The Case Against Bernanke

From a comment by Numerian:

Besides the failures cited above to fulfill the Fed’s mission, he has also:

1) Continued to ignore asset bubbles, including the recent one in commodities.

2) Maintained a zero interest rate policy that represents a transfer of wealth from savers to a handful of failed large banks, that have refused to use their profits to lend to businesses or consumers. This policy has also deprived savers, especially the elderly and retired, of any decent interest income, forcing them to seek out risky assets like equities or commodities, thus fueling the bubble in these sectors.

3) Spoken repeatedly of the need to revive the economy through reflation and a restoration of the credit markets to their pre-2008 level, when the housing bubble was at it peak. Most of his rescue initiatives have been consistent with this policy goal.

4) Never once talked about the importance of deleveraging in all sectors of the economy, through either debt paydowns or defaults, as a necessity before the economy can revive. This would have forced Congress and the administration to deal seriously with the individual suffering caused by this deleveraging process.

5) Succored major banks with bailouts and ongoing preferential treatment, when these banks are very likely insolvent, judging by how the stock market treats them. This is a repeat of the Japanese experience with “zombie banks”, which led to 10 years of economic stagnation.

6) Usurped the Congressional power to borrow and spend by ballooning the Fed balance sheet without reference or approval from Congress.

7) Persistently allowed new banks like Goldman Sachs and Morgan Stanley to continue to act like investment banks or hedge funds.

8) Maintained a shroud of secrecy over Fed decisions and actions in the credit crisis, even to the point of filing delaying and obstreperous suits to prevent enforcement of court “sunshine” orders.

9) Insisted that the Fed’s low interest rates during the 2001-2002 recession had nothing to do with the ensuing housing bubble, an argument that is considered risible by almost all economists.

10) Received the strong endorsement of Alan Greenspan.

‘Nuff said.

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Sean Paul Kelley

Traveler of the (real) Silk Road, scholar and historian, photographer and writer - founder of The Agonist.

12 CommentsLeave a comment

  • I so want Volcker back in that job, but he’s so damned old he might kick off once he gets the real data. Instead we’d probably end up with Larry Summers. Ugh.

    Forty aka @broudy 2

  • Money talks, bullshit walks. And Bernanke is in need of a very long walk, by that standard.

    “I shall continue to be an impossible person as long as those who are now possible remain possible.”

    — Mikhail Bakunin

  • He has failed to use Fed regulatory powers to clamp down on big banks which charge preposterous fees of $35 or more on $1.00 overdrafts which never would have existed if the banks gave timely credit for consumer deposits. In the same manner, he has ignored usurious interest rates of 29% or higher charged consumers on credit cards, while banks are allowed to fund themselves at a 0% interest rate at the Fed.

  • And other risky assets like commodities. Treasuries and cash in safe banks – which largely means community banks that have escaped the problems of the mortgage and commercial real estate markets – are probably the safest investments for the difficult years ahead.

  • The problem is that gold is not very liquid. If bars leave the ‘good delivery’ trading system then they have to be re-verified, which damages the value. I had a bit of bullion in zurich thru bullionvault, but what good does that do you if everything finally goes nuts?

    Still, even if there is a gold bubble it doesn’t compare to the price suppression of the COMEX fake ‘paper gold’ system, wherein contracts are drawn upon stuff in a vault that may or may not be there. Once this runs out, the ‘virtual supply’ would be gone and hence gold would have to rise in value it seems.

  • TIPS in a Roth are pretty darn safe and will ride through the inflation nicely. Not liquid though… tied up until maturity.

    If you are confident about the wild ride, there are more than enough ultra-short ETFs out there to pick and choose whatever the worst of the moment is.

  • That’s one of the problems technicians have with the gold boom. Gold rose to new price highs, but silver did not. In a healthy market all the precious metals should have reached new highs close together. This non-confirmation by silver of gold’s all-time high makes the gold high suspicious, since these types of non-confirmation are often seen at commodity tops and bottoms.

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