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Joseph has been an analyst, investor, and student of economic theory; money and banking; and statistical methods for evaluating and implementing risk/reward trading algorithms since 1972. Joseph is also an occasional contributor to financial publications and his essays are frequently cited by... More
  • The Bernanke Agenda - It Isn't What You Think It Is 15 comments
    May 14, 2013 9:35 AM

    Chairman Bernanke, the engineer of the most manipulated and contrived market rally in history has informed us he won't be making an appearance at the Jackson Hole Economic Symposium this year. The reason - a scheduling conflict.

    Could there be something significant here? He didn't tell us what he sees as more important than one of the biggest events of the year for a central banker. In my opinion it must be a pretty big deal. Here's what I think - by August the market will have imploded once again and world economic leaders will be "circling the wagons" to offer up an epic solution to our global economic dilemma.

    The solution - Bretton Woods II. You won't find too much on this subject in the media but there has been a lot of work going on behind the scenes. Our current system is in total shambles and in fact it isn't even a system at all. The truth is when we abandoned the original Bretton Woods system nothing was agreed to as a replacement.

    In recent days it has occurred to me that Bernanke's plan all along might not be what almost all of us thought it was. This is admittedly just conjecture but isn't that what market forecasting is all about anyway? I have offered this up for consideration in previous articles and think the events of recent weeks and particularly the stunning announcement that Bernanke will skip Jackson Hole is sufficient justification for revisiting the issue of a new and improved global monetary system.

    I think the Fed's plan since the onset of QE has been much different than we've all assumed. I have asked myself this question time and again - why would the Fed persist with a policy that makes no sense? In other words, why would the Fed continue to build excess reserves with more and more QE when it is obvious QE isn't working to stimulate the economy? Look at the chart and tell me you think this makes sense.

    (click to enlarge)

    Keep in mind excess reserves are bank cash as are required reserves. When the Fed buys a bond the cash in the banking system expands and the banks bond account contracts. That is all the Fed does with QE. QE doesn't expand M2 as many believe. That is a function of private sector banks making loans. Here is how that works. The bank makes a loan and in so doing increases deposits (M2) and also increases assets - i.e., the banks loans account.

    When the bank hoards cash as it has done since the onset of QE there is no significant expansion in M2 and therefore no impact to the economy. That is what has happened since the beginning of QE so why would Bernanke and the Fed keep doing it when the money just keeps building to higher and higher levels in the banks reserve account?

    Bernanke's speech last Friday provides a few clues. You've got to read between the lines to get the point and I will get to that in a moment but for now let me lay out my thesis. Here is what I think may be going on. As early as 2008-09 there was a renewed interest in a plan to usher in a new global monetary system. It is my opinion that Bernanke saw the merit in such a plan and may have been resolved to the idea of orchestrating events in such a way that the ultimate outcome would be a relatively painless transition to a new global monetary system.

    My thesis here is that everything that has taken place since then has been orchestrated to accomplish that end - at least that is what I think - and if that is in fact the case then everything that seems to make no sense suddenly does make sense. Bear with me as I develop my thesis as the subject matter is a little complicated and highly interconnected.

    .

    At the onset of the recession the stock market fell as did GDP but the real concern of the Fed was to avert a systemic collapse and avoid a deflationary spiral. A deflationary spiral puts downward pressure on M2 growth and that in turn results in a strong dollar. A pretty simple concept that most should be able to understand but there are other implications in a fear driven, tight credit economy from a global perspective.

    In other words just as companies, banks and consumers went into a dollar hoarding mode so did sovereigns. To get a grasp of the thesis I am presenting here you need to understand how the global monetary system works and the cornerstone of the system is the reserve currency.

    There is a abundance of analytical, research and opinion papers on the subject but this one prepared by the IMF entitled Reserve Accumulation and International Monetary Stability seems well suited as a primer on the subject. I suggest you take the time to read it as the scope of my article is necessarily limited and fails to fully address the complexity or the serious implications of the impact of emerging markets on the global economy. The take away is this - the US is incapable of continuing to supply sufficient levels of reserve assets and a change is imminent.

