"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, February 9, 2011

More on Ben Bernanke's Testimony

I particularly enjoyed this headline that originated out the hearings featuring Fed Chairman Ben Bernanke – being questioned about the overall policy of QE, the Chairman stated:
“all bond buys MAY (emphasis mine) have created up to 3 million jobs”.

Yes indeed they MAY have done just that – then again, they MAY NOT have done anything of the sort. I think I could also assert with the same sort of complete confidence, preparing a nice brisket on my backyard smoker MAY have also contributed to the creation of multiple jobs in the beef industry. My question to the Chairman would be:

“Can you assert with complete confidence that the enormous amounts of money expended under QE1 and now currently underway with QE2 did specifically create that number of jobs that you just asserted?”

If he answered in the affirmative, then we could produce the actual numbers.

Let’s see – under QE1 where the Fed was mopping up the alphabet soup derivatives and then Treasuries, the sum involved was in the general vicinity of $1.5 TRILLION  ($1.25 in MBS and $300 billion in Treasuries). Let’s do the math – that means each of those 3 million jobs took only $500,000 to create. Wow – is that a deal or what?

Perhaps we are being a bit too hard on the Chairman – let’s use the numbers associated with QE2 instead, $600 billion. If we can create another 3 million jobs each of those jobs will have cost a mere $200,000 to create. Leave it to the feds to come up with numbers like that and have the temerity to congratulate themselves.

For those of you who want to argue that these jobs will result in their holders paying taxes back to the government thus lowering the overall cost, I will grant you that but you are still left with the unfortunate fact that the amount in taxes paid will certainly not cover the overall costs incurred in creating the job thus still leaving the citizenry in a hole.

Perhaps the citizens would have gotten a better deal on their children and grandchildren’s money, if the Fed had just written a check to every single family in the nation for $34,711. They would have spent the same amount under both QE’s and I suspect we would have had a lot more consumer spending than we have gotten by purchasing rotten derivatives from the hairbrained banks who manufactured them and more government IOU’s.

This is the particular line that had me falling on the floor and pulling my hair out:

We have been very careful not to distort the bond market”

Technically, true but the answer would be more accurate if he stated:

“we’ve been very careful not to distort the bond market but our primary dealers and same sharp hedge fund managers have had no such scruples. They were just front running our purchases for the last two months making obscene profits in the process. However, since last week, things are not going so well for us. Suddenly our game plan is in the toilet.”

Here is yet another one:

“The Dollar has been looking more attractive versus other currencies”

Factfinder:  US DOLLAR CHART

And then lastly:

“Fed policy does not add one more bushel of wheat to the world supply” (I am paraphrasing that one but it contains the basic premise that it is not the Fed’s fault that commodity prices are rising.

That is once again technically true but to deny that Fed policy has resulted in an enormous surge in SPECULATIVE DEMAND for hard assets is yet again, playing fast and loose with the facts. Take a chart of the CCI and overlay the implementation of both QE’s and one can easily see the connection between the two. I will grant the Chairman that there has been a strong weather element in the rising cost of food. That coupled with increasing demand from developing and emerged markets has indeed been a strong factor in the rise in price of the grains and other commodities in general, yet for the Fed Chairman to seemingly lay the entire blame for the rise in commodity prices on factors outside of his control is striking for its audacity. Note to Ben: SPECULATIVE DEMAND is real and cannot be overlooked when attempting to ascertain factors behind price rises and it is a FACT that demand from this quarter has been fanned by QE as investors have looked to tangible assets to shield their wealth from the accompanying currency debauchment that inevitably results from unlimited money printing.


  1. Bernanke stated that QE2 created or saved 600,000 jobs, according to studies. 600,000,000,000 for 600,000 jobs - you do the math...

  2. Dan, I can just picture you screaming back at the TV as Ben spouts his 'lie speak'.
    Be careful about pulling your hair out. You will need it to stay warm when your heating costs rise beyond your ability to afford them.

  3. I have just noticed your blog Danny, and I am glad to see it.

    I have added a link to it and have 'announced' it on my site.

    All the best, your old friend, Jesse

  4. Hearty welcomes to my old pal Jesse. Folks should check out the outstanding work at his popular website.
    click on the link provided here at our site in the right margin under "My Blog List".

  5. Dan, you are doing great work, Thanks for enlightening us, and avoiding the noise made by the stupid mainstream finance "experts"


  6. The idea that Bernanke and this government care about jobs is an opiate hallucination. With just a fraction of the money they've spent since 2008 they could have put millions to work rebuilding the entire US infrastructure.

  7. I have another thesis on the FED. It would seem that they are stuck with a huge issue on many fronts including balance sheet exposure to rising rates, derivatives blowing up the banks, commodity prices running rampant and US debt service going through the roof. Man, I don't know how he sleeps at night, but I think they have a plan. It would appear to me that this whole run up in the stock market will be a catalyst for the biggest bond buying binge you may have ever seen. What happens when the stock market starts to go south, most investors take flight for safety in US bonds. This typically drives down the yield. I bet in the near future we will see the biggest sell off of the stock market creating a flight for "safety", probably timed with some announcement from the FED that they are starting up a program to sell off their balance sheet of investments. There is a reason Bill Gross is buying MBS hand over fist, in the near future the interest rates on the bonds he holds will be higher than what is available. He will sell at a profit. Oh yeah...forgot about the muni bond problem. This scenario certianly helps the states and cities with this problem as well. Seems a watershed selloff on the stock market would send people running for "safety" (i use this term loosely) into the bond market. Thoughts?

    Jack out

  8. Thanks Dan for all your efforts...your posts are a godsend to some of us who are not experts traders.

    JC....your theory could be spot on! But, I wonder how foreign countries would react!

    Another thought...even if the market tanks, the retail investor is basically not playing now. And, funds have been flowing out bond funds as far as I know.
    Maybe, having been burned by stocks AND bonds, they would just sit it out!

    Traders might make a killing, but wonder if the retail buyers will re-enter?

    Personally, I dumped some long term bonds in May 10 and recently in 2010. I'm in NM and the liquidity wasn't there and I'm glad I got out. Only have one that's coming due in Sept. Also, only have one Treasury bond coming due soon, too...stopped rolling them over awhile ago.

    I have way too much cash...any thoughts on Everbank? Have researched them, and you DO own the currencies, rather than dealing in futures with the ETFs....but I hesitate. It's a US bank basically...

    The other alternative....I have lots of money in short term CD's...perhaps if rates DO go higher, the rates will go up a la the early 80's...realistically, they may not go up enough to beat actual inflation, but they may help soften the blow a bit....


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