Sunday, February 26, 2012

Bernanke Laughs All The Way To The Bank Printing Press

Just listening to Fox news:
Oil companies are making money and gas prices are going up. Will the consumer revolt and stop buying gas to teach the oil companies a lesson?
The implication there: “It’s the damn oil companies gouging us, let’s rally around the flag and punish them Rah! Rah! Rah!” Meanwhile Ben Bernanke slides another trillion dollars of printed money into the economy. If you look at oil and gasoline prices in terms of gold and silver prices they haven’t changed much in the last 40 years. Here is a LINK to a Forbes article that should raise your awareness level a tad.

In actuality, the purchasing power of the dollar has fallen 50 percent in the last four years, gas hasn’t doubled in price. Put another way, this was a tax on people with money in the bank; their money lost half of its purchasing power. The Democrats want to tax the rich; I think they are doing an excellent job at it right now. It now takes two billion dollars to buy what one billion bought four years ago. And of course if anyone complains, it’s those damn oil companies gouging us. Plus those rich people weren’t using that second billion anyways, so they’ll never miss it. If you’re rich and retired, just call it “Tough Love.” Our government needs those printed dollars to pay the bills when tax receipts are just not enough to cover expenditures.

Printing dollars, taxes the people with money in the bank invisibly. There are no forms to fill out, everything just costs more. The average person on the street has no concept of printed dollars creating inflation. They want to blame someone for the increased prices, and who do they point to, the supplier of the product, the bankers, and Wall Street.

Some of us know what is going on. The real evil is government printing; they are taxing those that decided to save for retirement. If you have no savings, you have lost none of your wealth. If you work, everything cost more, and without a pay raise, your standard of living suffers.

With interest rates so low, there is no incentive to save. The present increase in consumption is a common sense reflex to very poor interest rates, coupled with inflation. Why wait to buy? It will cost more later! The economy isn’t turning around; this is the last breath before the long pause and downward plunge.

Is the stock market going up because the economy is getting better, or is it because stocks are the only game left in town? There is a big surge into dividend stocks, I wonder why????

Gasoline prices just went up another 25 cents over this weekend. Will Congress do to the oil companies what they did to the Post Office (limit price hikes to inflation)? Instead of the refiners shipping half of their production overseas, they’ll ship all of it. No pay, no play.

When we tax by inflation, we do unquestionable tax the rich. But ask yourself a few questions about this hue and cry to "Tax the rich." Are there many rich people between the ages of 1 to 20? Are there a lot between the ages of 20 and 40? How about between the ages of 40 and 50? Probably most of them fall between 50 and 65 just about at the age people start to get ready for retirement. How did they get rich? They saved for a lifetime. Now Bernanke is going to punish them for being rich---zero interest on their savings and inflation beyond their wildest dreams.

Inflation is kind of like sawing a quarter inch off of grandpa’s walking cane each month. He’ll know something is not right, but he won’t have the foggiest clue as to what the problem is.


Tyrone said...

I'm seeing a lot of articles on "who is blame" for the price increase. At work, today, someone even said "speculators". I responded, "Oh, you're talking about Bernanke."
At one article, my posted answer to the question was: We are all to blame.

Anonymous said...

As Jim Puplava said, the price of oil is the new federal funds rate. This may be something that Obama Bin Laden and his crew can't control. The positive point about oil prices going high is that it may hurt Obama Bin Laden's re-election chances. That plus his failure to cover up the real state of the economy could sink him. Every cloud has a silver lining.

AIM said...

Ben Bernanke and Allan Greenspan (not even mentioning the powers above them that they serve) are the most responsible for so many of our economic woes.

They both should be tarred and feathered, lynched and then drawn and quartered.

If you think I'm being to harsh and inhuman than I'll compromise and say you can leave out the feathering.

The suffering and misery that these two have caused to humanity is almost inconvei

Anonymous said...

Some of you weekend "experts" or backseat economic shot-callers should look a bit deeper into what Bernanke is doing. I'm here to say whether it is right or wrong, time will give us the answer.

The low interest rates and high inflation are a driver to get people sitting on cash to get off their piles and invest. Why do you think you are entitled to 5% CD rates? is it a god given right?