    The paper referenced above was written in 2010 and therefore the data reflected isn't current but the gist of the argument is well presented in the excerpt below:

    (click to enlarge)

    Here is a blow-up of the chart above on reserves as a percent of US GDP:

    (click to enlarge)

    Here is another excerpt that tends to put the matter in context as it relates to the chart above:

    Ratchet effects. In addition to self-insurance, and to the extent international investors consider high reserves indicative of lower risk for them, individual countries may feel compelled to acquire reserves not only sufficient to cover their own needs in a "sudden stop" event (e.g. all of their short-term external debt), but also enough to compare favorably with other emerging markets in competition for international capital or facing similar risks.5 A ratchet effect may be observable as countries effectively set new benchmarks for each other.

    Similarly, if a given fall in reserves provokes further capital outflows because it is seen as increasing the chance of outright crisis, a substantially larger initial stock than suggested by commonly used measures may be required.6 Such effects are hard to quantify but would imply that self-insurance policies would require ever greater cost and effort to maintain similar protections.

    This next excerpt forms the basis for my thesis that a change is imminent:

    As long as reserve issuing countries are willing to incur debt to purchase imports, an export-led growth strategy leading to persistent current account surpluses will be a feasible policy choice. As economies relying on undervalued exchange rates and demand from reserve issuers grow relatively large, the difficulties for the reserve issuers in achieving adjustment through domestic means alone increases.

    Here is the key phrase - "As long as reserve issuing countries are willing to incur debt to purchase imports, an export-led growth strategy leading to persistent current account surpluses will be a feasible policy choice." So far the US has been willing to do just that and here is my point - the fiscal and monetary policy that was implemented at the onset of the financial crisis was of such an immense magnitude that the United States and its central bank necessarily were required to meet the increase in the demand for reserve currency assets.

    It was at the point where I finally got a grasp of this subject that I arrived at the conclusion that Fed QE and massive deficit spending were necessary even if the outcomes to the domestic economy were not significant. The real question - and one that Bernanke has made time and again is what would have happened if the Fed hadn't moved to inject liquidity into the system. Take a look at the GDP and CPI charts with particular attention to the period at the onset of recession:

    (click to enlarge)

    (click to enlarge)

    What happened at the onset of the financial collapse - instant deflation and a collapse in GDP. The response by all - both domestically and on a global scale - was a rush to cash and dollar denominated assets - i.e., US treasuries. The demand for the dollar was instant and significant as the chart below reflects. The dollar appreciated by 25% before finally moving lower at the beginning of QE1.

    (click to enlarge)

    As you can see from the charts above the rapid increase in demand for the US dollar and US treasuries created a very rapid imbalance between supply and demand that drove the dollar substantially higher. Domestically speaking this is deflationary as the CPI chart shows. And of course deflation is the worst of all possible scenarios and produced an instant collapse in GDP and a broad based sell off in stocks.

    The Fed and the US Treasury needed to move and do so rapidly to diffuse the impacts and to address the need for reserve assets - i.e., US treasuries. There can be no doubt that we did that as the massive increase in debt brought US debt as a % of GDP to post WWI levels - a period in time where a new global monetary system was essential and ushered in the Bretton Woods system.

    (click to enlarge)

    The boxed in area on the chart shows the Fed and the US Treasuries response to the need to supply a substantial quantity of reserve assets. So, the question again - where would we be had the US government not fulfilled their role as the provider of reserve currency? The answer is that we would be in a global depression the likes of which we have never seen before.

    Additionally, one should keep in mind this process was not really so much a function of the Fed as it was the massive increase in US debt. It was the willingness on the part of the US to expand the supply of treasuries to meet the global demand for reserve assets that produced the much needed counter cyclical effects precipitated by the crisis.

    Although everyone gives credit to the Fed the truth is the Fed's role was more of a facilitator than anything else in this context. It was Congress that passed much needed legislation and provided the authority to finance stimulus through deficit financing.

    The Fed became a buyer of US treasuries and in so doing prevented what could have been an altogether different problem - rapid acceleration in inflation and a loss in confidence in the dollar as a reserve asset. The Fed apparently recognized the risk of inflation and decided to pay interest on excess reserves to incentivize banks not to take high risks by making loans - a situation that could have produced serious hyper inflation.

    Hopefully this is starting to make sense to you. I have vacillated between being an avid supporter of Bernanke and one of his biggest critics. At this point I am solidly in the supporter camp but only on the basis that his purpose was in part to orchestrate a partial recovery of the global and domestic economies and to stabilize the system and get it prepared to withstand another shock and another trip to the bottom of the secular bear market trading range - a pre-requisite to the end game that will result in a new international monetary system.

