News & Analysis
Central Banking Tsunami
Bernanke: Expect 3 to 4% growth in U.S. economy in 2011 ... ABC News' Arlette Saenz reports: Fed Chairman Ben Bernanke said the economy will see a three to four percent growth in 2011, but it will not hasten the reduction in unemployment. "We see the economy strengthening. It's looked better in the past few months," Bernanke said. "We think a 3 to 4 percent growth number for 2011 seems reasonable ... That's not going to reduce unemployment at the pace that we'd like it to, but certainly, it'd be good to see the economy growing and that means more sales, more business." Bernanke's comments came at a small business forum where he discussed topics ranging from the availability of credit to small businesses to the need for prudent banking. "We got in trouble in the first place by making too many bad loans, right. So you've got to make good loans. We've got to have credit worthy borrowers." – ABC
Dominant Social Theme: Things are getting much better.
Free-Market Analysis: Very interesting. The economy will grow by three to four percent in 2011, according to Federal Reserve Chairman Ben Bernanke, but unemployment will remain. Meanwhile, according to Bernanke, the horrid spectre of deflation has been averted for the moment. Finally, banks are getting back to basics and making "prudent loans," instead of rash ones that led to the "trouble" of 2008. Really folks, what's this man smoking?
Reality and Bernanke continue to diverge in our opinion. There are three reasons for this. First of all, the numbers that estimate economic growth in the US are fairly suspect, as suspect as the "unemployment rate" in fact. Second, deflation is probably not the real problem that the US will face in the future. Third, it wasn't banks making bad loans that caused the systemic problems of the 2008; it was endless money stimulation over at least three decades that introduced intolerable distortions. Don't take our word for it. Here's an excerpt from an editorial that appeared in Forbes by Reuven Brenner, who holds the Repap Chair at McGill's Desautels Faculty of Management:
Ben Bernanke's Elixir: Mixing Monetary Nonsense ... The long-term impact of what Ben Bernanke is doing is disastrous for the United States. His policies prevent the dollar value of assets on banks' balance sheets from falling, thus keeping poorly managed banks in business. This policy is dragging down the dollar, prolonging the crisis, and slowing down the U.S. recovery.
There's no need to go into any macroeconomic gobbledygook, technical vocabularies of QEs and monetary policy to understand this. And there's no need to delve into elusive debates about just what do central bankers mean when they talk non-stop about how they mitigate undefined "risks." ... The present policies of the Fed achieve one thing: They keep the banks in business by sustaining the nominal dollar value of bank assets. After all, there are only two ways to sustain (or increase) the dollar value of assets on the banks' books ...
The Federal Reserve is currently preventing the dollar-value of assets on the banks' balance sheets from falling; real estate in particular, but also securities traded on the stock market. That is what a zero interest rate achieves: it allows banks to stay solvent and prevents nominal values on their balance sheets from falling ... A side effect of the Fed's zero-interest policy is that it reduces the value of the dollar. The country is in fact becoming poorer. Worse, the banks are not put on firmer footing. Although the Fed is restoring the banks' capital, the policy cannot create competent bankers.
While Brenner's diagnosis is grim, he believes that the Fed's policies have been mitigated by similar policies in other countries such as Russia and Brazil and whole regions such as the EU. He has a point. The central banking economy is worldwide now and all regions are essentially engaged in a "race to the bottom" – debasing their currencies by printing too much – in order to prevent a strong currency from interfering with trade.
Of course, misery may love company, but that doesn't necessarily alleviate it. The Fed is still the central bank that stirs the drink. Recent audits reportedly show that the Fed printed trillions and gave them away not just to US companies but to a startlingly broad spectrum of financial and corporate institutions overseas in Europe and even Asia. As we have often pointed out, the current economic system is an Anglo-American one and when it collapsed in 2008, the Fed raced to the rescue.
But make no mistake: the dollar-reserve system died in 2008. Not banks, not just multinational corporations, not even whole countries ... the entire, dollar-based world was basically faced with a rolling insolvency. That's what happens when economic imbalances get too big and financial distortions become intolerable. And so the Fed printed money – and other central banks did too.
Back then we estimated that total amount of money printing by central banks to save the system might amount to US$100 trillion, and estimates are that the Fed alone may have injected some US$20 trillion into the world's economy. (Nobody outside the Fed really knows for sure right now.) We figure in aggregate other countries have done about the same. Peg the total amount printed by the world's central bank to "reliquify" the system at US$50 trillion. We're halfway there.
