What if the Federal Reserve openly declared war against American companies and no one noticed? It appears that is just what happened yesterday. Just as stunning, the Federal Reserve President openly admitted that Chairman Ben Bernanke committed perjury in front of Congress. It appears that the Federal Reserve is quite secure in its belief Americans will continue not to care.
“We are showing insufficient stimulus,” Bernanke said today in remarks to college students in Jacksonville, Florida. Asset purchases have “the goal of reducing interest rates, providing more stimulus to the economy and, we hope, creating a faster recovery and an inflation rate consistent with long-run stability,” Bernanke said to students.
Now watch very carefully… remember, my thesis is this: Depressions are a function of margin collapse, not deflation. You seek deflation intentionally every time you go to the store. Technology creates massive deflation in many things (e.g. calculators, computers, music players, televisions, etc) This is not bad, it is good. It allows your earnings to go further and enhances your standard of living.
Here’s what Bernanke said today:
Asked by a student if “skyrocketing” commodities prices may threaten his inflation outlook, Bernanke said rising commodities prices are “the one exception” to a broad reduction in inflationary pressures. Overall, excess slack in the economy will make it difficult for producers to push through higher prices to consumers, he said.
Bernanke intends to collapse margins.
At the same time he is driving stock prices higher.
Yet you pay for earnings when you buy stock.
Earnings will be decreasing, because excess slack will make it difficult for producers to push through higher prices to consumers.
Therefore, margins decrease, and earnings decrease.
And you just got driven into “risky assets” – at a multiple he is destroying.
Thank you very much Ben. We’ll remember this, along with your lie about monetizing the debt. When, not if, the market crashes back to earth as a consequence of your intentional destruction of operating margins, can we send all the pissed-off retirees that lose their money (which you forced out of safe CDs and money markets) over to your home so you can explain to them that you did this on purpose?
Oh, on that lie. Here it is again:
What’s the risk of this move looking like the Fed is monetizing the debt?
I think it’s a legitimate risk because we are monetizing the debt, call it whatever you will. It is buying long-term or intermediate-term Treasurys in substantial amounts, that is by any definition monetizing the debt. What the consequences of that are, we can agree on or disagree on. The position would be that it’s temporary and that we would reverse all this. My concern is that if my experience is a reasonable base, then we will be slow to reverse it. And that means leaving it in there longer than — in hindsight — we will think was appropriate, we will create the next series of problems, whatever those are.