    Although I admit my thesis is based on conjecture I think there are a lot of signs emerging - and at a rather rapid rate - that suggests the Fed and Congress are about to pull the rug out from under the markets. The Fed with talk of a slow down in QE and Congress with deficit reduction. There is a reason for this though and it could have some very good long term benefits. The truth is we need a new monetary system that will correct the inherent flaws of the present system. At Bretton Woods Keynes told us the system as configured would fail.

    It did fail so Keynes was right. Keynes believed that a global central bank and a global non-sovereign currency was the preferred solution. Keynes proposed the bancor and his proposal became Britain's official position on the matter at Bretton Woods. Here is a brief overview on the idea Keynes floated at Bretton Woods:

    The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher[1] conceptualised in the years 1940-42 and which the United Kingdom proposed to introduce after the Second World War. This newly created supranational currency would then be used in international trade as a unit of account within a multilateral clearing system - the International Clearing Union - which would also have to be founded.

    John Maynard Keynes proposed an explanation for the ineffectiveness of monetary policy to stem the depression, as well as a nonmonetary interpretation of the depression, and finally an alternative to a monetary policy for meeting the depression. Keynes believed that in times of heavy unemployment, interest rates could not be lowered by monetary policies. The ability for wealth to move between countries seeking the highest interest rate frustrated Keynesian policies. By closer government control of international trade and the movement of wealth, Keynesian policy would be more effective in stimulating individual economies.

    My guess is something similar to what Keynes proposed is currently in place and waiting in the wings to be ushered in at the right time. The plan will set the IMF's Special Drawing Rights as the reserve asset of choice and the IMF will take on the role of Keynes International Clearing Union.

    The problem will be one of politics in spite of the merits of a non-sovereign system. Here is an excerpt from the paper referenced above on the subject of political resistance:

    Additional hurdles to the development of an SDR-based system include potential resistance from reserve issuers who have no direct use for SDRs

    There are certain benefits derived by being a reserve currency nation but the fact remains the global playing field is changing and in rapid fashion. The old system no longer works and it is doubtful you will find a credible reason offered for continuing with the present arrangement. That said, change is not so easy to accomplish and the political class in Washington must be convinced. Churchill said it this way and I think he was right:

    "We can always count on the Americans to do the right thing, after they have exhausted all the other possibilities."

    That takes us to the markets and what we might expect going forward. Here is what I think will happen going forward. In my opinion the markets have been manipulated, prodded and pushed to all time nominal highs. I can't imagine anyone suggesting that the Fed hasn't provided the impetus for this push higher and a look at the correlation between the Fed's balance sheet and the Dow should dispel any doubts:

    (click to enlarge)

    So can we count on Bernanke and the Fed to continue with the Bernanke put? As I said at the first of this article Bernanke s speech last Friday offers clues. Here's an excerpt from the text of that speech:

    Ongoing monitoring of the financial system is vital to the macroprudential approach to regulation. Systemic risks can only be defused if they are first identified. That said, it is reasonable to ask whether systemic risks can in fact be reliably identified in advance; after all, neither the Federal Reserve nor economists in general predicted the past crisis. To respond to this point, I will distinguish, as I have elsewhere, between triggers and vulnerabilities.2 The triggers of any crisis are the particular events that touch off the crisis--the proximate causes, if you will. For the 2007-09 crisis, a prominent trigger was the losses suffered by holders of subprime mortgages. In contrast, the vulnerabilities associated with a crisis are preexisting features of the financial system that amplify and propagate the initial shocks. Examples of vulnerabilities include high levels of leverage, maturity transformation, interconnectedness, and complexity, all of which have the potential to magnify shocks to the financial system. Absent vulnerabilities, triggers might produce sizable losses to certain firms, investors, or asset classes but would generally not lead to full-blown financial crises; the collapse of the relatively small market for subprime mortgages, for example, would not have been nearly as consequential without preexisting fragilities in securitization practices and short-term funding markets which greatly increased its impact. Of course, monitoring can and does attempt to identify potential triggers--indications of an asset bubble, for example--but shocks of one kind or another are inevitable, so identifying and addressing vulnerabilities is key to ensuring that the financial system overall is robust. Moreover, attempts to address specific vulnerabilities can be supplemented by broader measures--such as requiring banks to hold more capital and liquidity--that make the system more resilient to a range of shocks

    Here is what Bernanke said with the Fed speak removed. We can't identify in advance when a systemic collapse of markets might occur. We know that high levels of leverage and a disconnect between the markets and reality can magnify the shocks and that requiring banks to hold more capital and liquidity can work to mitigate the shocks. In other words we aren't guaranteeing that the markets won't move to irrational levels but we have done our job to mitigate the consequence to the system the next time the markets move to irrational levels and subsequently crash in that we have addressed capital and liquidity issues.

