Bernanke's 'Inflation' Record

  

 by Tyler Durden

Addressing a question yesterday, from Senator Bob Corker, on his "being the biggest dove since World War II" and the "degrading effects that he's having on society," Bernanke responded proudly that be believed his "inflation record is the best of any Federal Reserve Chairman in the post-war period." Of course that is by his measure. We suggest, he and few of his transitory colleagues look at the chart below for a sense of just what his 'dovishness' looks like to the rest of the food- and energy-consuming world... or perhaps by 'best' he means 'most'.

CORKER: So I think that, you know, I don't think there's any question that you would be the biggest dove, if you will, since World War II. I think it's something you're rather proud of.... Just wondering if you -- if ya'll talk at all in your meetings about the degrading effect that's having on our society.

BERNANKE: You called me a dove. Well, maybe in some respects I am, but on the other hand, my inflation record is the best of any Federal Reserve Chairman in the post-war period, or at least one of the best, about two percent average inflation.

 The Bernanke Era Inflation...

The continued wealth divide

By David Howden

Luxury carmaker Rolls-Royce’s 2012 financial results must have brought new worries to those concerned with the growing wealth divide.

Rolls-Royce reported a third consecutive annual sales record, the best results in its 108-year history. Priced at £170,000 for its cheapest model, it is safe to say that these sales were reserved for a small subsection of the wealthiest, perhaps the 0.01 percent. While the ongoing recession has left the masses paying off their debts and enjoying less consumption than before, the so-called one percent continue reaching for new heights and excesses.

What explains this growing divide, especially concentrated in the hands of a very few?

Research Shows ALL Fiat Paper Money Systems Eventually Fail

By GoldSilverWorlds

We often read or hear quotes like “paper money eventually fail” and “paper money always returns to its intrinsic value which is zero.” In this article, we provide evidence why these statements are true, backed by research in which 599 different forms of paper money have been analyzed. We explain in an easy to understand way what money fundamentally is, how monetary policies of governments are affecting everyone of us and how gold is first and foremost an alternative form of money (for each and every one of us, not only for an elite). Courtesy of Vince Cate for the incredibly valuable research and David Morgan who referred us to the research materials.

Gold analysts argue that gold is the only form of real money, as it is the only tangible form of money that has survived 5,000 years of monetary history. Against that background, a critical event has taken place on August 15^th 1971: former US President Nixon “closed the gold window.” He announced the decision to give up the Bretton Woods agreement (click to see the original version of his speech). What seems to most people a political decision is in reality affecting everyone of us in a way only a minority of people can understand. In fact, it’s touching our lives today more than ever.

Jim Rickards: Currency Wars Simulation

Jim Rogers 'Don't Sell your Gold and Silver Coins'

Why Is There a Euro Crisis?

by Philipp Bagus

Today's banks are not free-market institutions. They live in a symbiosis with governments that they are financing. The banks' survival depends on privileges and government interventions. Such an intervention explains the unusual stock gains. On Wednesday night, an EU summit had limited the losses that European banks will take for financing the irresponsible Greek government to 50 percent. Moreover, the summit showed that the European political elite is willing to keep the game going and continue to bail out the government of Greece and other peripheral countries. Everyone who receives money from the Greek government benefits from the bailout: Greek public employees, pensioners, unemployed, subsidized sectors, Greek banks — but also French and German banks.

It’s a mad mad mad mad world

By Detlev Schlichter 

Shinzo Abe, Japan’s new prime minister, has some exciting new ideas about how to make Japan’s economy grow. How about the government borrows a lot of money and spends it on building bridges and roads all over the country?

If that doesn’t sound so new, it is because it isn’t. It is what Japan has been doing for 20 years, and it is the main reason why Japan is now the most heavily indebted nation on the planet – and still not growing a lot. Its debt-to-GDP ratio stands at an eye-watering, world-record 230 percent, which already guarantees that the country’s pensioners-to-be (and Japan has a lot of those) will never be repaid with anything of true value for the government bonds they kept patiently accumulating in their pension funds, and that they optimistically keep calling ‘assets’.

