This Wednesday, the Federal Reserve chairman Ben Bernanke spewed out some of the most financially illiterate ignorance I have seen from a public figure since the President's last public speech. This is not a surprise coming from a man who has never held a job in the real economy and is firmly ensconced in the economic theory of academia, which has very little relationship to the real economy.
The market responded positively to the Chairman's remarks, and why wouldn't they. For the last 3 years they have been the jonesing crack addicts to Big Ben's quantitative easing fix. In recent bond auctions, which is how the government borrows money to fund all the things they shouldn't be doing, the Federal reserve has bought 90 percent of all the government's debt. It's not the Chinese that Americans have to worry about, it's the Federal reserve monetizing our debt to levels which have ballooned its balance sheet to over 7 trillion dollars. Anyone with a grade school education realizes that this situation can't continue indefinitely. Eventually the U.S. currency will collapse and our credit worthiness will be in dumper.
In 2010, tax-cheat Timothy Geithner (Treasury Secretary) went to China and told officials there that the U.S. was not monetizing its debt. The Chinese called him on it by letting him know that they have kept track of our money supply and that we were most definitely monetizing our debt. Since then the Chinese have been divesting themselves of U.S. debt. Which is why the Federal Reserve has had to buy the debt themselves, further exacerbating the monetizing problem. Of the 5 trillion dollars in new debt created by the Obama administration, over sixty percent has been purchased by the Federal Reserve. They have done this by simply printing money and using it to buy the Federal government's debt, which is going to hurt pension funds which invest in long term bonds.
If all this wasn't enough to scare the b-Jesus out of you, Big Ben made a comment during his remarks that made me pop a blood vessel in my brain. He said that the government had to reduce incentives for companies to grow. Evidently this is to avoid the myth of too-big-to-fail that this administration has used to cut the legs out from under capitalism. The administration has done a good job of doing just that, which is why we have the longest period of unemployment over 8 percent since the Great Depression of the 1930s. It has been this intense meddling in the economy by people like Ben Bernanke, who don't understand it, that has lead to a lack of confidence in the markets to stand on their own, anemic GDP growth and chronically high unemployment. November's election can't come quick enough and with it a change in leadership at all levels of government.