Ben Bernanke’s Folly

Robber Ben Bernanke

This much has been determined yesterday — The Fed could not handle a 2.8% 10 year Treasury rate. [In other words, neither the Federal Reserve nor the US government could pay the interest rate increase in the US Treasury bonds.  Think about that for a minute.  Our government cannot afford to pay 3.00% interest on its debt; an acknowledgement of near insolvency.]

Nor could it handle any further increases.

But consideration of the impact of this policy on the common man, along with the destruction of purchasing power and outright theft from the people who produce the services (and few goods remaining) in this nation was damned — exactly as has been the case for the last three decades.

What Bernanke did yesterday was guarantee a [market] crash.  He guaranteed it because he took what was a clear opportunity to take what had been priced into the market and execute on that and squandered it, effectively turning the crack whore into the person in charge of the crack supply.

The econometric model predicated on simple credit growth allowed this move in stock prices to where we are now.  However, since the 1990s we left the world were this expansion can take place in a stable format as credit — that is, the amount of money in the system — rose precipitously. [In other words, the markets, all of them, are now a reflection of CREDIT expansion and NOT production or asset value!]

Instead we now have a positive feedback system established, and Bernanke is extending that into the part of the market where it has never been before — US Treasuries.

Simply having it occur in MBS [Mortgage-Backed Securities] blew up the world in 2008.  This is worse, as now it’s in MBS and Treasuries and zero-earning companies.  [The value of all of these are now distorted by CREDIT {borrowing} and NOT production or asset value!]

What’s worse is that all Bernanke got out of this is a 10 year Treasury that moved back to where it was a month ago.  He did not get back any of the slide in the bond price from May to August — nor is he likely to.  [Which certainly means soon, when investors again demand more value for their purchases, the interest rate will rise and then what can Bernanke do?  More borrowing to buy more?  That only works until investors decide 2.8% is just not an acceptable return.]

The impact of yesterday’s decision on middle class America is likely to be catastrophic, but not immediate.  If you’re a trader and were long yesterday you were probably high-fiving your pals in the bar last night, but beware that the bartender likely has none of those stocks and when he figures out what you did to him, along with your maid and nanny, don’t be surprised if your morning coffee, evening drink, or kid’s lunch is discovered to be spiked with something far worse than a bit of rum.

[Because the result of all this credit/debt expansion {borrowing} is the destruction of the value of your production, your purchasing power and the value of your currency.  Things you need are going to become MUCH more expensive {food, energy, healthcare; things that are conveniently left out of the Federal Reserve’s metric data of the measurement of inflation}, while your wages will remain static.  How will you pay for these increased costs in necessities when the value of the money you earn is declining?!  The simple answer is that you won’t be able to….]

The Market-Ticker [Commentary by FedUpUSA Editor]
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