Thursday, December 24, 2009

Ben Bernanke as the Wizard of Oz

Is it all just a Ponzi scheme? – Sprott Asset Management  h/t  Must reading.

Not only does the Fed not tell us what’s charging off on the asset side of its balance sheet, of all the crap they’ve taking in, but the Treasury’s accounting for purchases of Treasury securities suggests the Fed has been much busier than they have admitted, monetizing US federal debt, and that international demand for our sovereign debt is much weaker than most imagine.

I called my Senators and told them not to reappoint Bernanke.  Even though I have a Ph.D. in economics and lots of industry experience, I have trouble fathoming what’s going on.  But some things stand out:  WaMu failed and the depositors were just fine.  They found people to run the bank.  Most big banks have infrastructures that run themselves largely independently of the wheeling and dealing that occupies the fat cats.  As Barry Ritholtz and I and others have pointed out, the bailouts represented the largest wealth transfer in the history of the world.  And in this case the transfer of wealth was upwards, from taxpayers to the generally well-heeled bond and equity investors—and the very well compensated managements—of the rescued institutions.  This was truly obscene.

And now Ben Bernanke has apparently decided that he needs to rescue the US government.  This is pretend and extend on a massive scale.

I surmise that the monetary authorities of the world are trying to orchestrate a global debt jubilee through rampant coordinated inflation, perhaps hyperinflation once it gets going—and that the Vampire Squids of the world, the Goldman Sachs and as a class the well-heeled speculators of the world with deep pockets and even deeper access to leverage, are just salivating over the opportunity to lever up again after the next debt-deflationary collapse circa 2013 (and there must be another debt-deflation because we still carry all that bad debt on the books).  Debts that can’t be repaid get charged off sooner or later—unless the Fed buys them and never tells us about them, in yet another secret monetary transfer to the wealthy!

This reminds me of the cyclic universe theories, in which the universe goes from big bang up and down to big bust in a new singularity, over and over again.  For surely the next leveraged rip-off by the moneyed class in the almost inevitable inflation to come will enable further strangulation of honest working people around the world, and further increases of inequality, that primary cause of the current collapse of effective demand.

For most people, money in the bank is a deposit, not a loan.  It’s money.  The feds could have insured deposits up to $250,000 or more and let all the big bankrupt financials collapse and most people wouldn’t have noticed any more than a change in the sign on the bank. And then with all the bad debt and the bad managements cleared out of the system, we might have started to work towards having sound money. 

But that would have required a kind of backbone and commitment to principle that our federal government and the Fed don’t have. 

The Fed blew it, and continues to blow it, if Sprott’s analysis is correct.  Volatility of all kinds is bound to increase once the inflation begins.  We are in the eye of the storm.

1 comment:

  1. "But that would have required a kind of backbone and commitment to principle that our federal government and the Fed don’t have."

    Couldn't have said it better myself. And that's been my biggest "WTF?!" question through all of this - this entire crisis is nothing but an accounting entry. So why oh why does it require every single drop of ink the Fed's got to fill their printer to get us out of it?

    The irony being, of course, that we can't print out way out. But oh well, Zimbabwe Ben and the rest of the Dollar Demolition Crew will find that out soon enough...