Yes, the rates are not determined by the marketplace and are influenced by the federal reserve but that's the game and instead of complaining, join the economy and put your money to better use. It's your choice to sit on it and let inflation eat it or put it to work and have it grow. Rentals, commodities, and so forth are not the only investments in town.

There will always be those who think the old way was better and the new way is flawed...
This approach by Bernanke may not work or it may work, either way, the world is bigger than all of us and we have no choice but to dance to the song that is playing currently.

Anonymous said...

"I'm here to say whether it is right or wrong, time will give us the answer."

should read, I'm NOT here

Jim in San Marcos said...

Hi Anon 3:10 3:11

Low interest rates and high inflation is a conundrum that cannot last long.

The spread between high risk bonds and T-Bills is pretty pathetic.

I'm not about to invest in anything, in this market. but Gold Silver and Platinum seem like very usefull stores of value

Anonymous said...

Anon 3:10

People should be free to do whatever they wish with their own money. And that includes sitting on it if they so choose. And without penalties I might add.

You obviously have no other orientation other than Keynesianism and other socialist/communist/central-planning claptrap, which has proven to be unworkable around the world.

Try reading some basic books from the Austrian school of economics for a different point of view, if you are able to open your mind and entertain new ideas.

Read "This Time It's Different" and get a grasp on economic history and true statistics.

How you can condone this destruction of our economy and country is beyond shocking to me.

Anonymous said...

If The Fed was audited and abolished back in the late 90's the 2008 collapse and crisis would never have happened,,, We'd be in a much better place today,,, If Nixon didn't take us off the gold standard in 197! we'd be in an even better place,,, And if Bretton Woods didn't happen and Keynes didn't come along we'd really be in good shape,,, and if FDR didn't implement many of the planks of Das Kapital into America in the 1930s America would be a strong and healthy super power today,,,

Anonymous on a Calif Mountain said...

One thing that I have learned is life is that we live in a world mostly of hypocrisies and ironies.

Truth tends to dive out of sight and hide... or more precisely, is hidden by those who desire to control and manipulate for ulterior motives. There is always a veneer that the general public (lumpen masses) don't see beyond, and it forms the reality that they interact with.

With important matters, things always seem to be the opposite... what appears to be white is actually black, what appears to be fiction is actually fact. (I'm a poet and I don't know it.)

It seems logical that high inflation or hyper-inflation would be detrimental to the financial elite. It would cause interest rates to rise and then there would be no chance of the US govmt being able to service its debt. Plus, all the debt ridden consumers ("debt slaves") would be able to get out of debt by paying it off with wheelbarrows of cheaper dollars.

Thus, inflation or hyper-inflation (and the strategy of buying gold and silver, real estate and other tangibles to survive it) may be the current and most destructive veneer.

The growth of the central bank's balance sheets of the USA, ECB, UK, and Japan since the collapse started in 2008 is less than $5T. The collapse in global real estate values alone is considerably larger, and when you include all asset classes and throw in the quadrillion dollar derivative market, it is many times that. When these defaults begin in earnest, central banks will be unable to stop it. They will be overwhelmed by the tsunami of default. This tends to make deflation seem more likely than hyper-inflation.

Could this be a perfect set up? You can bet, that if a major deflationary period is in the cards, that the power elite are prepared or preparing for it.

The setup scenario: Bernanke chases all savers out of savings accounts and treasuries and into the stock market, real estate and other risky investments (forcing them to take a risk to get a return and "protect" their money from losing its purchasing power) and also gets them more into debt with these "lowest mortgage rates in history" and "1.0%, nothing down, no payments for 6 months, 6 year loans on a new car" , etc... and then WHAM! the deflation cycle starts to move fast and heavy and all assets go down in value to a low bottom.

Those holding assets and debt get eviscerated. Only those who saw through the veneer and stayed in cash are able to survive because in a deflation... because cash is scarce, CASH IS KING.

Those holding gold may be surprised too if it is confiscated or devalued by the government. Also, those with paper gold and margins will need to sell to pay their margins and also sell for money to survive. That will create a buyer's market for gold, thus gold will drop tremendously in price. Gold might not turn out to be the store of value that it was supposed to be.

