The Folly Of Bernanke
The Market Ticker ® - Commentary on The Capital Markets
Posted 2012-09-16 10:34
by Karl Denninger
in Editorial
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The Folly Of Bernanke
 

Much ink has been spilled, including by myself, in the immediate aftermath of Bernanke's idiocy with "QE3".

But we should all remind ourselves of two ugly and inescapable facts:

1. QE is allegedly about "creating jobs"; this is the part of Bernanke's mandate that he claims is falling short.  (Note that he completely ignores "moderate long term interest rates"; an under 2% 10 year is anything but moderate)

2. There have been no jobs created, net of working-age population increases, since QE-anything began.

We can prattle on about this, that and the other thing, but we cannot escape this reality.  The only thing that matters when it comes to employment is the percentage of working-age people that have jobs.  That's it.  It's all there is from a standpoint of economic progress and it's also all there is from a standpoint of fiscal sustainability as only the employed pay taxes.

QE has been an abject and objective failure.

Period.

The real reason for QE is that the banks are still ridiculously levered compared to both historical norms and sustainable levels.

This has expressed itself in housing -- and still does, despite what you hear on CNBS:

That latter chart, incidentally, implies a further 50% decrease in the price of houses -- or a doubling of GDP -- is somewhere in the offing.  (Or, of course, some combination of the two.)  Since a doubling of GDP will take literal decades at a 1% growth rate the obvious answer to that riddle is found in home prices.

Preventing this correction in the banking system, which is inherently tied to home prices, is what QE is about.  The Fed and Federal Government are walking hand-in-hand in this regard, as the Federal Government is handing out money like seawater at oceanside to everyone under the sun in ever-increasing numbers -- food stamps, Medicaid, student loans, you name it -- all in a puerile and ultimately futile attempt to protect a financial system that got too full of itself and then turned to fraud and scam in an attempt to keep the "money train" rolling.

But without capital formation the economy cannot recover.

Capital formation requires a positive rate of return on lent capital.

ZIRP and QE destroy that positive rate of return on lent capital.

Oh sure, in the short run the stock market loves "more liquidity" -- much like a drug addict loves his meth and a drunk loves his booze.  But the drug addict eventually rots his teeth and his brain turns to mush, while the drunk winds up with liver cancer. 

Both must either stop the stupid or die.

So must we.

Much of the misery and rage we see around the world is tied to high commodity prices.  And those are also tied to currency debasement and speculation fueled by excess liquidity.

We have a toxic witches' brew created by an evil, deranged and delusional wizard and his minions, and if that wizard is not caged and his minions put out to pasture it will not be long before the damage becomes so great that the system folds back on itself and collapses.

There are solutions to this mess but there are no easy solutions.  There are no solutions that do not involve admitting what we've done and shutting off the "free money" spigot along with the exponential expansion of credit.

We have already hit that wall.  Everything since 2008 has been nothing more than an attempt to restart exponential credit creation and the attempt has failed, as total systemic debt has only grown 1.85% since 2008.

This is very important to understand -- QE began at the end of 2008 and its intention was to "spur lending" -- that is, restart the exponential credit cycle.

It has objectively and factually failed.

The market may well take a while to suss this out and come to the inevitable conclusion about what this means for solvency of financial institutions and households, along with asset prices.

But the market will figure it out.

It always does.

Bernanke has fired his last round, but all of them since the first QE have objectively been a clean miss, and there's no evidence available that this will be any different.

Consider that financial leverage chart and its implications -- and be prepared.

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User Info The Folly Of Bernanke in forum [Market-Ticker]
Drench
Posts: 28631
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Green
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Quote:
"One of the most insidious things a government can do to its people is to debase its currency," Ryan said at an outdoor rally in Oldsmar, Florida. "We want honest money; that means we want honest government. It's one and the same. Now the secret to prosperity is not more money printing."

Ryan said QE3 might help banks on Wall Street but will do little to help middle-class families.

"We don't need sugar high economics; we don't need synthetic money creation," he said. "We need economic growth. We want wealth creation. We don't want to print money. We want opportunity and growth. And when they do this to our money, it undermines the credibility of our money."
http://politicalticker.blogs.cnn.com/201....
Etz
Posts: 13891
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LA
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Excellent post. Not your usual MSM propaganda.

