Bernanke Is A Baby
Elaine Meinel Supkis

Today, Bloomberg News has a long article about Bernanke, a right wing Republican who is close to Bush, and the Federal Reserve's role in 'fixing' our economy so it has 'stability'. The US public as well as our ruling elites were very happy with Greenspan and hope that Bernanke can imitate him. This article mentions the Cassandra of the Fed, Alan Volker. He saved our necks last time we fell for the lure of easy money causing hyperinflation. Once again, we are falling into the money pit of hyperinflation. One problem I have with any article about the Federal Reserve is the inability of most writers to connect all the red ink systems to the Fed. This article is typical. Also, a reader here sends me a touching story about the economic mayhem hyperinflation is causing in his own community.

Bernanke Grapples With Greenspan as Volcker Scorns Fed Bailouts

April 21 (Bloomberg) - The event was a 2002 conference at the University of Chicago to celebrate the Nobel laureate Milton Friedman's 90th birthday. When Ben S. Bernanke rose to speak, he said that the Federal Reserve, of which he was then a governor, had come around to Friedman's view that the central bank's blunders were to blame for the Great Depression. "We're very sorry," Bernanke said, prompting laughter. "But thanks to you, we won't do it again."

Bernanke, a longtime scholar of the 1929-to-1933 panic, now has the unwelcome task of trying to keep a new financial calamity from turning into a full-blown depression. What started as a meltdown in the market for subprime mortgages has turned into a worldwide credit and economic crisis.

First of all, note the date Bernanke was evoking laughter when he promised the Fed would never allow another depression. And his mocking, 'We are sorry', comes at a time when the Federal Reserve decided it was time to prevent the effects of the Dot Com melt down by furiously inflating the currency. I wrote about the Federal Reserve minutes from early 2002 where the goofy, horrid little people running our central bank sat around their table, LAUGHING. I connected this with what was going on and it was no laughing matter. But they found it giddy and funny.

The infantilism of our leaders never ceases to amaze me. Far from being sober adults, they think, thanks to our huge nuclear arsenal and the fact that all our allies are happily piling huge debts on us and running giant trade surpluses, this means we are on top of the world. As our empire slides into bankruptcy, we think the tsunami of red ink being poured into our economic system is a sign of power, not deadly weakness. This is why these infantile idiots always start off, when giving speeches or writing reports, with the line, 'The US economy is the biggest and strongest in the world.'

This mindlessness is nearly universal. Instead of looking at what is going wrong and dealing with it first, these horrid, irresponsible children running things love to look at the good things. So they ignore doing their homework or chores but instead, raid the cookie jar and play video games. So long as mommy China or Germany daddy pay the bills and protect them, they are content to keep up this happy status quo. Japan is the grandmom that hands out fistfuls of candy and who buys them their video games. All is well. Nay, life is wonderful! If there are any bills for all this, the infantile children running America stuff it under the bed and ignore them.

This is why our elections feature children running riot in the candy store, yelling, 'Let's party!' This is why Congress, in control of our purse, pursues policies that bankrupt us. Who cares about the red ink? No one is asking our children to repay these loans! Who cares if our dire trade rivals plan to slit our throats? We will not pay them back for their loans and we will laugh at them because we have nuclear bombs! They can't collect our debts, yell these juvenile delinquents.

Here is one of these feckless fools praising Bernanke:

While Bernanke's attack on the U.S. economic malaise has been fierce, friends say the Fed chairman himself is anything but. "He is very even-keeled, with a pleasant demeanor, a level temperament," says Richard Newell, an economist at Duke University who studied under Bernanke at Princeton. "He's not inclined to hit one over the head with the depth of his knowledge - that makes him an effective communicator."

Well, Bernanke doesn't hit either Representative Ron Paul or me over the head with his deep knowledge. The other day, I posted videos of Ron grilling Bernanke. The Fed chief looked exactly like a nasty, spoiled brat as he tried to answer Ron's straightforward questions. The answers were very poor indeed. I wasn't impressed. I suspect if we had a debate between a Greenspan/Bernanke team and Ron and I, we would win. This will never happen just like the discussions that Ron has in the halls of Congress never makes the news and is ignored by most of his fellow committee members who wander off whenever Paul has the floor.

This is because these infantile politicians are corrupt. They get paid to run us deep in the red. Ron Paul loves to point out that DEBT IS MONEY. This harsh truth is one of the things our rulers lie about the most. This article in Bloomberg falls effortlessly into the trap of misunderstanding how debt is money and the role the Federal Government plays in all this.

This is one example from the article showing how writers in the mainstream cannot understand how money works:

Financier John Pierpont Morgan, who founded what later became J.P. Morgan & Co. in 1871, helped to save the day by calling together the heads of the largest U.S. banks and locking them in a room until they agreed to supply financial backing to the Trust Company of America, which was threatened with bankruptcy.