The power elite now move in and scoop up the assets for pennies on the dollar in order to further increase their net worth.

The best strategy may very well be to figure out the strategy of the power elite and then do exactly what they are doing, at the level you are capable of.

The correct strategy may very well be something such as: remain liquid, no gold or silver, no debt, streamline living expenses, strengthen health and immune system, build skills and businesses so can exchange services for value no matter what the economic climate, and join a self-sufficient community of like minded people.

And lastly...

If the depression is deflationary and you have a lot of cash, your purchasing power will multiply and then, when assets finally hit bottom, YOU can take advantage of all the assets for pennies on the dollar just like the big boys will.

Oregano said...

Anon on a Mountain - I don't see how a gov't in as much debt as ours could let deflation happen. Even if it's the right thing to do, it's national suicide. Pensions, debts, salaries are all guaranteed in today's dollars. We can't lower what we owe, and deflation would just lower the cash coming in to pay the debts. It's why we game the CPI; raise inflation on the taxpaying class while reducing inflation-based pay increases to the entitlement class.

Yet... I'm looking for investments, too, and I'm getting nervous that low interest rates are the biggest risk right now. Long-term, 6-8% rates seem to be the average and seem to correlate with periods of economic growth. Right now, we're seeing cap rates in that range. Interest rates will rise sometime. When they do, assets bought at 6-8% will have to sell at 10-14% cap rates to find a buyer - which means lower selling price.

Housing, too. Salaries don't rise as fast as interest rates can. Homebuyers buy on payment, not price. You push rates back to 7% and today's $250k house becomes tomorrow's $170k house.

After the GD, there was a cycle of recessions every ~4 years. That feels like where we're heading. Low returns chase investors into places they wouldn't ordinarily go, musical chairs and every time the music stops, somebody's defaulting. Eventually, cash and good credit become king.

Anonymous said...

Check this out. Especially you Anon 3:10

Ron Paul makes it totally clear that the Fed has failed over its 99 year career. It is the cause of inflation. And it has failed to uphold its mandate to support and protect the dollar. It's lies from Bernanke and our government people that has created the major distrust and disillusionment that Americans have for their government and country.

Anonymous said...

Oregano --
The inflation, QE, monetizing of debt, central banks adding over-valued assets to their balance sheets, etc. etc. all comprise the "kick the can down the road" syndrome.

It is all being done to hold off the huge and inevitable de-leveragings and defaults that eventually must come. The exponential increase of debt over these last 5 decades has way outpaced productivity/GDP. And this is on a total global systemic level. It all will come down eventually. The only thing we can't be certain about is how long all of these central banks and countries can keep the system propped up with some semblance of forward motion before the private sector catches on and the negative sentiment creates the big downward slide.

I agree with Anon on the Mountain. The system will come down eventually. Start building wealth in the form of self-sustaining resources (water, food, shelter, clothing, abilities and skills, etc.) because you just don't know when this global system is going to crash and what the outcome will really be.

Weimar, Argentina, Zimbabwe were all individual situations that imploded and rebuilt. This is different and unheard of on this planet... it isn't individual, this system is one big global connectedness construct.

Strategic Investor said...


just wondering if the right interpretation of the link between oil and gold suggests simply that gold is overvalued? Perhaps too many speculators driving up the price?

Also, how do you account for the massive printing and easing of the Japanese over the past two decades and the rise in value of the yen, and not just in the last few months but throught the period?

Jim in San Marcos said...

Hi Stragic Investor

I tend to believe that gold is overpriced. Historically, it was equivalent to a weeks wages. So it is a little on the high side.

As for Japan, they used US Treasury's to cover their bank losses. Their banks paid very little interest, but by buying US Treasuries, at 8 percent for 16 years, they were able to recover a majority of bank losses. Our Treasury was financing their bank bailout. All they had to do was loan us all of their money, and they did.

As for massive printing and easing by Japanese banks, I have no information, except that it shouldn't have been necessary as long as the Japanese carry trade was profitable.