There are consequences of course. We remember in the 1970s, Paul Volcker took over the US central bank and pushed interest rates up near 20 percent to control that country's raging price inflation. But Volcker didn't have to contend with US$50 trillion in excess paper sloshing around the world. Inevitably, it will prove impossible to "sterilize" these massive amounts of currency. Eventually it will not be price deflation that Bernanke has to worry about but price INFLATION. Serious inflation.
The 2000s are like the 1970s on steroids. It took 20 percent interest rates to freeze the American economy and stop the price-inflation cycle in 1981. But the resultant recession was as severe as any America has had in recent memory. What is it going to take to stop the price-inflation in the 2000s? Fifty percent interest rates? It is nearly impossible in our view. Bernanke is predicting "modest growth" in America for 2011. But this is like predicting a sunny day at the beach when far out at sea a tsunami has formed and is heading for shore.
There are other ramifications to what the current crop of central bankers have done. Bernanke et al. haven't really saved the system; they've simply kept it afloat. And what have they accomplished? The banking industry simply remains cocooned inside the world's biggest bubble. Central banking itself is a bubble though people don't think of it that way, but those who print the money decide which industries expand – and no self-respecting central banker is going to let the central-bank distribution system (commercial banks) deflate. And so the banking business just gets bigger and bigger.
There is no reason for such a big banking industry. In fact, banks, at root, are nothing but money-warehouses; during the industrial revolution, funding for businesses often came locally, from extended families and partnerships. But that is not how our modern economy works. Central banks have created a massive, Western banking infrastructure and they use it to fund massive multinational companies – and this results in a kind of Anglosphere brand imperialism. Coca-Cola and Kentucky Fried Chicken are to be found throughout the world. The world may not need Coca-Cola, but the powerful dollar reserve system has made Coke's ubiquitiousness possible.
As we have pointed out, the West's industrial system – especially America's – was insolvent in 2008. Printing up to US$50 trillion worldwide has ameliorated the insolvency but not basic problem, which is one of economic distortion. There is no way of knowing today what companies are serving a legitimate marketplace need and what firms have merely stayed in business thanks to central banking funding.
Is GM a viable company, for instance? It has received billions in funding from the government and from a public stock offering, but has all this money reinvigorated a failing firm or merely postponed the inevitable decline? By propping up so many companies, central banks have made it impossible for the Invisible Hand to sort through enterprises and weed out the weak. This is why unemployment remains high in America and Europe. Few are willing to lend because is not possible to identify what companies are healthy. This is not a local phenomenon. The Anglosphere's central banking economy has spread the distortion across continents.
The problem of unemployment will not go away easily this time because the system itself, massively distorted, is going to take years to unwind. This game will played until currency inflation begins to manifest itself as economies "recover." Then central bankers, inevitably will begin to raise rates. The result will be either another downturn or galloping price inflation. But this time, either alternative is going to be far more extreme than in the 1970s in our view because the collapse has been so much bigger and the antidote – money printing – has been massive.
Conclusion: Ultimately, Ben Bernanke is confident that the "economy" is coming back; from our view he has merely reinflated a fiat money bubble and made it possible for an impossibly bloated banking system and related multinational appendages to continue to function. The distortions remain along with inflation. Hear the rumble of the tsunami? If you do, seek shelter in gold and silver.
Posted by Puppet King on 01/24/11 01:36 PM
China is going to wipe out the jewish banksters and all other high profile jews very soon. China knows the game well. And its playing it right. China knows that it has to topple the jews before it can actually become a superpower.
Posted by Bob on 01/16/11 06:00 PM
I am at a loss: Canada is the home of world leading gold mining corporations (ABX, GG, etc.,) and it has only 3.4T of gold?
How can it happen?
What about Royal Canadian Mint? What do they use to mint Canadian Gold Maple Leafs coins? Copper?
Posted by DavidRobertson on 01/16/11 05:38 PM
One of the better articles I have read of late is from Chris Martenson: "Don't Worry They'll Just Change The Rules." Click to view link
This addresses a problem I suspect we have all assumed we know the answer to but the nagging question in my mind for at least two years is what if we do not?
I began thinking in 1987 that the world economy was bound to crash completely and as the years passed and it didn't I started to dig deeper and deeper to try to discover why.
This quest has accelerated in the past five years or so as more revelations are made about what is really going on in the world. Many have dated the beginning of the current crisis to September 2008 and the collapse of Lehman Bros. My own wake up call came in August 2007 when the Dow fell precipitously.
I had been watching events but for some reason I missed the MBS fiasco until later. Then I began to pay attention and realised that the banking system had had a fatal heart attack in the fall of 2007. No matter what the authorities did, I thought, this is the Big One, and watched for signs of bigger things to come.