One cause of the panic was a depleted money supply. "There was a state of credit anorexia - what we would call a credit crunch today," says Sean Carr, co-author of The Panic of 1907: Lessons Learned from the Market's Perfect Storm (John Wiley & Sons, 2007).

I have written a lot about this time frame. Before the Civil War, Congress kept a severe hand on the till and refused to let it be raided. So we had little inflation after the wild bankers lending money riot of 1848. Then the Civil War came on. To fund this, the government had to create Funny Money. This led to inflation. After the war, the government had to crack down on this and stop the money machine before it ran off to infinity. The tendency is for overspending to turn into infinite overspending. This is a very strong force and requires some adult thinking to stop. If it doesn't get stopped, it leads to bankruptcy.

The bankers loved the government overspending. Money flowed in huge red ink streams into their vaults and they were given free rein to pass it on and the interest profits as well as handling fees made them richer. They forgot all about the horrors of 1848 and decided, they liked this new world order! Here is an older article I wrote about all this:

In 1864, the inflation caused the value of gold to become a bubble. The number of these paper dollars needed to buy gold coin more than doubled. From $20 to $42. In less than a year and a half. The government passed laws very swiftly to deal with this in a draconian way which led to many people losing their fortunes. If they used their government bonds to buy gold, that is. I think this is a dynamic we can trust, is a powerful force in speculative markets. The price of gold was part of the inflationary bubble hitting the price of food and other goods needed for survival. The value of other goods suffered while the price ratio differential between say, bread and a saddle or milk and a dress suddenly went haywire. If this ratio were say, 100 loaves of bread for one jacket, it suddenly becomes 50 loaves for a jacket. This leads to economic chaos as we can clearly see today.

Bubbles deform price relationships. Wars and famine do the same, with a vengeance. The government always squelches gold/food/fuel bubbles because if they do not, civilizations collapse. The tools used to enforce this over the centuries has been varied but often involve a certain amount of theft and violence. Note in the story above, the speculators did NOT have the sympathy of the masses but rather, anyone restoring the old value ratios was considered wise and a great leader. It wasn't till 1879 that the government regained its iron grip on the gold currency and it resumed its value set at $20.67 per ounce. This caused great financial distress in the West and was the inspiration of Bryant's 'Cross of Gold' speeches that rang across the land for 25 years to the great fury of the banking interests in New York City.

The 'rescue' cooked up by the crooks who founded some of our biggest pirate investment banks like JP Morgan tried to keep the inflation roaring in 1871. This created a giant debate over the meaning of money, the value of coins, the gold versus silver standards and other issues. Debates were held that were, compared to today's 'debates', intelligent, long and the moderator was there not to question or harangue the candidates. Instead, they did it in the old fashioned way: opening statements, point, counterpoint done several times and then concluding remarks. These were adults speaking about puzzling matters. They mentioned history and talked intelligently about the Constitution.

The fact is, JP Morgan and the other bankers were involved in a CONSPIRACY and they wanted to conspire against the better good of the American People. They knew that debt=money in their vaults. And they wanted more of both.

Back to the Bloomberg article:

From Bernanke's standpoint, there are two major lessons to be learned from the Fed's reaction to the market crash of 1929 that are relevant today. The first is that the Fed should lower rates, not raise them, in the face of an economic contraction. The second is that the Fed must pay careful attention to the health of financial institutions, as lending plays a big role in economic growth.

In July 1928, when financial markets were still booming, the Fed raised its benchmark interest rates to 5 percent, the highest since 1921, effectively cutting the money supply, in order to reduce what it saw as excess speculation on Wall Street. It did so even though there were no signs of inflation, Bernanke said at the conference honoring Friedman.

In October 1931, after the market crashed and GDP had begun to nosedive, the Fed raised rates again to prevent the dollar from falling in international markets. That made it harder for companies and individuals to borrow even as the economy was contracting 30 percent and deflation was setting in. A series of bank failures further reduced credit throughout the economy.

While the United States moved to protect the dollar, the Bank of England, faced with depleted gold reserves backing the pound, in 1931 let the value of the currency float freely. The decision to abandon the gold standard allowed Britain and the Scandinavian countries to recover from the Depression earlier than the rest of Europe.

All of this is front-of-mind for the current Fed chairman, who is weighing the falling U.S. dollar among the factors he considers in making policy decisions.

I really hate these thumbnail sketches about the Great Depression. There is a lot of hooey about that event due to an inability to connect larger historic forces to it. If we look at it only as an economic moment in history rather than as a natural event due to the collapse of global empires, we learn the wrong lessons. Britain 'fixed' it imperial overreach by dumping their link to gold and thus, signing their death warrant as rulers of the earth. Instead of contracting their empire, they clung bitterly to it even as millions of their servants and slaves howled with rage at the impositions of imperial rule. The fix was for England to export their financial problems with inflation. This meant destroying India's economy, for example. And China's economy. Worthless pounds went around the planet, destroying other people's economies. The French were very bitter about this, they still had the gold standard.

