Friday, December 14, 2012

Benzo The Fed Clown And QE4

     Whenever I see Federal Reserve Chairman Ben Bernanke trying to defend his disastrous interference in the economy, I can't help but imagine him wearing a red rubber nose, big floppy shoes and baggy pants that he regularly douses with squirts from a seltzer bottle. Benzo was once again out in front of the cameras this week at his press conference announcing QE4. QE stands for quantitative easing and consists of the Federal Reserve printing hundreds of billions of dollars and buying U.S. government bonds, over 70% of which have been purchased by the Fed in the last 18 months. This action has a twofold effect, it keeps the borrowing costs low for the Federal government, which can't even get China to buy it's debt anymore, and it drives investors out of bonds and into stocks.
     Liberals like to point to the rising stock market as a sign that the economy is recovering. It's a hypocritical position for them to take, considering that during the Bush years when the market was hitting new highs every other month, these same Liberals said Wall St. has no relation to Main St. The difference between the Bush years and the Obama years is that the Bush stock market was driven by a thriving economy, today it is driven by artificial stimulus from the Fed's quantitative easing program. Investor money is going to gravitate to the asset class with the best return, and with the ten year government bond paying around 1.5%, that money has been going into the riskier investment of the stock market. So the equities market is not so much a reflection of improving economic conditions as it is of the Federal Reserves willingness to print as many dollars as it takes to prop up stocks.
     Benzo knows that the easing of monetary policy necessarily must lead to a tightening of that policy in the near future, they go hand-in-hand. The feckless Fed Chairman is playing chicken with the economy, hoping that GDP will rise significantly and unemployment will drop precipitously before all that money he has been printing has to be pulled out of the economy. If he loses, interest rates will sky-rocket along with inflation and the country will be plunged into an economic Armageddon.This is the result of someone tinkering with the economy who has no experience in it. Benzo has worked in academia and government his whole life, so all his economic theories hold no water in the real economy.
     The very basis of a free market economy is the cost of money. When a source other than the free market determines that cost, as is the case with the current Fed Chairman, banks don't lend and businesses don't expand and hire more workers. The Fed's plan is bound to fail, as it has in the last couple of years, but the coming failure will be more spectacular as a result of the meddling of a clown with seltzer in his pants and useless economic theories in his head.

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