    Bernanke's comments tend to be a CYA statement but they are true and very informative if one cares to be informed. The truth is liquidity levels today are off the charts as the excess reserves chart above shows. Here is the math. Total M2 as of March 2013 was $10.447 trillion. That means that required reserves are approximately 10% or $1 trillion and excess reserves per the chart above are approximately $1.7 trillion for a total of $2.7 trillion in reserves or about 27% of total M2. That is simply unprecedented and suggests that United States banks can withstand a massive onslaught of depositor demands and still remain solvent.

    In other words if we do have another market crash and it precipitates a run on the banks the banks will remain solvent and confidence in the system will be re-established rapidly. Consider the magnitude of the reserves and do so within the context of Bernanke's remarks and ask yourself this question - could Bernanke have been preparing the banks for another crash - one he knew would be coming all along?

    For my money that makes a whole lot more sense than continuing to flood a system with utterly useless excess reserves. The only logical motive for doing this is to brace the system for another crash and to make sure the banking system would not be threatened with collapse. If that was his motive he gets an A+ as he has certainly done that and in that context an otherwise irrational policy suddenly appears almost prophetic and completely rational.

    Here is another excerpt from Bernanke's speech:

    In light of the current low interest rate environment, we are watching particularly closely for instances of "reaching for yield" and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals. It is worth emphasizing that looking for historically unusual patterns or relationships in asset prices can be useful even if you believe that asset markets are generally efficient in setting prices. For the purpose of safeguarding financial stability, we are less concerned about whether a given asset price is justified in some average sense than in the possibility of a sharp move. Asset prices that are far from historically normal levels would seem to be more susceptible to such destabilizing moves.

    From a financial stability perspective, however, the assessment of asset valuations is only the first step of the analysis. Also to be considered are factors such as the leverage and degree of maturity mismatch being used by the holders of the asset, the liquidity of the asset, and the sensitivity of the asset's value to changes in broad financial conditions. Differences in these factors help explain why the correction in equity markets in 2000 and 2001 did not induce widespread systemic disruptions, while the collapse in house prices and in the quality of mortgage credit during the 2007-09 crisis had much more far-reaching effects: The losses from the stock market declines in 2000 and 2001 were widely diffused, while mortgage losses were concentrated--and, through various financial instruments, amplified--in critical parts of the financial system, resulting ultimately in panic, asset fire sales, and the collapse of credit markets.

    Here is what he said. Investors are getting carried away and are reaching for yield and that bothers us a little. We are also concerned about the amount of leverage currently being employed. Even so, we are not to worried at this point as the crash that is about to come will not have a systemic impact this time and not induce "widespread systemic disruptions"

    You can ignore his warning if you want and continue to over leverage and chase yield but you sure can't blame Bernanke when you once again lose a substantial part of your portfolio. After all he has warned you.

    As a side note there are a few pretty well respected investors who have heard the warnings and see the handwriting on the wall. Check out this excerpt from Richard Russell's Billionaires Selling Consumer Stocks: Red Flag or Profit Taking?

    What do billionaires Warren Buffet, John Paulson, and George Soros know that you and I don't know? I don't have the answer, but I do know what these billionaires are DOING. They, all three, are selling consumer-oriented stocks. Buffett has been a cheerleader for US stocks all along. But in the latest filing, Buffett has been drastically cutting back on his exposure to consumer stocks. Berkshire sold roughly 19 million shares of Johnson and Johnson. Berkshire has reduced his overall stake in consumer product stocks by 21%, including Kraft and Procter and Gamble. He has also cleared out his entire position in Intel. He has sold 10,000 shares of GM and 597,000 shares of IBM.

    Fellow billionaire John Paulson dumped 14 million shares of JP Morgan and dumped his entire position in Family Dollar and consumer goods maker Sara Lee.

    To wrap up the trio of billionaires, George Soros sold nearly all his bank stocks including JP Morgan, Citigroup and Goldman Sachs.