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Ktrosper
Posts: 1500
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Silver
ft collins co
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Yep, this has all been a silly, futile attempt to keep housing prices artificially inflated. The banksters needed to stave off deflation AT ALL COSTS... But to what end? They aren't stupid. I'm sure they too have a tough time answering the question, "Where will future demand come from?"...

Was it all just a game to buy them enough time to move these phantom assets off there books? I'd love to know how much liability has been shifted from the private banks to the backs of the taxpayers... Has most of it been shifted at this point??

Is this latest QE3 announcement just another way to move that garbage off their books?

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D

Jstanley01
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Silver A True American Patriot!
San Antonio, Texas
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"Insanity: doing the same thing over and over again and expecting different results."

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You can't cheat an honest man. ~P.T. Barnum
Clintb350
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Southern AZ
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Nice ticker - Typo alert
Quote:
that this will be any difference

Ten Things: http://market-ticker.org/akcs-www?post=1....
Mo
Posts: 12158
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Pa.
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Except Ryan has hitched his wagon to the Romney star. And Romney is all about sugar highs, the financialization of the economy and counterfeited money for the one percent.

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Welcome to Pottersville

Veedubforlife
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United States
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While I certainly disagree with Romney on a lot of issues, one thing I can respect is that he has directly said he will not reappoint Bernanke if he is elected.
Dji
Posts: 1245
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Silver
Ponzi world 3rd rock from the sun
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How do you spell/define FAIL?

Bernanke

Dictionary need to make some updates asap.

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Don't be a bag holder-Me

What goes up Must come Down- Alan Parsons Project
Gdcanada
Posts: 4
Incept: 2011-10-22

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QE is working
Thay will pass the loot to their kids
You will pass the payments on to your kids


Bankers don’t care about the US
They have stolen the money and are NOT about to be exposed
IMO

Go Bill stills

If it’s made in china, sell it in china
The garbage dumps of the world are full of their crap………G.D.Canada
Trades50
Posts: 4218
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Silver
Land of Tax and Spend
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If QE forever doesn't work there is always the political way, more taxes.


http://www.forbes.com/sites/robertwood/2....


If Soda Tax Can Make it in NY it Can Make it Anywhere

New York is on its way to a historic Soda Ban. Call it an Obesity Check or Big Soda Prohibition. Like so much else Bloombergian, it’s historic. It’s One Small Soda for Man, One Giant Soda Nixed for Mankind. But will it work?

As a consumer, I think we should be able to buy a big soda without having to buy two small ones. But as a tax lawyer, I was persuaded by this: NYC’s Soda Ban Is A Good Idea, But A Tax Would Be Better. In a study published in Health Affairs, experts estimated that a 15 percent cut in consuming sugared beverages among 25-64 year olds would prevent staggering numbers of deaths and serious illnesses, not to mention saving billions in medical costs

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R2judge
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But the market will figure it out. From June the stock market has gone onward and upward as it had figured out that QE3 was coming. All bad news was good news.

"Ryan said QE3 might help banks on Wall Street but will do little to help middle-class families.

"We don't need sugar high economics; we don't need synthetic money creation," he said. "We need economic growth. We want wealth creation. We don't want to print money. We want opportunity and growth. And when they do this to our money, it undermines the credibility of our money."


Gee, where was Ryan said, when the credit bubble was being blown sky high during the Bush administration? Was he chortling "tax cuts worked", as the value of the dollar sank due to synthetic money creation?

Ryan loves the credit printing, as long as it benefits him.


Aztrader
Posts: 6650
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Scottsdale, AZ
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Due to the unlimited printing comments I think that part of this is to protect Europe from imploding. What is going to stop Bernanke from buying paper in Europe. This is all about saving his beloved banks and their biggest threat is Europe.
We know that he is doing all this swap BS with the European banks and what stops him from buying sovereign paper. The Fed is out of control and should finish off most of the middle class by this time next year.

Just saw this BS from Calculated Risk:

http://www.businessinsider.com/why-ben-b....

Reason: new link
Throxxofvron
Posts: 10337
Incept: 2009-02-17
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Quote:
That latter chart, incidentally, implies a further 50% decrease in the price of houses -- or a doubling of GDP -- is somewhere in the offing. (Or, of course, some combination of the two.) Since a doubling of GDP will take literal decades at a 1% growth rate the obvious answer to that riddle is found in home prices.