But never mind. The Keynesians agree that this policy was a roaring success, and that this is why the country needs more of it, as, strangely, Japan has still not regained self-sufficient growth after 2 decades of such a policy. Hmmm. Well, in any case, surely the next set of roads and bridges are going to make all the difference. I suggest that this should be called the ‘Krugman-doctrine’, after the outstanding Keynesian thinker, Paul Krugman: even if a few trillion of new government debt and a few trillion of newly-printed paper-money have not revitalized your economy, the next trillion in government deficit-spending and the next trillion in new central-bank money will finally get the economy going. “Just keep the foot on the gas pedal until the economy grows, damn it!”

Keynesian Economics vs. Austrian Economics

Keynesian Economics & Monetary Economics vs. Austrian Economics

Featuring Ben Bernanke, Paul Krugman, Peter Schiff, and Ron Paul

The Myth of the Failure of Capitalism

[This essay was originally published as "Die Legende von Versagen des Kapitalismus" in Der Internationale Kapitalismus und die Krise, Festschrift für Julius Wolf (1932)]

The nearly universal opinion expressed these days is that the economic crisis of recent years marks the end of capitalism. Capitalism allegedly has failed, has proven itself incapable of solving economic problems, and so mankind has no alternative, if it is to survive, then to make the transition to a planned economy, to socialism.
This is hardly a new idea. The socialists have always maintained that economic crises are the inevitable result of the capitalistic method of production and that there is no other means of eliminating economic crises than the transition to socialism. If these assertions are expressed more forcefully these days and evoke greater public response, it is not because the present crisis is greater or longer than its predecessors, but rather primarily because today public opinion is much more strongly influenced by socialist views than it was in previous decades.

The Entitlement Cliff

The Welfare States of the Developed World are “long growth.” Without it, their finances are doomed.
First, a little background…
Generally, investors will pay more for a dollar’s worth of earnings from a stock than from a bond. Stocks are riskier than bonds, in the sense that share prices tend to go up and down more, depending on company results. But investors believe this ‘risk premium’ is worth it, because there is more ‘upside’ in stocks; they will grow with the economy. Over the long run, therefore, the rate of return on stock market investing should more or less reflect the stream of dividends received, plus the rate of growth in the economy. If the economy doesn’t grow, however, the risk premium becomes a costly artifact of an earlier age.
Pension and insurance funds, too, count on growth. They collect money. They invest it and make projections based on what they consider a likely rate of return. The difference between what they collect in premiums…and what they need to invest to cover their costs and payouts…is profit. As of 2012, the typical pension fund — such as those operated by state and local governments — was banking on a rate of investment return as much as four times higher than the GDP growth rate. If growth does not pick up, these funds will go broke.

Fiscal Cliff Explained - How Do We Land?

What causes hyperinflations and why we have not seen one yet: A forensic examination of dead currencies

by mises.ca

As anticipated in my previous letter, today I want to discuss the topic of high or hyperinflation: What triggers it? Is there a common feature in hyperinflations that would allow us to see one when it’s coming? If so, can we make an educated guess as to when to expect it? The analysis will be inductive (breaking with the Austrian method) and in the process, I will seek to help Peter Schiff find an easy answer to give the media whenever he’s questioned about hyperinflation. If my thesis is correct, three additional conclusions should hold: a) High inflation and high nominal interest rates are not incompatible but go together: There cannot be hyperinflation without high nominal interest rates, b) The folks at the Gold Anti-Trust Action Committee will eventually be out of a job, and c) Jim Rogers will have been proved wrong on his recommendation to buy farmland.
(Before we deal with these questions, a quick note related to my last letter: A friend pointed me to this article in Zerohedge.com, where the problem on liquidity being diverted back to shareholders in the form of share buybacks and dividends was exposed, before I would bring it up, on my letter of March 4th. )

A forensic analysis on dead currencies

When I think of hyperinflation, I think of dead currencies. They are the best evidence. There is a common pattern to be found in every one of them and no, I am not talking of six-to-eight-figure denomination bills or shortages of goods. These are just symptoms. Behind the death of every currency in modern times, there has been a quasi-fiscal deficit causing it. Thus, briefly, when someone asks: What causes hyperinflations? The answer is: Quasi-fiscal deficits! Why have we not seen hyperinflation yet? Because we have not had quasi-fiscal deficits!