Germany, the other empire bankrupted by WWI, also decided it was time to kill planetary commerce since they couldn't deal with Britain's devaluation of the pound. So they simply stopped everything in its tracks. This is what really began the Great Depression. Japan's economy was hammered hard just like India and China. But unlike both, Japan was not occupied by hostile foreign troops enforcing economic rules that favored only Europe. This notion that floating the currency saved England is TOTAL INSANITY. England was NEARLY TOTALLY ANNIHILATED BY THIS. Their empire collapsed in less than 10 years after they did this. The collapse was global and swift. The British couldn't stop a single thing from happening. The only reason Brits aren't speaking German today is that the US saved them from this folly. The US stopped letting other currencies raid our gold reserves during the Great Depression but we kept the link. We paid a steep price during the Great Depression and unlike England, came out STRONGER, not fatally weaker! This is a HUGE difference!

So here it is: due to sheer stupidity and an inability to read history with a jaundiced eye, we have a bunch of fools running the Federal Reserve who believe that the way to avoid imperial financial collapse is to IMITATE ENGLAND PRE- WORLD WAR II. This is beyond insane, this is foolish in the extreme. As we imitate England in every horrid way possible, we go sliding down the exact same chute to imperial collapse. Talk about learning exactly nothing from history!

The strong dollar meant America became the world's creditor nation from 1916 to 1965. This long period of rising US power meant we could win not one but two world wars and it was the basis of our nation surging ahead of all others in every way possible. But during the long Cold War, the concept of continuous military spending coupled with not paying for it, got a grip on our psyches. We thought we could have our cake and eat it too. So we set into motion the present system which is the antithesis of the Great Depression system. This Brave New World is nothing but debts. We are now set to constantly be in debt and to make this greater and greater, faster and faster. Success is determined not by how sober and careful we are but by how wildly we create more debt and how stupidly we refuse to track global trade imbalances and government spending.

Here is more story telling that shows us how evil Greenspan was in the long run:

Greenspan had been Fed chairman for just a few months when he faced his biggest challenge, the stock market crash of Oct. 19, 1987. The Dow Jones Industrial Average plunged 23 percent that day amid concern that a falling U.S. dollar could lead to Fed tightening. The decline was worsened by failed trading strategies among financial firms and resulting margin calls. Greenspan responded by pumping money into the banking system. The economic expansion continued.

Greenspan built a reputation as a man who could navigate crises: He put off a planned rise in interest rates after the Asian currency crisis of 1997. He cut rates following the Russian debt default in 1998. And he helped pull together a bailout plan after the failure of a big hedge fund, Long-Term Capital Management LP, that same year, threatened to trigger a broader crisis.

I remember back then. The US was running a huge trade deficit as well as government overspending. The dollar was dying. The Fed needed to raise rates. Fears that the spigot of red ink might turn off caused the traders to divest via their wretched computer programs that automatically ran up the sales calls. So Greenspan fixed this by inflating the currency. His 'miracles' always involved refusing to raise rates when it was necessary. So we look at the charts and starting with Greenspan running the Fed, all of them show inflationary forces hard at work. This was 'fixed' via 'free trade'. By assisting our industries and services to relocate outside of America and then flood us with imports, we killed 'inflation' by taking this out of the hides of the working classes here. Pay for the bottom 60% of the workforce stagnated or fell. The only reason we seemed to move ahead was simple: mothers were forced into the workforce at rising numbers. I know that I had to work during my entire life. Even weeks after having babies, I had to work. When I nearly died having my son, I had to crawl out of the hospital and back to work! I had to have people carry me on a stretcher to go to a meeting to argue my case! It was totally insane.

Now, everyone in a family works. And there is no extra people to make up for rising inflation and falling wages. This horrible and evil way of fixing inflation is now ending. Inflation was then fixed after 1998 by the simple method of cheap loans. The Japanese carry trade took off by 2002 and this provided a tsunami of red ink to fund our lives. We ceased worrying about the dying dollar so long as cheap imports flooded into the nation. But then, inflation has come back and won't leave us if we make more money via debt. We are in a new cycle. The stable government systems with cheap labor are already colonized. Now, we can't run to some cheap safe haven for more free labor to exploit. Inflation is here to stay unless we control our appetite for more debt. And this means the biggest debt-consuming nations have to stop. That is, the big three: the USA, Britain and Japan. And these are the ones that absolutely refuse to do this.