1. It is conceivable that the United States could begin to actually ramp GDP -REAL honest GDP -via a multi-trillion dollar Thorium Nuclear Power and Synthetic Gasoline Program.
CHEAP Energy -I mean soooooo unbelievably CHEAP that Nat-Gas and fracking, solar, wind, and the rest of the marginal energy technologies are effectively abandoned- might be the way for the US to get out of this mess; but, time is running VERY short to implement such a solution on the scale necessary to prevent collapse.
-This of course would probably result in the bankruptcy of many energy consortia...

2. The Thorium/Synth Fuel Solution will ONLY work IF the Government is entirely reformed.
Cheap energy is NOT going to magically solve the insolvency of Banking Institutions, extend Ponzi schemes in .GOV finance, or provide unlimited Health Care spending or Lavish Retirement Packages to the entire Populace of the Nation.

3. ALL unequal applications of the Laws and Regulations must cease; otherwise ANY & ALL the profits and gains in productivity made possible by implementation of new cheap energy infrastructure will be sequestered/expropriated/stolen by Politically favored 'Constituencies' such as the Banks, the Health Care Industry/Big Pharma, & Big Agra.

4. The Military Industrial Congressional Complex, the Prison Industrial Congressional Complex must be reformed and diminished considerably.

-This means an END TO most Foreign Adventures and to ALL Undeclared Wars/Police Actions/etc.
This means an end to 'Nation Building', 'Spreading Democracy' and the like.
Other Nations will have to learn to live in peace with their Neighbors or defend Themselves from the aggressions they provoke.
No more U.N.
No more bending over for Israel OR Saudi Arabia and it's proxies.
No more funding or arming the likes of Al Queada or the Sinola Cartels under ANY circumstances.

5. This also means an END to ALL of The Domestic BULL**** WARS™ as well.

ALL OF THEM:

-The 'War On Drugs', the 'War On Terrorism', 'War On Poverty'/Wealth Redistribution', etc....

You CAN'T HAVE your GDP and allow it to be squandered on BULL**** WARS™ and Domestic Repressions, absconded with by the Rentier Classs and the Free **** Army, diverted away from the Nation producing it by the War Mongers/Foreign Interventionists/Zionists/U.N. Globalists/Nation Builders; or*****ed away proping up Failed/Criminal Institutions and Failed/Criminal Individuals by Socializing their failures, too.

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DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell

Steelhead23
Posts: 2043
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Portland OR
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Quote:
Bernanke has fired his last round,...

I doubt it. The man is unable to admit defeat. I suspect Ben is already looking past his days as the Fed Chair and has begun discussions with the banksters about his next career move - Chairman of the Board or CEO of one of his current clients. You identify his legal mandates and call FAIL. Agreed. But, when serving as a backstop for his clients and benefactors, he has been hugely successful.

Let me be clear. Americans need not look to distant shores to see the enemies of the USA. Our most dangerous enemies wear pinstripes, they sit in board rooms and the pinnacles of government. They are paternalistic aristocrats - and criminals. They believe we are too stupid to manage ourselves, so they'll do so for us - while robbing us blind. After all, in their minds, they are the talent that makes the world go round. Do not be deceived.

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"Give me control of a nation's money and I care not who makes it's laws" —Mayer Amschel Bauer Rothschild Benjamin Bernanke
For-profit commercial banks are a menace and should be eradicated
Andysvw
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Tujunga Ca
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Yep. That is the only hurdle. The rule of law must be fair and equal to all. A fundamental shift in how we think as a society. A shift from Me to WE.
Vernonb
Posts: 398
Incept: 2009-06-03
Silver
State College, PA
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Quote:
If QE forever doesn't work there is always the political way, more taxes.



Who needs taxes when you can create QE to infinity. In fact this is the tool of political tyrants from Rome (Nero and Commodus) to the modern day for governments to lend beyond its means for political favors.

QE is a backdoor way of implementing taxes by stealing the wealth of citizens and destroying the ability to grow capital. A 'free' nation's citizenry now unable to invest and plan cannot create more real wealth for that nation.

The only people that benefit from QE are governments attempting to pay off the debt with fiat wealth and the persons that know what will happen early (inside knowledge) and use that leveraged finance to obtain true early assets (before the inflation cycle) knowing the system WILL collapse.

