Bernanke Is Shooting Blanks


Say what you will, the jury is back in and judgment rendered.

Bernanke’s QE has done nothing material of value and he is now doing harm.

This is the only chart that matters when it comes to employment, and it sucks.  Despite all the monetary games there has been no factual improvement in employment since 2009.  Four years of this “experiment” and there has not been one iota of actual improvement.

The reason is that the problem we experienced in 2008 and 2009 was due to the gross and irresponsible expansion of economic leverage — that is, debt, in the system as a whole.  Transferring that into monetary policy to allow fiscal deficits without boundary is attempting to force a broken model to continue to work, just as one might press harder on the accelerator when their engine starts making knocking noises.

But if you do that instead of fixing the engine you’re likely to next see a rod appear through the side of the block.

There is exactly one cause of this from a fiscal perspective, and it’s health care.  I know I keep pounding on this, but these are facts, not opinions, and are clearly-visible right here:

Now we have the Obama administration talking about “making home loans more available to less-than-prime borrowers”?

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

Oh really?

So 20% down is “unreasonable”?  (The hell it is)

Lending to people “freely” with sub-700 FICOs is “too tight”?  (The hell it is; the median FICO score is about 720 — lending “freely” to those in the mid 600sis in fact lending to people with “D” — that is, POOR — credit!)

Facts are what they are — the current housing market has priced in 3.5% 30 year money, which is ridiculously cheap.  What happens to home prices if 30 year mortgage money returns to the lower end of historical averages around 6%?

That’s easy to answer: The current $200,000 house turns into a $149,546 one — that is, it loses roughly 25% of its value overnight!

If you bought at $200,000 with effectively zero down, and the average actual down payment when fees and closing costs are deducted is an effective zero in today’s market, then you cannot sell and will lose the house if you lose your job.

The fact of the matter is that those people in the mid-600s have a modeled 25% risk of default and foreclosure!  This isn’t good policy, it’s a disaster, exactly as it was in 2006.

That the Obama administration is pressing this shows that despite the claims of “an improving economy” they in fact know the economy sucks and are desperate to try to find something — anything — to provide a temporary boost into an impending disaster.

I have only one piece of advice given the macro environment plus the abject stupidity being displayed by our so-called “monetary and fiscal authorities”:Run.


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