Sunday, November 14, 2010

Bernanke the Great Invisible Tax Assessor

QE2 used to refer to a luxury liner that sailed the ocean. In today’s world “Quantitative Easing 2” sounds like a euphemism for a bowel movement in a retirement home. Notice that no one has described this easing using the word “Titanic,” or the word “Gigantic.” The first portends an aurora of imminent doom and the latter suggests something that is going to cost a lot, like government health care. The average person has no idea of the financial impact on their wallet. QE2 is just another government program.

The idea that Ben Bernanke can take 20% of everyone’s savings without Congressional approval and spend it on bailouts is to say the least very upsetting. The average guy on the street has no clue as to what the Federal Reserve is doing. Their money is safe in the bank. Ben’s technique is called Inflation. We’ve lived with it all our lives. Nobody loses a dollar on the deal. Your $100 dollars only buys $80 of food after the fact. Debtors love inflation; you borrow real dollars and pay the loan back with cheaper inflated dollars later. Heaven help us if deflation was to creep into the mix—our savings would have more buying power. The biggest debtor that comes to mind is the US government ---HMMMM

The average worker making 40k a year, still gets 40K, but after QE2 it will only buy 32K of goods and services. The worker hasn’t seen the hand of the government messing with his pay check, but the price of everything went up. The bank depositor is a babe in Toyland. Oblivious to what is going on behind the curtain. The worker that saved up one million dollars now only has the buying power of 800K and he's clueless until he tries to spend it. Of course, the person without a dime to his name has lost nothing.

Add up the taxes, Social Security, Health Care, Federal tax, State tax, gas tax and sales tax. These are all visible. Then there is the dirty little Ben Bernanke tax (It’s not a tax, they are going to pay it all back—Guffaw, Guffaw).

The Federal Reserve's powers need to be curtailed. This institution was not created to perform the functions it is now exercising. Bernanke has been delegated tremendous power over our financial system without any Congressional say so. He needs to be reigned in and throttled down or maybe just throttled and fired.

Of course, between Obamas health care and Bernanke's bailout we have a plan that works only because nobody has to pay for it. This must be heaven. I'm sure this will become even more plausible after consuming a 12 pack of beer.

Copyright 2010 All rights reserved


Musgrave said...

QE increases the monetary base. The U.S. experienced an astronomic and unprecedented increase in its monetary base at the end of 2008. It’s now the end of 2010. Where in Heaven’s name is the inflation????? Inflation is at record LOWS!!!!

Many of us predicted this outcome two years ago. One reason is that QE does not increase the private sector’s net financial assets: it just swaps one asset (newly printed money) for another – bonds. In the case of swapping new money for GOVERNMENT bonds, the is even less effect. The latter simply involves swapping one type of valuable government produced paper for another type of valueable government produced paper.

A predictable effect is the bidding up of OTHER assets, e.g. shares, and that is what seems to have happened. Otherwise QE is a damp squid.

I hope there IS an increase in demand and fall in unemployment plus a consequent increase in inflation by a percentage point or two. Unfortunately I doubt even that will occur.

Anonymous said...

The Fed isn't the problem. They are just a funnel for all the debt based money. You have to understand the whole system: there are the bank groups that are the shareholders of The Fed all vying and competing against each other to own the most debt, and then the private pools of capital that are behind them.

Jim in San Marcos you obviously did not watch the videos... you just scanned the website. There isn't any recruiting going on or request that you join any group. I watched all videos. You should open your mind and watch this before making a judgement and allow your followers on this blog to see them as well.

You will see that that there isn't a conspiracy theory here. It is all about the math. This is the best explanation I've ever seen/read about our global dilemma. This guy is very bright.

rob in ns said...

A follower implies the people reading this blog do not have and/or share their own opinions regarding issues discussed. The inflation/deflation debate seems to me an exercise in semantics. Nobody should be arguing that the printing of money is a good idea. Some will say that we need to do this because we can't afford another deflationary depression. I on the other hand think that is exactly what we need. It will punish everyone business or otherwise that is overextended and be beneficial to the prudent savers. If one believes in capitalism then this a route to follow. Survival of the fittest or socalism it's our choice.

Anonymous said...

Where in Heaven’s name is the inflation????? Inflation is at record LOWS!!!!

Going shopping this past weekend, looking at prices for some items, my response was, "WTF?!!"

Where is the inflation? It's right in front of your blind eyes.

rob in ns said...

I agree anon 7:22.

I was shopping for groceries with wife Friday night. I get nervous when you walk down aisles with everything supposedly on sale. My wife noticed this too. A large bag of potato chips on sale for $2.50 When you notice the regular price is now $3.99 for something I paid $1.99 five years ago you know there is a problem. I might as well enjoy this party while it lasts with Christmas coming. I'm guessing the government people keeping track of inflation will expect me to switch to popcorn then seeing it is the cheaper alternative. The one good thing about living in Nova Scotia is the Lobster is now cheaper than Balogna. It used to be that poor people around here had to eat Lobster. Funny how history repeats itself eh

Anonymous said...

