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Thursday, March 22, 2012

Bernanke Villain or Hero

I read a blog post or two, and saw picture of Ben Bernanke pictured as Hero.  Article goes on to say how there is much debate about Bernanke's actions, and what this will lead to.

For those not following Ben Bernanke, he is the chairman of the most powerful banking institution of the world, the private bank named Federal Reserve Bank.  This bank is not part of the US government, but does act in concert with US government co-operation.

Mr. Bernanke took extraordinary measures to prevent an all out deflationary collapse back in 2008.  Since 2009, normal accounting measures Mark to Market have been suspended as they are to this day.  Under the new order of super low fixed interest rates, corporate accounting changed to mark to fantasy valuations, the corporate earnings have never been better.

I actually don't have a problem with the dramatic steps taken in the time of pressure.  Some decisions may have been not the best, but overall at the time, the net result cannot be disputed by anyone.  The collapse feared did not materialize.

What I have a problem with is there is zero plan to return to normal accounting measured in place since the Great Depression.  Further, I have an issue with lack of any prosecutions at all for the trillions in fraudulent mortgage operations that have been clearly documented publicly.   Also I have issue that the US government has not had a budget since George W Bush and spends money as it sees fit, without any constraint.

These acts are a perversion that will lead to consequences.  Lets not forget WHY 2008 imploded.  Basically the Federal Reserve Bank allowed fraudulent asset bubbles to occur.  Ben Bernanke himself testified numerous times that the economy was rock solid.  He was either ignorant or lying.  And now he takes the credit for being right after all the drastic measures taken and saving the world?  The entire 2008 problem was partly to blame on him and his predecessor.

But I digress.  What I realized is I actually DON'T have a problem with Quantitative easing per say.   That is the Federal Reserve Bank purchasing long term US debt (30 year bonds) in the billions to artificially lower interest rates.   I used to until today.  Why the change of heart?

I realized, that my argument in the past of "what is money" and "gold is not money" align with what Bernanke is doing.  In effect, if 30 year bond rates go to zero interest rates, he is creating the scenario that cash can be printed with no interest attached.  This is in line with my thoughts of what currency should be.  Money should be created without a "bank tax".  Each US dollar you have in your hand, or in a bank, has a tiny amount of interest that is going to someone, somewhere.  Granted, with fractional reserve lending, the rate is net lower for each dollar created, but its there.

What will make this all fall apart isn't QE.  Its enforcing law, and treating currency (QE or not) with respect. Currency can't be created with zero limitations into thin air.  Money must be created with true value of work behind it.    For example, if you photo-copy money and spend it, the fraud is you did not contribute to society to EARN the cash.  In effect, your "promise note of work" is fraudulent.

If currency is printed and doled out without work behind it, the new dollars are in fact fraudulent, and will devalue faith in the USD over time.

In closing, the consequences of actions taken by Bernanke and others will unfortunately lead to hardships for all of us, as there is nothing for free in life.  The fraud running rampant will cause an effect.   Bernanke needs to take not just the good, but the bad that he encourages through the Fed.   And in 2013, when I think things will start to get hairy, I don't think you will be seeing Hero magazines of Ben.

My friend John says, when the market hits a top or bottom, no bell rings.  Today Bernanke is claimed to be  a hero while at the same time, market volatility index the "VIX" is at a 4+ year low, with stocks at a 4-year high (SPX 1400).   VIXY may be a buy here at $39.48.  That is as close as a bell as I can hear.

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