    Concluding thoughts

    I concede that my thesis is conjecture at this point but it makes sense to me. Here is what I see happening. The Fed withdraws market support, the market crashes in a shocking and rapid descent back to the 2009 lows, the Eurozone recession worsens, China's slowdown magnifies the problem, Japan's last ditch effort back fires and the world plunges into recession.

    In short order a solution is offered - a new monetary system that promises to resolve our problems. The system has the added benefit of a partially gold backed re-set of all sovereign currencies - in effect monetizing the debts of troubled nations once and for all and bringing debt to GDP ratios back in line with historic norms.

    Thereafter, economies start to improve as confidence is restored and the perception of value is evident in all asset classes. Excess reserves rapidly shrink as money lending resumes and investments increase - again based in part on the perception of real value and also the confidence in the new monetary system. In other words, the next secular bull market begins.

    As banks lend M2 will expand rapidly and inflation will be the short term consequence. And yes, the gold bugs will be proven right as inflation will push gold sharply higher and that will also be of benefit to sovereigns who now hold gold as a partial backing of their own currencies. Bond's will fall and yields will rise once again rewarding the prudent amongst us who will benefit from normalized rates. In fact, higher interest rates will be necessary to keep inflation in check.

    What might be the most surprising aspect of this whole scenario is the incredibly rapid pace of the events. Here too we may have a clue on timing. Consider that Bernanke has announced he won't be in attendance at Jackson Hole this year due to a scheduling conflict. One wonders what that conflict might be that would pre-empt the single biggest event of the year for a central bank head. It certainly can't be an emergency as he announced that he wouldn't attend several months before the event.

    What possible reason would he have for announcing he would not attend? Maybe he plans to be pre-occupied selling Congress on the need to adopt the new system or maybe he simply plans to take the lead in introducing and selling the system to the world and the timing for this event has already been set and conflicts with Jackson Hole. I do think the stage is set and now is the time to begin the final chapter in the process of orchestrating an epic and positive shift that I see as resolving many of the issues that has held us captive in a secular bear market that is well into its 2nd decade.

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Comments (15)
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  • wigit5
    , contributor
    Comments (3964) | Send Message
     
    Thanks so much it was an enlightening read for out of the box thinkers...
    14 May 2013, 10:21 AM Reply Like
  • Bill J
    , contributor
    Comments (24) | Send Message
     
    And all this time I thought Bernanke was passing up the chance to speak at Jackson Hole so that he could spend more time with his family.

     

    JS, you put forth an amazing set of "what if's", it sorta sounds like a Hollywood script. I see a couple of potential hang-ups. First off is the thought that the world is ready for as much as a "partially gold backed re-set of all sovereign currencies " given the extent of official bad-mouthing of gold by so many. Setting that up would take years, years we might not have. The second problem is one of Bernanke casting off the mantel of Fed Chair and all the bad ju-ju he has accumulated with ZIRP, POMO and QEs in general and reappearing as a knight in shining armor to save the world's economies. He will be as welcome as a cold, soapy enema--that won't happen.

     

    Others might find issues with your thoughts as well. Given all that, Strauss and Howe in their book, "The 4th Turning" warned us of all sorts of major chaos and changes to expect between 2000 and 2025. You sure outlines some significant changes. Jackson Hole is the end of August. We'll find out soon enough.
    Bill
    14 May 2013, 12:18 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1700) | Send Message
     
    Author’s reply » Bill

     

    Clearly this is a "what if" situation but the idea that it will take a long time to put this in place neglects to account for the fact that the issue surfaced back in '08 and the amount of work done toward this end is substantial. Whether we end up with the scenario outlined or not I am certain all the specifics and fine points have been worked out already. I'm not forming an opinion out of thin air. The papers, speeches, etc are voluminous on this subject.

     

    The most recent was Joe Biden's speech to the Import-Export Bank on this subject and the need for it.

     

    As to gold - the sell off in gold is only partially explained by the economic slowdown and deflationary forces. I think a lot of the unusual price movement in gold is a process of shifting gold reserves in preparation for a new monetary system.

     

    Not sure you are seeing Bernanke in the right light. There are many who criticize his moves but also many who see him in a very positive light. In any event even a cold enema might be welcome if that is really what you need to alleviate the problem.

     

    In the end I see it much like Steve Jobs. When asked if he thought they should do research to identify what products customers want he replied they won't know what they want until we invent it and tell them they want it and need it. That is clearly the case with a new monetary system. Very few will grasp the relevance or significance of the proposal anyway but everyone will be eager to accept a solution - probably any solution - after another market crash.