Bernake's decision was not made overnight - this was a DELIBERATE plan with the banks, insiders, and the government. This has been in the works for a long time. As long as Ben can continue to re-inflate the game keeps running. The longer the game runs - the more people that get sucked into the debt hole's event horizon. If you borrow or not you are being affected - via price increases.

When the clock resets (financial collapse) they now have their stolen assets as backing for capital. The only problem is that these robber barons can only lend to one another. The average citizen will be nothing but a slave in the end and the middle class destroyed.

The system must collapse for the conspirators to get their ill gotten gains. Meanwhile the middle class loses its ability to purchase articles outside of true needs daily. In the end all previous free capital is consumed to survive.

After bashing Gold for so long I see Obama financiers and 'policy advisers' as Soros and Buffet as well as many central banks trying to get a much precious metals as possible. I feel their efforts are misguided but it shows how greed works.

I looked at the article below from the post above. Typical CNN last line - Obama spokesman says Ryan has done nothing to help the middle class. Really? Well tell me then what has Obama done for the middle class besides imposing more taxes and letting the fed devalue the savings of American's daily? You could sieze every dollar in the country today and NOT pay off the debt because of Obama.

Quote:
The Obama campaign rejected Ryan's effort to tie the administration to big banks, pointing to independent studies showing that Romney's tax plan favors high-income earners at the expense of the middle class.

"Congressman Ryan has no credibility when it comes to helping the middle class," said Obama spokesman Danny Kanner.


Green Day - American Idiot

http://www.youtube.com/watch?v=3XlqudTC-....

http://politicalticker.blogs.cnn.com/201....

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"The welfare of the people in particular has always been the alibi of tyrants, and it provides the further advantage of giving the servants of tyranny a good conscience.”
-Alber Camus (1913-1960)

Reason: oops - not ready yet
Uppity_peasant
Posts: 3121
Incept: 2009-06-26

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It's also possible that the Bernank had no other choice than to QE3 NOW, or face fail within a matter of weeks.

That would be a sobering thought.

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====
If it's true that "assault weapons" are "weapons of war" and don't belong on the streets of America, why do the police need them? Who are the police at war with?
Throxxofvron
Posts: 10337
Incept: 2009-02-17
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Hyper-Speculative Psycho-Facsistic Parabolic Blow-Off
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THE FACT THAT QE3 CANNOT SOLVE THE PREDICAMENT OF MASS INSTITUTIONAL INSOLVENCY SHOULD BE EVEN MORE SOBERING.

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DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell

Bertdilbert
Posts: 2666
Incept: 2008-12-22
Gold
CA
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Bernanke has not shot his load. He can place concurrent programs on top of the existing QE.

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Dear Euroland: Relax, Germany has a plan for your money!

Political Capital Defined: We are out of money but will tax our citizens for whatever it takes to "SAVE" the Euro.
Throxxofvron
Posts: 10337
Incept: 2009-02-17
Green
Hyper-Speculative Psycho-Facsistic Parabolic Blow-Off
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ALL THAT BERNANKE CAN DO IS DEBASE THE CURRENCY BY ONE MEANS OR ANOTHER -AND VIA THAT DEBASEMENT STEAL.

THAT'S IT.

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DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell
Gtw341
Posts: 5
Incept: 2009-11-01

Niceville, FL
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Once the Fed buys up all these MBS, will they then have Congress pass a law stating that nobody can bankrupt against their mortgage that is owned by the government--similar to the student loan situation? Is this what we have to look forward to?
Rickyd
Posts: 585
Incept: 2009-07-07
Gold
Ontario, Canada
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Question...is Bernanke buying OLD MBS paper or only NEWLY originated "investments"?

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"We have a crisis of values that is extremely deep"
Professor Jeffrey Sachs of Columbia University
Andysvw
Posts: 1761
Incept: 2010-06-26
Green
Tujunga Ca
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They could just move the decimal point. Not that thats not what they are in effect doing. JMO
Billy_ray_v
Posts: 1040
Incept: 2010-10-08

east of the rockies
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I am just about willing to finance a point to point up armored limo
that contains Smacktle the very next time that the GD "SCHOLAR is in front of a camera.
So everyone can rewind it back and forth.
Like the extended beat down cut from GRAN TORINO
that was on u toob.

CreamPie or face punch fine for me.

/satire

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When a country allows itself to be coerced,it has to suffer
the consequences.
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