Bernanke’s Monetary Philosophy, Explained

The days continue to get longer.  The nights continue to get shorter.  This tells us a unique opportunity is in front of us…

It’s time to make hay while the sun still shines.

As for the stock market, the sun has never shined brighter.  Day after day, golden rays of light cascade down upon Wall Street.  Day after day stock prices hit new record highs.

The relentless run up is breathtaking and fantastical.  DOW 16,000…there’s nothing stopping it.  Not even the IRS.

Year to date the Dow’s up over 17 percent.  Many people have come up with many reasons why stocks will continue to rise.  One popular reason, as described by Jeff Reeves at MarketWatch, is that “rates remain low, fostering investment and spending.”

Failed Recovery

A man who justifies stock price increases this way, without describing the wealth destruction the manipulated rates are having, misinforms his readers.  They may be led to believe that Fed suppressed rates bring about only sunshine.  The cold winds freezing over the returns of middle class savers and retirees are ignored.

Similarly, Reeves doesn’t point out that the investment and spending being fostered by the artificially low rates are capital misallocations that must eventually be corrected.  The next time the stock market cracks and falls the apparent benefits of currently rising stock prices will disappear faster than a gold fish in a shark tank.

In the meantime, these Fed generated asset booms and bubbles can go on much longer and can puff up much larger than an honest killjoy could ever fathom.  The party could really get wild later this summer.  But while the rising stock market’s signaling the good times are here again, the real economy’s signaling the recovery’s been a failure.

For instance, one in five U.S. households is on food stamps.  If the economy’s four years into a recovery, why do so many people rely on the benevolence of government for their daily bread?  Perhaps it’s because there hasn’t been much of a recovery at all.

This is also highlighted by the unemployment rate.  Although the “official” unemployment rate is 7.5 percent, it is really much worse.  When calculating the unemployment rate the way it was done before 1980, it’s at 23 percent.  That’s near the 25 percent unemployment rate peak of 1933…during the darkest days of the Great Depression.

Bernanke’s Monetary Philosophy, Explained

Obviously, something’s not quite right here.  Nonetheless, as long as the stock market continues to hit record highs, somehow, this is supposed to mean the economy is improving.  With all this going on, there’s also the unsettling fact that the captain manning the monetary controls – Ben Bernanke – has a deluded rationale for how he’s going about his work.

Here’s what we mean…

The whole of Bernanke’s monetary philosophy may be reduced to two propositions, neither of which is true.  This first is the proposition that creating massive amounts of money from nothing and loaning it to the Treasury lowers the unemployment rate.  The second is the proposition that creating massive amounts of money and loaning it to the big banks brings wealth to the world.

Take away the two, and all that would remain of Bernanke would be a somewhat shiny baldheaded man with an immaculately manicured beard.

You get the picture…

There’s not much more to it than that.


MN Gordon
for Economic Prism

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