     

    JS
    14 May 2013, 01:25 PM Reply Like
  • ba419adv
    , contributor
    Comments (211) | Send Message
     
    JS

     

    Great article!

     

    The NY FED just announced that US stock prices are at all time lows because the return spread between risk free and risky assets are at record highs. This statement would seem to indicate that the FED is encouraging investors to enter or increase their participation in the US equity markets. What do you think?
    14 May 2013, 02:01 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1700) | Send Message
     
    Author’s reply » ba419

     

    What can one say to that kind of foolishness. I have considered the need to compare equity price in the context of returns relative to alternatives but to do so presumes - at the least - some degree of confidence in economic metrics and not just a confidence in the Fed.

     

    As I went through Bernanke's speech I saw nothing at all in his comments that suggests the Fed wants to see investors contiune down this path. In fact all I saw were warnings.

     

    JS
    14 May 2013, 02:40 PM Reply Like
  • Maverick Trader
    , contributor
    Comments (149) | Send Message
     
    Your articles are second to none. Excellent points and great subject matter. Bernanke's agenda is truly an opened Pandora's box.
    14 May 2013, 02:04 PM Reply Like
  • pdtor
    , contributor
    Comments (1486) | Send Message
     
    JS, one of the best articles on SA. This article should engage all investors as it speaks to the inflation/deflation debate. You invest very differently if you expect inflation from investments in deflation. So outcome on how this is resolved is very important. Although there has been much criticism of Bernanke, I have not seen anybody come out with better ways to deal with the dilemma he has to deal with. Except for the economist John Taylor.
    Many of his actions seem incomprehensible to me as they as the outcomes of his policies seem longterm detrimental to the economy, as he does not seem to see the obvious. Such as misallocation of investments, due to low interest rates, and bubbles in the bond and commodities markets. Driving investors to increase risk, which cannot end well. So, if his policies are detrimental to the economy, what is his end game? This article lays out an interesting scenario, however I hope he knows about the economic law of unintended consequences. The end game as I saw it, is we are in a deleveraging deflationary cycle, leading to depression, or worse civil unrest. To deal with this deflation the central banks and their masters, and governments will need to inflate, and not be able to stop until it is too late, leading eventually to hyperinflation. I still think the end game is in doubt. However you article got me to thinking, maybe we can get out of this with just a market crash, like 2000. I hope he can pull it off. He would be seen as a savior. There are no good solutions, just bad and worse. Remember geopolitical event may intervene, to push best layed plans of mice and men.

     

    If he does solve the economic problems of US, send him to the EZ, who I think have even more intractable problems.

     

    An article that makes you think, and adds a new perspective EXCELLENT
    14 May 2013, 03:04 PM Reply Like
  • Rigorous
    , contributor
    Comments (120) | Send Message
     
    Food for thought. Thank you for your thoughtful efforts. It does seem far fetched. Except for one really important thing. This U.S. is probably not going to be able to provide the world with enough Treasuries to meet their reserve needs. The U.S. deficits just can not be that big for that long. With the U.S. energy exports growing the balance of payments can really narrow.

     

    Hummmm.
    14 May 2013, 09:54 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1700) | Send Message
     
    Author’s reply » Rigorous

     

    When something doesn't make sense in the normal sense you need to search for a way to explain - an outside the box process if you will. Here is what we know about Bernanke. He is an avid student of Keynes and he is an avid student of the Japanese experiment with QE - a failed experiment by the way.

     

    He knows what Keynes said at Bretton Woods. We've had a pretty erratic and volatile century so far and no credible economist really disagrees with Keynes that a sovereign currency works. That may not be main stream but believe me Bernanke and company know. There is a huge volume of work on this dating back to 2008 when the UN commisssioned a group of economists to identify problems and propose solutions - they came up with the IMF and the SDR.

     

    Since then a number of others have written on it extensively. Joe Biden called for it in a speech last month. It is going to happen as it is the only way we can break out of this mess. It will involve a major devaluation of currencies and a monetizing of debt across the spectrum.

     

    That will kill those with pensions as they will still receive nominal payments that in real terms will have much less buying power. It is a once and done deal that screws some but deals with the massive levels of unfunded liabilities and the inherent deflationary drag that the dollar has on global economies - especially the emerging markets.