Elaine:

D. here! Just read your blog and it is right on as far as how inflation is affecting ordinary people like my family. I just thought I would fill you in on some of what I see happening down here in poverty-ridden North Carolina where all furniture manufacturing has been shipped overseas.

My son, M. will graduate May 30 Magna Cum Laude from a College of Art and Design as a sound engineer for music and movies and begin looking for employment. Because S. and I struggle to pay his living expenses, we will only owe $60,000 and he will owe $27,000 which is a considerable amount for us since we are both 63 years old. We hope M. can get some decent employment at decent pay. If so, inflation might even help shrink his student debt a little as long as he doesn't miss a payment and have his interest rate climb to 30 percent so he becomes enslaved forever. This is the only real debt our family owes, but since I live on a modest rent income, state teacher retirement (which finally saw a massive 2% cost of living increase last year) and my wife's income as an underpaid corporate credit manager, I will have to continue my one-man logging operations as long as I am able to hobble around and cut and sell hardwood timber.

I'm getting more calls every day from my fine redneck friends and neighbors who thought Bush and Cheney were such good Christian men who would take care of them and protect them from all those evil "A-Rabs" who were all going to come over here and burn all of their Christian fundamentalist churches to the ground and force them to read the Koran. Now, those good folks want to sell me their timber to raise money to pay their rising property taxes since Bush's tax cuts and war spending have stopped federal money from making it back into local communities. In addition to this, the government is devaluing the dollar and printing large amounts of "funny money" in order to inflate us out of war debt.

Still, these "rocket scientist" neighbors often cling to a belief that the government will save them. I've quit arguing politics with them, because for many, reason just doesn't enter into the picture, especially if their two-year, bible college educated preacher is guiding their political conscience.

I used to pay landowners half of what their timber sold for and kept the other half for fuel, machinery costs and labor. I just adjusted that and now do the 50/50 split after fuel costs. I am considering paying 35 or 40% as things get worse. Now, fuel is costing about 1/5 of what the logs bring so I'm not making any more money and I am just trying to pass some of the costs of fuel back to the landowner.

Ricky, who runs the large automated sawmill where I sell my logs, told me he spent $15,000 on diesel fuel last month and this is cutting into his profits so he cannot pay more for the logs. In addition to this, his more distant loggers who haul from the foothills of the NC Blue Ridge Mountains, are being forced to park their tractor-trailer log trucks rather than continue losing money. This is hard times because in those foothills, if you don't have a log truck parked in your driveway, you just don't have a job because all manufacturing, which was scarce to begin with there, has been moved to China. Elaine, we have become a third world nation, selling off our natural resources just to make a living.

Gasoline is now $3.65 and road diesel is $4.26. I see more and more older cars owned by the elderly sitting idle in driveways with no license tags on them. Oddly though, local yuppie ne'er-do-wells are still driving their thuggish looking SUVs and Hummers, oblivious to the looks of disgust people give them at intersections.

I'm a bargain shopper. I shop for used tools or even an occasional good chainsaw at pawn shops where I often pay 35 percent of retail for serviceable items. This winter, the pawnshops, which are owned by local banks around here, were loaded with power tools and all kinds of sporting goods with one notable exception which makes me very nervous. Their firearms racks are nearly always empty in the six surrounding area pawn shops that I frequent. I asked one clerk if they stopped handling firearms and the clerk said that firearms sold as soon as they were put on the rack. I think people are afraid of what might be coming. How "loaded" a pawn shop is gives a good indication of the state of the local economy.

Another indicator is heavy machinery for sale. Right now, there are dozers and large loaders for sale at reasonable prices because few people are hiring roads or developments built.

Well, that's about it for now. Keep up the good work. I look forward to reading your blog each day.

Thanks,
D.

I own a forest and log it. I use a lot of diesel fuel. And yes, the price of timber is falling. But the price of FIREWOOD is soaring. This is because inflation always lodges itself most firmly in energy systems. People who can't pay for gas or heating oil move over to using wood. And this drives up the price of wood for heating. So we keep ahead of inflation. But all this kills commerce since our customers are not buying other things. This means fire sales. But these fire sales are temporary. After 5 years of rising inflation, we see fewer and fewer sales and more and more empty shelves and shuttered stores. This is 'depression' but is caused by too much funny money. This is so hard for professional economists to figure out. I suspect it is because their spouses do all the shopping? Or maybe because they are insulated in their ivory towers so they don't worry about being fired, etc. This is why I don't trust them or listen to them in the end. They lack experience in the Real World™. This is where I live. Maybe if they lived in a tent for ten years on less than $500 a month, they might learn the value of money.

We can call this 'The Real World School of Economic Physics.' I will teach the 'fetch the water and chop the firewood' classes. And the magic money classes. Also, how to shoot woodchucks after heavy rain storms or at dawn.

Culture of Life News Main Page