What is a quasi-fiscal deficit?

A quasi-fiscal deficit is the deficit of a central bank. From Germany to Argentina to Zimbabwe, the hyper or high inflationary processes have always been fueled by such deficits. Monetized fiscal deficits produce inflation. Quasi-fiscal deficits (by definition, they are monetized) produce hyperinflation. Remember that capital losses due to the mark down of assets do not affect central banks: They simply don’t need to mark to market. They mark to model.

Our Collapsing Economy and Currency

by paulcraigroberts.org

 Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.
The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslim countries–wars that have benefitted only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending.

The Fiscal Cliff Is a Diversion: The Derivatives Tsunami and the Dollar Bubble

The “fiscal cliff” is another hoax designed to shift the attention of policymakers, the media, and the attentive public, if any, from huge problems to small ones.
The fiscal cliff is automatic spending cuts and tax increases in order to reduce the deficit by an insignificant amount over ten years if Congress takes no action itself to cut spending and to raise taxes. In other words, the “fiscal cliff” is going to happen either way.
The problem from the standpoint of conventional economics with the fiscal cliff is that it amounts to a double-barrel dose of austerity delivered to a faltering and recessionary economy. Ever since John Maynard Keynes, most economists have understood that austerity is not the answer to recession or depression.
Regardless, the fiscal cliff is about small numbers compared to the Derivatives Tsunami or to bond market and dollar market bubbles.
The fiscal cliff requires that the federal government cut spending by $1.3 trillion over ten years. The Guardian reports that means the federal deficit has to be reduced about $109 billion per year or 3 percent of the current budget.

Why are (Smart) Investors Buying 50 Times More Physical Silver than Gold?

By: Eric Sprott

As long-time students of precious metals investing, there are certain things we understand. One is that, historically, the availability ratio of silver to gold has had a direct influence on the price of the metals. The current availability ratio of physical silver to gold for investment purposes is approximately 3:1. So, why is it that investors are allocating their dollars to silver at a much higher ratio? What is it that these “smart” investors understand? Let’s have a look at the numbers and see if it’s time for investors to do as a wise man once said and “follow the money.”
Average annual gold mine production is approximately 80 million ounces, which together with an estimated average 50 million ounces of annual recycled gold, totals around 130 million ounces available per year. In comparison, annual mined silver production has averaged around 750 million ounces, while recycled silver is estimated at 250 million ounces per year, which adds up to approximately 1 billion ounces. Using this data, there is roughly 8 times more silver available to buy than there is gold. However, not all gold and silver is available for investment purposes, due to their use in industrial applications. It is estimated that for investment purposes (jewelry, bars and coins), the annual availability of gold is roughly 120 million ounces, and of silver it is 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is 350/120, or ~3:1.¹

The Fed Doubles The Dosage

On December 12th, the Federal Reserve announced the most aggressive program of monetary stimulus ever undertaken in peacetime. Beginning in January, the Fed will more than double the amount of fiat money it creates each month from $40 billion to $85 billion. On an annualized basis that amounts to more than $1 trillion a year. This week we will consider 1) What they did; 2) Why they did it; and, 3) What impact it will have on asset prices over the short-term.
What They Did:
In a nutshell, the Fed announced it will more than double the amount of fiat money it creates each month and that it will use that money to buy government bonds and mortgage-backed securities until the unemployment rate drops substantially or until the inflation rate accelerates. The press release stated:
 “…the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities … initially at a pace of $45 billion per month.”

