if so, I think the nonsense would have stopped long before now.

      There is a bigger issue involved than a couple of failing sub-systems. I hope to have a post on that this week.

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