Bernanke on '60 Minutes': Pants on Fire

by: Karl Denninger

There's bad, and then there's just plain false. Ben Bernanke's interview on 60 Minutes last night falls into the latter category.

How anyone could come away from seeing it without being stunned at the man's mendacity is beyond me. Correspondent Scott Pelley reported that Bernanke has "unprecedented power" over the economy. The true questions are these: Does he really have this much power under the law, or has he arrogated it to himself -- and are our Congress, our Executive, and our people too limp-wristed to put a stop to it?

I argue the latter, and have since this mess began. But more to the point, it's not just about what Bernanke has done. It is, much more importantly, about what he hasn't done -- specifically in the lead-up to the crisis itself.

Bernanke continues to argue that most of this "wasn't under his control."

That's an outrageous lie.

Unemployment isn't going down because the real issue -- too much debt in the economy (and bad debt, at that) -- remains. It remains specifically because everything Bernanke has done has been for the explicit purpose of shielding those who made the bad loans -- banks -- from having to go bankrupt, which would clear that bad debt from the system.

Bernanke says he's not "printing money" with his $600 billion. But the reality is that he's monetizing the Federal Deficit -- that is, he's allowing rampant deficit spending.

The real problem with Bernanke's "QE2" is that he believes that "deflation" is a bogeyman. It's not when you had rampant inflation before, as we did. What do you think all the ramping in asset prices -- stocks and houses -- was? The true measure of inflation is the expansion of credit beyond the expansion of GDP.

Bernanke says that he's "lowering long-term interest rates" with QE2. But in point of fact, since QE2 began, long-term interest rates have gone up, not down! This shouldn't be a surprise, because the last time he QE'd, rates went up as well! Did our intrepid interviewer mention this? Hell no.

Bernanke also says he has "100% confidence" he can tighten policy. Really, Ben? How do you tighten policy? You sell bonds. But what happens when you sell bonds? Prices go down, and rates go up, right? So you bought at the high price, and sell at a lower price. That's a capital loss! And the only tool available to him to "absorb" that capital loss is to print more money, which does exactly the opposite of the "tightening" he claims he can perform.

The fact is that Bernanke cannot tighten and he knows it -- he's lying. If he does tighten, he will wind up in negative equity and the only things he can do to prevent that is to reverse his "tightening." The market knows this (it's simple arithmetic), which is why rates are going up instead of down.

This man needs to be removed. We now know that not only did he intentionally look the other way before the crisis "broke," despite knowing damn well that the banks were making crap loans that could never be paid, but we also now know that banks came to him with collateral for loans during the crisis that he valued at ten cents on the dollar. And yet there has not been one squawk from him in his regulatory role about the banks writing off that bad debt -- and they have not, in fact, written it off.

This, more than anything else, for as long as it is maintained, is the root of why our economy has not -- and will not -- recover.