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Minyan Mailbag: The Dark Side of Boom Boom Ben


This 'dark' side may not be good for the economy.


This was emailed by a knowledgeable friend, a Fed watcher and a good thinker.

Bernanke was chosen by the corporations years ago--and by the foreign central banks who we are beholden to now--he has championed 'sole mandate inflation targeting' the world over with the 'economic growth mandate' for fed policy being moot except in crisis; i.e. the European Central Bank's plan - and now it is coming to the U.S.

What is ironic about this is that he is simultaneously and erroneously considered to be a dove, but those beliefs will get shattered as his primary focus will be on protecting the value of the feds book and U.S. treasuries in general (i.e. the value of dollarized assets being held by the foreign central banks; primarily Japan and China, but now also the UK). The fed will become an adversary of the private economy and private money creation as a result--this is where the belief in his dovish nature comes from. His attitude of go along to get along with the fiscal authorities will be embraced by the administration because he will monetize their issuance of long-term treasury debt with a blank check whereas Greenspan won't, and he will then offset that monetization with increasingly higher fed funds, sound bizarre?

We are entering a world wherein it will be an antagonistic relationship of public versus private, fiscal and monetary policy versus the private economy, the fed bank members versus the fed, the fed bank members versus their clients / borrowers, big companies and the corporate state versus small companies and the private state. Barriers to entry domestically will rise as access to capital is left increasingly available only to the haves--all of which is in keeping with this administration's policies to date. It will be very interesting to see how long it takes the markets to get who Bernanke is and how long it takes Bernanke to essentially re-write the fed mandate - and who, if any, in Congress objects.

This is not like when Volker turned the reigns over to Greenspan, they were of a similar mindset with respect to the role of a central bank. Bernanke is a new breed of central banker altogether. He's gotten the job by placating the admin about their need to issue debt, and he will do it, but it will come at the expense of you and I and every member of the private economy. Because every dollar he monetizes for the feds will be countered by another dollar being removed from the private economy--in essence what inflation targeting is. As sovereign debt to GDP growth accelerates all over the world the rest of the world's western economies will do the same, bringing us finally full circle on the twentieth century. Having spent it fighting collectivism of all sorts and won (fascism, socialism, communism) we are now becoming that which we vanquished--but today we call it globalization.

I don't know whether this different picture of Mr. Bernanke is the correct one or not. It certainly is not the one being discounted by markets right now. It is one where Mr. Bernanke:

  • Believes in globalization as a mercantile force, a form of socialism where central banks take a very active role in managing the process and the world's economy in general.
  • Will not print dollars to boost consumption as a champion of the private economy, but will reward our foreign lenders (avoid a pin prick) by allowing short term interest rates to rise (this is very different from what the market believes as the Fed Fund futures have dramatically shifted this morning to where it now believes Fed Funds will stop at 4.5% rather than 4.75%).
  • Will print dollars to monetize bonds thus protecting the dollar and our foreign lenders' investment.

In general, this "Dark" Boom Boom is very bad for the private economy (stocks).

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No positions in stocks mentioned.

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