The next thing I noticed was that the rules were being bent to favour the banks and the big corporations with the connivance of the authorities and the accounting firms. How long I wondered can they keep on lying about their true condition before it catches up with them. Today i know they have kept it going for three years in this particular crisis. So, if everyone who is in charge is complicit in this comprehensive deceit and nothing is what it seems to be is there indeed a fundamental economic law that will rise up and bite them? Are they truly blind to what they are doing?
This then raises another question. What if the central bankers who are running the show have decided to collapse the economy in order to serve a larger agenda to replace it with a new system that they have already prepared and will unveil at the appropriate time? In that case keeping the system going and making sure that all the control levers are in their hands would be the rational way to proceed.
Now they can turn off the tap or pull the plug whenever they want and precipitate the collapse, just as they have done in the past. This will happen virtually overnight and there will be calls for a rapid response from the executives in each country to declare an emergency and martial law, in all likelihood.
At least that is one scenario that makes sense to me at the moment.
Posted by Scooter on 01/15/11 11:48 AM
Brilliant as usual .I really enjoy when the Bell describes how the central banking cartel is responsible for the worlds economic woes.....the definitions highlighted in green is another example of how the Bell educates any person who cares to understand the system and how it works...Thanks again Anthony.
Posted by UK-Girl on 01/15/11 05:53 AM
"As far as I am concerned the central banking system is dead. What I do not understand nor get is why these bankers are not in jail."
You can not say that ! its racist some would say to point out zionist banksters but many are not jewish but they all have duel citizenship passports and they should be in jail along with any politician that has commited treason.
I have been buying up silver on the dips and find it funney that as demand goes up, the price comes down so i must give a big thank you to j.p morgan.
My guess is inflation is running in the double digits so GDP should be double digit and not the 4% that means we are going backwards and thats after the goverment has cooked the books to arive at this 4%.
We have laws to prosecute anyone that commits fraud and laws against treason but our judges are also being bribed by these banksters and "we the people" need to break that link if we are ever to emerge from this mess.
Posted by Ron Jones on 01/15/11 01:16 AM
To purloin an oft-used phrase of the left; I think it's time we erect a "wall of separation" between government (if we choose to allow government to continue its existence) and money, more specifically, the identification, creation, and valuation thereof.
The "invisible hand" has a funny way of identifying the most effective store of value for the time and place it is needed.
Posted by John Edwards on 01/15/11 12:29 AM
@ Jan Blair.
Bloody hilarious !!! Well done :-)
Posted by Ron on 01/14/11 11:41 PM
The "Fed" is not the Central Bank of the US. It is a investor held corporation and has nothing to do with the US government!
Posted by RT Carpenter on 01/14/11 10:08 PM
The so-called "primary dealers" (big banks--Wall Street) were deemed "Too Big to Fail" by Goldman Sachs CEO and US Secretary of the Treasury Paulson. They got the $700 billion TARP to pass out plus several trillion at the Fed. Every day, these are the handlers of Hundreds of billions being rolled over by our indebted government. They take fees and commissions in the billions for this service.
Posted by Zenbillionaire on 01/14/11 09:58 PM
"estimates are that the Fed alone may have injected some US$20 trillion into the world's economy."
This really interests me, I hadn't heard an audit had been done yet but I sort of expected that if the Treasury was taking $2 trillion in direct QE, there had to be a whole lot more going on the Fed wasn't talking about.
It figures that if the Treasury is going to dilute the "domestic" money supply by some large amount, on the order of 50% right now I think, then some deal had to be made with creditors holding existing debt (dollars). My guess is that $20 trillion went to select creditors who insisted they be adequately compensated for the upcoming devaluation.
So, did anyone in this room get a gift from the Fed equal to, say 50% of their dollar holdings? I didn't. Somehow I have this feeling I'm getting screwed.
Posted by Davidus Romanus on 01/14/11 07:14 PM
@ DB Things are getting much better.
Yes, in the same way that when the ocean goes out before the tsunami comes in, things are much better because there is so much more beach for people to walk on.
Posted by John Blenkins on 01/14/11 05:48 PM
@ Jan Blair: Bravo.
How neatly like a ever tightening weave the elves straining eyes create a tapperstry of sober reality to the times we live in.(Must send them some candles bless their pointy shoes)
Times that have illuminated the conspiracy of mass enslavement through the greatest financial theft and fraud ever witnessed.
Coerced by Paid for lackey's in politics, academia and a growing authoritarian scaremongering jobs for the thugs State.
The New Feudalism, illustrates the closeness of the elves stiching with this coming contrived Tsunami.
@Obsvr-1. Missed Max Kieser today thanks. He and Steven Keen are so on the Money its not funny.
