Bernanke Hopes For A Miracle

Fed Chairman Bernanke spoke this morning and reassured markets that there was no end in sight to his money-printing, currently $85 billion per month. The reason, of course, is really that it is not working and Bernanke is trapped. He cannot admit the failure of his policy, and indeed to do so at this point would cause an immediate crash. Markets did gyrate on his admission that the Fed is concerned about froth and bubbles, but apparently his concern was not taken as being serious enough to result in any action.

His printing program is like most Ponzi schemes – born of denial, but originally unintentional. Ponzi schemers generally start out with the best of intentions – making money for themselves and their clients. But something goes wrong and they lose money and, rather than admit it to their clients (or even to themselves), the lies start. The lies are of course a temporary measure to prevent client defections or questions while they take on more and more risk in the hope of recovering the lost money, but of course end up with more and more losses. The lies keep growing in order to attract new money, which is required to retain the appearance of liquidity by honoring redemptions, to say nothing of the Ponzi schemer’s lifestyle. The skilled schemer, like Bernie Madoff, eventually abandons any hope of recovering and simply uses new money to keep things going as long as possible. Bernie’s scheme, for example, was only discovered when he realized the end was in sight and confessed.

Bernanke is not alone – other central banks are also in the same position. Their money printing does inflate asset prices and makes people’s investments look good, just like the small-time Ponzis. But of course the assets are overvalued, just like the units of Madoff’s Ponzi. The underlying economies are weak and getting weaker. The BoJ, the pioneer of massive money-printing has chosen, after more than twenty years of failure, to redouble its efforts, succeeding in driving up the Japanese stock market but, as we discovered last night, also driving up the trade deficit that it was claimed to reverse.

It is safe to predict that there will be no end to money-printing until some kind of final collapse occurs. Bernanke will not admit that the policy has failed and will probably follow the BoJ into some kind of printing spasm in the not too distant future. It is not possible to foresee the evolution of the end game, nor is there any safe haven which will shelter one from the world-wide insanity. All one can do is remain liquid and watch very, very carefully as the mad men wander around swinging their axes. Which is worse – “QE Forever” or “The End of QE?”

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  • John Mackay  On May 27, 2013 at 1:46 am

    Hi Mike….I don’t know where to hide either….half real estate, quarter Buffet type shares,balance in cash and precious metals and if I thought it would help, some prayer is my position.

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