Wednesday, November 2, 2011

Has Bernanke Lost His MInd?

I just saw this headline come across the tape:   "Low interest rates benefit savers too:  Bernanke."  He goes on to explain that low interest rates are stimulating economic growth and savers won't get decent returns on their savings until the economy strengthens.  Here's the LINK  The dude lost me on that one.  In fact, that has to be one of the most insanely idiotic statements I have ever heard - and everyone who heard and believed it is dumber for having done so.

One of the exercises I try to do is, when someone says something that seems stupid on the surface, I try to intellectually understand why they are making that particular statement.  Let me get this straight:  if I have my money in a CD earning a fixed 1%, my money will grow in value if the economy by some miracle of some other-world higher power grows?  I can understand trying to sell an idea by spinning the logic, but Bernanke's reasoning there is outright retarded.  I truly think the guy has lost his mind.  Either that or he's treating some malady with high grade medical marijuana.  Okay maybe he's not stoned because he would not be able to make that statement and keep a straight face - perhaps he takes copious amounts of prozac or xanax.

But nonsensical logic aside, let's look at some facts.  Regardless of interest rates, the Fed is devaluing the dollar.  Since Bernanke's QE began in 2009, the dollar index has lost 13% of its value.  That doesn't reflect the lost purchasing value of a dollar due to real inflation, not the bullshit CPI data served up by the Government and shoved down our throats by Bernanke.  All I know is that the cost of everything I use on a daily basis has gone up substantially over the last year, and now peanut butter is going up 30% this month.

I'm sure Bernanke knows the true rate of inflation.  I also believe that the last shred of intellectual and academic integrity that supposedly comes with being the El Jefe of an Ivy League economics department is what is standing between Bernanke and his desire to send the printing press into overdrive.  Furthermore, the fact of the matter is that if Bernanke pulled a Volcker 1980 and jacked rates up to where they should be, which would indeed benefit savers and would stimulate savings to an extent that might help fund real investment, we all know that it would throw the economy into a depression that would make the 1930's depression look like a Bernankean bong hit party.

And here's an even bigger problem:  15% of the country is now on food stamps:  LINK  I saw a news report the other day that depicted the trouble farmers in some southern States are having hiring labor to help harvest crops because of strict illegal immigrant laws being enforced.  If the Government cut off food stamps to everyone except the worst of the hardship cases out there, I can guarantee you that these farmers would not have a problem finding domestic labor.  In fact, I would argue that if the Government cut back on all welfare entitlement programs by at least 50%, it would solve BOTH the high unemployment problem AND the illegal immigrant problem. 

But given that real interest rates will continue to be very negative for the foreseeable future and that the Government will continue borrowing and printing money and handing it out to potential voters, gold and silver will continue onward and upward.  Jame Turk and John Embry are calling for $60 silver to happen a lot sooner than most people think it can happen.  In the past few days I have come around to agreeing with them.  I don't have a specific time frame for that other than to say that I think we could see $60 silver by May.  That would imply $2400 gold if you think the gold/silver ratio can trade down to the 40 area.

What will drive this?  Bernanke's zero interest rate policy which he says benefits savers and the massive monetization of European and U.S. banking and Government debt...In the spirit of trying to shed some humor on the tragedy that is our system, this clip from Billy Madison comes to mind after reading Bernanke's comments today:


  1. Bernank ain't stupid, nor is he high. He is a pathological liar. "Low interest rates are good for savers. yeeaaah, that's the ticket."

  2. (Dave)

    Agree with your first statement, not so sure about the second. Maybe not high on weed but he's gotta be taking something. I can't believe he can make a statement like that and keep a straight face.

  3. Habitual liars believe that what they say is true. Duh.

  4. Bernanke can say it because who in the press is going to challenge him?
    I swear if Bernanke had a colonoscopy, Steve Liesman would be whose head
    They would run into first.

  5. Dave, I hadn't thought about it anytime lately, but your mention of other nations funding our $1.X trillion deficit really struck a chord. There's just no way - with the whole world in trouble, exactly who is going to put down that kind of money to fill our coffers?

  6. (Dave)

    I've been making the argument since the end of QE2 that the Fed would have to start printing again in order to fund Treasury debt issuance. If the Fed doesn't print, who buys it? As of yesterday, the Govt is on track to run about 1.8 trillion deficit, which means it will need to issue $1.8 trillion in new debt as of Oct 1 this year...and that assumption assumes that tax revenues come in as projected. As of the latest report, they are already running below forecast...

  7. Dave, thanks for your analysis on the ongoing fraud otherwise known as the US economy.

    When you mentioned that the cost of everything you use on a daily basis has gone up substantially over the last year and that the CPI is a joke you aren't kidding. I have been keeping track of my household expenses for the last two years and my inflation rate for 2010 was over 8%. So far this year, prices have risen by 16.2%. How Benny can say his zero percent interest rates help savers when your bank account is now losing about 15% this year to inflation proves he is a liar. He knows the truth, but he also knows the country can't handle the truth.

  8. Dave,

    I think he was saying if the economy strengthens then interest rates will rise on their own and THAT helps savers which you already kinda hinted at in your first paragragh. However, he has lowered his growth estimates so a stronger economy doesn't seem to be in the cards. Of course, if he artificially raises interst rates in this environment, I think you're right. That would put us in a tailspin. Which brings us back to... why even make the staement? What a dumb thing to say.

    Recall he also commented that if unemployment remains 'untreated' (I think that's the word he used) then we begin to experience structural problems in the economy. Well, I think we're already there and have been there since 2000. Wake up already. Until the system is flushed of its debt whether voluntarily or otherwise, gold and silver is where to be..and I know you agree.

    Love your work. Grazie mille! Gallo

  9. (Dave)

    Gallo, where in any economic school of thought have you come across the axiom that a strong economy helps savers? Interest rates that are higher than the inflation rate helps savers (positive real rates). A strong economy helps equity investors, maybe.

    It would be correct, however, to say that savers help enable a stronger economy. RIght now the savings rate is near all-time lows anyway so Bernanke's comment is doubly retarded.

    And interest rates are very negative unless you take a lot of risk in an invest in very riskly fixed income securities as a savings vehicle.

    I'm sorry but there is no possible way to rationalize or theorize why Bernanke said what he said other than to accept that he made that statement because 90% of the population blindly believes comments like that coming from people like that because they dont' use their brains.