Ok It should be a "hundred years"! I submitted this in October. Since then the more i see the more i believe. The Stock market suckers rally propped up by QE2, is disguising the exodoss of in the know privet money leaving a giant ponzi con.
Winter Cake 2010/11,
Place currency devaluation and several spoons of acidic austerity in large mixing bowl along with well (shafted) sifted populace. Direct and stealth taxes to taste,(fool) fold until you see wealth ooze from populace.Drop by drop using corrupt congress and blinded regulators add forcloser fraud.
Spice generously with UFOs, terrorist alerts and other public distractions.False flag operations optional,can be added later.Cover with damp cloth and place in dark cupboard to ferment until after Mid Terms. Important to keep out of light of internet. Meanwhile speculate with derivatives, crank up stocks of hard and soft commodities, food and oil are natural accompaniments.
Midterms complete, light the ovens of currency war using the dollar as kindling.Remove mix from bowl and vigorously knead with authoritativeness squeezing the fermented anger and the last of
any present or future wealth from the mix until fully pliable.
Further austerity and a ditched dollar will need to be added for sweetness. Transfer to baking tin and place in NWO oven at stock market crash 9 until you can pick up assets at cents on the Banco. When fully cooked take from oven and cool in the worst winter for a thousand years. Ice with preprepared soft Click to view linkflated cash
and inflated food infuse to a divine crem de slavery.
Serve to ME and PE with Earl Gray tea. Note ingredients much more expensive this year."
Posted by Philip Mccormack on 01/14/11 05:17 PM
He didn't miss the point, just advocating devilishly.
Posted by Philip Mccormack on 01/14/11 05:13 PM
This autodidact really knows what he writes about-Professor A Fekete ...
Revisionist view of the Great Depression in Two Parts Let me know your opinion after reading.
Posted by Heuristic on 01/14/11 04:11 PM
"So if Coca Cola had been founded and offered in, say, Haiti it would today be a world class company?"
That answer is a total distraction. You said that Coca Cola's ubiquity was caused by the reserve dollar system. It wasn't, because the historical record shows that Coca Cola was very aggressively and successfully expanding overseas long before the dollar became the international reserve currency.
Reply from The Daily Bell
You missed the point.
Posted by Carl on 01/14/11 03:54 PM
Mr. Bill Ross said:
"So the ratio of the real utility value of property to currency (fiat Value / declining fiat unit worth) APPEARS to be increasing, when in actual fact, we are headed to hyperinflation where a wheelbarrow full of fiat currency will not buy even a loaf of bread."
I would agree, if fiat currency was our primary medium of exchange and if the Fed were actually printing fiat as everyone is told to believe.
What we're using as a medium of exchange and what the Fed has been expanding and expending is far worse than fiat, it is credit, a bank's promise to pay in fiat. Imagine that, a whole global economy running on bank issued I.O.U. Fiat a.k.a. CREDIT, a.k.a. DIGITAL DOLLARS.
I'm gonna be L.M.A.O. when this whole system blows up and everyone scrambles to collect......
Posted by Light Being on 01/14/11 03:39 PM
Humans are always slow to act in response to incremental changes. Therefore a planned gradual decline is hoped for but it is ironic the economy is often judged by how well the stock market is doing rather than the numbers on public assistance and those unemployed heading towards public assistance. Somewhat like the 1930's after the economy stabilized at 20-25% unemployment.
Posted by Acudoc on 01/14/11 02:54 PM
The system is so false it boggles the mind, so corrupt that I get up later and later in the morning out of hopelessness. McKay's famous statement comes to mind----"Men...think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one." One by one is not going to be fast enough to avert disaster.
The amazing thing is, it doesn't have to be so, but our "elected" leaders and their Ivy League economic advisors simply refuse, in their unmitigated hubris, to examine their deeply entrenched beliefs. One of the Senators from my state, Senator Daniel Inouye, is so proud of the earmarks he gets for Hawaii---I'm sure he sees that as his main duty as a Senator----yet he can't see that the basic problem is a government that interferes in innumerable ways in the economy to begin with, and that the money needed to carry out this interference is poisoning us.
It is so sad to see my country going down the tubes, and all that the people in charge seem capable of doing is re-arranging the deck chairs on this huge and beautiful sinking ship...
Posted by James Downey on 01/14/11 02:46 PM
Jan Blair has it right on. Best response I have ever read in the Bell. I will be laughing all the way to my economic grave.
Thank you Jan.
Posted by Ramon S on 01/14/11 02:37 PM
How exactly did the Smoot-Hawley tariff of 1930 cause the crash of 1929?