     

    This isn't the script for a movie - it is our fiscal and monetary leaders doing the right thing.

     

    JS
    15 May 2013, 01:07 PM Reply Like
  • rodh7858
    , contributor
    Comments (138) | Send Message
     
    Mr. Stuber
    What are your thoughts on the following CNBC article?

     

    http://bit.ly/16dmRO6
    14 May 2013, 11:31 PM Reply Like
  • eagle1003
    , contributor
    Comments (1485) | Send Message
     
    Great story! With your imagination, you could have been a writer for the movie industry. Bernake is no fool but I doubt that his plans go much beyond getting the economy back on it's feet.

     

    On another note, I see the stock market sailed through your 1600 upper limit and seems to want to march higher yet. It must really suck to have been bearish all the time you could have been making hay. You have missed out on a great party. Are you going to pick another number as the high before it all slides into a crash?

     

    The banks, buying stocks with QE money, are completely distorting the market with no inclination to take profits as we would normally expect to see. There also has been very little in the way of sector rotation with the same sectors pushing the market ever higher. It is interesting how the financial stocks and defensive sectors are doing so well but then it really isn't surprising considering the conservative nature of those who are driving the market with the Fed's 'printed' cash. The risky commodity sectors are completely ignored.

     

    The declining volumes are evidence of a shrinking pool of buyers and some may interpret that to be a bearish sign. Well, it would be if we were in a normal bull market, but this bull market is anything but "normal". In fact, as the volume shrinks, the market responds by moving higher. Clearly, those in the driver's seat are intent on pushing the market up. The 'TOP' might prove to be much more elusive than one might expect.

     

    One of the big beneficiaries of a rising stock market has been the pension funds and their corporate sponsors who have been facing billions in funding liabilities thanks to a combination of low bond yields and low stock prices that were crippling the ability of the plans to provide the pensions for retirees. Perhaps the QE gift from Bernake has gone exactly where he wanted it to go in order to avert a pension fund disaster. Rising yields should further lighten the funding liability. Maybe that was his real plan all along or would that be too simple to consider?
    15 May 2013, 12:48 AM Reply Like
  • pdtor
    , contributor
    Comments (1486) | Send Message
     
    Eagle, nice reply.........not a bad story
    15 May 2013, 08:56 AM Reply Like
  • greinhold
    , contributor
    Comments (39) | Send Message
     
    Tx for the insightful analysis Joseph.
    I have to agree that in the end we will be given a choice between a supranational currency or a cold, soapy enema as Bill J suggests as it has been the logical conclusion for some time when looking at the evolution of the economic disaster that the world's bankers and political leader's have been helpless or more likely...unwilling to mitigate.

     

    If the later be the case then it is in the ciaos of the crisis their hope that it would in fact lead to the opportunity of establishing the US liberal's vision of a one world government as Clinton, Bush and now Obama have enabled with the global liberal G20++ in happy lockstep.

     

    It becomes obvious when, other than putting lipstick on the pig at every turn, they have orchestrated the largest transfer of current and future wealth in history in the name of protecting the "system'...and of course their own positions and agendas.

     

    And while your thesis paints a rosy outlook for those who managed to ride this wild bull to the end, I believe it puts undeserved glory on the leaders who brought us this rodeo in the first instance and the unknowable cost and in many cases the true suffering of a vast population of middle earth across collapsing economies who may not recover as nicely as the supranational economy does in your analysis.
    15 May 2013, 10:38 PM Reply Like
  • krugerrand 1971
    , contributor
    Comment (1) | Send Message
     
    Another GDP centric analysis. If total debt decreased by 70% and GDP contracted by 50% would we be better off? The answer is yes. GDP should be measured as - X amount of barrels of oil, X board feet lumber, X bushels of corn, X tons of steel etc. GDP should not be measured using the dollar because the value is unknown and manipulated.

     

    A deflationary depression is the cure to all this madness. We will languish for decades because this scenario is being stopped by the Fed.
    16 May 2013, 08:33 AM Reply Like
  • flash9
    , contributor
    Comments (3669) | Send Message
     
    What is the reason Germany wants its gold back? An author on CSPAN said he was assigned to a military job. He asked what was happening, oh, we are planning to invade Iraq next spring (a year away at the time.) So things do happen behind the scenes like preplanning Bretton Woods 2. It will take a large crisis to push through such a globalization loss of sovereignty type issue.
    22 May 2013, 12:04 PM Reply Like
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