Anyone who focuses on socialism, capitalism, politicians, governments, corporations and these lower tiers is totally missing the point. It's the big financial interests, the capital holders, that are making things happen and steering things.

The capital is pulling out of the West (deflation) and setting up over in the East to boom the emerging markets over there (inflation) and get everyone over there to become there debt slaves like they did in the West over the last 100 years.

The bond market controls the planet. Debt is used to control people, corps, governments.

Anonymous said...

No one will curtail The Fed's actions. They are independent of and senior to the US government. You know better. You know there isn't a Constitution any more. There is no sovereign government or democracy any more. Proof enough is that our Congress doesn't even represent us or follow our wishes any longer.

Is The Fed doing this out of desperation, incompetence or as a conspiracy partner?

What if QE2 doesn't change anything?
Probably won't.

How many QEs will The Fed enact?

I'm betting on a slow deflationary spiral a la Japan.

Anonymous said...

Bernanke is being heavily criticized for QE2. Open letter in WSJ today, many foreign leaders have spoken out, etc.

Do you think this could cause a run on the dollar? Or are we still a long way off from people deciding to dump the USD out of fear and get into another currency?

Nervous guy

frakrak said...

Perhaps what we are seeing with increasing prices is decreasing competition in the market place. Remembering inflation is like a dog chasing its tail, wages go up and so do prices, I guess your social security has increased 35% in the last 12 months? Pretty sure we are still tracking deflation ....

Anonymous said...

Only reason prices are going up frakrak is because liquidity has gone into the commodity market. Thanks to THE FED.

Jim in San Marcos said...

Hi Nervous Guy

There is no other reserve currency. The big thing about a reserve currency is the amount in circulation outside of the country. In our case, there is a lot and also a hell of a lot of counterfeit. But that doesn't matter until they try to spend it here.

All of the money from the dope trade is "reserve currency," until it gets converted into a bank deposit. Probably a a couple of trillion dollars, I would guess.

It could be that foreigners are dumping the US dollar for other currencies, it is something that would be hard to measure. Gold seems like the real thing, so maybe it's rise is an indication of what is happening.

Bernanke is kind of like a fisherman in a glass bottom boat using a shotgun. When you shoot through the glass all bets are off. And we know he's going to do it, so hold on.

Jim in San Marcos said...

Hi Frakrak

I remember back to the guy in 1934 that bought an annuity for his retirement 20 years later. The company offered a $20 a month payment at retirement in 1954. In 1934 that paid the rent for a month, in 1954 it bought 4 bags of groceries.

So when you cite Social Security not keeping up with inflation, that is part of how this has to play out. You'll get your retirement benefits, but the buying power of your check will be abysmal.

This is what inflation is all about. Promise the moon and deliver, only it's a lot smaller than you anticipated.

Jim in San Marcos said...

Hi Rob

You're making my mouth water. Lobster and butter, a great combo. Being poor up there could be a lot more fun than being poor down here. An Idaho baked potato with butter, sour cream and chives comes in as a close second here. And that's on the menu in this house.

Enjoy the lobster while we eat chicken.

rob in ns said...


You guys out on left coast make some great wines. Maybe once everything comes crashing down we can make a deal. Cheers


p.s. I like the humour sprinkled thru your blogs it's a great antidote for what is going on right now with economy.

Anonymous said...

Prepare for what Japan has gone through over the last decade, except for a more painful descent (they were savers and exporter... we are not).

Mr. Ouch!

Anonymous said...

All you Inflationistas out there take note...

Deflation coming: the year started out with the U.S. core consumer inflation rate at 1.8% YoY; now its at a record low of 0.6%

frakrak said...

The Fed doesn't really print physical money, it electronically adjusts balance sheets ....

But the Fed seems to have given all this money to your banking system ...

Does anyone know exactly where this money has gone dollar for dollar?

Unless you have increasing income or purchasing power of the consumer to try and catch up with prices you still don't get inflation.

From what I read income is still falling in the U.S. house prices are going backwards, unemployment remains high, but food and utility costs are increasing .....

Anonymous said...

So Mr. Bernanke and The Fed just lowered their expectations for 2011. Don't see how unemployment will improve.

Their brilliant plan to push up mid term interest rates so as to goose the stock market and get people to spend and borrow to get the economy going again is... well... a brillant plan.

Happy Thanksgiving to Jim and all posters. No matter what we always have a lot to be thankful for (health, relationships, a roof, a bed, etc.). Stay positive amigos.

rob said...

Inflation/Deflation debate

The weather forecast in Nova Scotia by times goes something like this....

Partly Cloudy with Scattered Showers.

Nothing like hedging your bet when you are a weatherman.

Same goes with this debate. I tend to think that we are in inflation phase now but it doesn't really matter as I've learned from past experience that your parade can be rained on when least expected.