The Historic Inversion In Shadow Banking Is Now Complete

Back in June, we wrote an article titled "On The Verge Of A Historic Inversion In Shadow Banking" in which we showed that for the first time since December 1995, the total "shadow liabilities" in the United States - the deposit-free funding instruments that serve as credit to those unregulated institutions that are financial banks in all but name (i.e., they perform maturity, credit and liquidity transformations) - were on the verge of being once more eclipsed by traditional bank funding liabilities. As of Thursday, this inversion is now a fact, with Shadow Bank liabilities representing less in notional than traditional liabilities.
In other words, in Q3 total shadow liabilities, using the Zoltan Poszar definition, and excluding hedge fund repo-funded, collateral-chain explicit leverage, declined to $14.8 trillion, a drop of $104 billion in the quarter. When one considers that this is a decline of $6.2 trillion since the all time peak of $21 trillion in Q1 2008, it becomes immediately obvious what the true source of deleveraging in the modern financial system is, and why the Fed continues to have no choice but to offset the shadow deleveraging by injecting new Flow via traditional pathways, i.e. engaging in virtually endless QE.
What is more important, the ongoing deleveraging in shadow banking, now in its 18th consecutive quarter, dwarfs any deleveraging that may have happened in the financial non-corporate sector, or even in the household sector (credit cards, net of the surge in student and car loans of course) and is the biggest flow drain in the fungible credit market system in which the only real source of new credit continues to be either the Fed (via QE following repo transformations courtesy of the custodial banks), or the Treasury of course,via direct government-guaranteed loans.

What is wrong about the euro, and what is not

By Detlev Schlichter

Every Monday morning the readers of the UK’s Daily Telegraph are treated to a sermon on the benefits of Keynesian stimulus economics, the dangers of belt-tightening and the unnecessary cruelty of ‘austerity’ imposed on Europe by the evil Hun. To this effect, the newspaper gives a whole page in its ‘Business’ section to Roger Bootle and Ambrose Evans-Pritchard, who explain that growth comes from government deficits and from the central bank printing money, and why can’t those stupid Europeans get it? The reader is left with the impression that, if only the European states could each have their little currencies back and merrily devalue and run some proper deficits again, Greece could be the economic powerhouse it was before the Germans took over.

Ambrose Evans-Pritchard (AEP) increasingly faces the risk of running out of hyperbolic war-analogies sooner than the euro collapses. For months he has been numbing his readership with references to the Second World War or the First World War, or to ‘1930s-style policies’ so that not even the most casual reader on his way to the sports pages can be left in any doubt as to how bad this whole thing in Europe is, and how bad it will get, and importantly, who is responsible. From declining car sales in France to high youth-unemployment in Spain, everything is, according to AEP, the fault of Germany, a ‘foolish’ Germany. Apparently these nations had previously well-managed and dynamic economies but have now sadly fallen under the spell of Angela Merkel’s Thatcherite belief in balancing the books and her particularly Teutonic brand of fiscal sadism.

QE 4: Folks, This Ain't Normal

by Chris Martenson

 
Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.
To borrow a phrase from Joel Salatin: Folks, this ain't normal. To this I will add ...and it will end badly.
If you had stopped me on the street a few years ago and asked me what I thought would have happened in the stock, bond, foreign currency, and commodity markets on the day the Fed announced an $85 billion per month thin-air money printing program directed at government bonds, I never would have predicted what has actually come to pass.
I would have predicted soaring stock prices on the expectation that all this money would have to end up in the stock market eventually. I would have predicted the dollar to fall because who in their right mind would want to hold the currency of a country that is borrowing 46 cents (!) out of every dollar that it is spending while its central bank monetizes 100% of that craziness?
Further, I would have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons. With little product for sale and lots of bids by various players, one of which – the Fed – has a magic printing press and is not just price insensitive but actually seeking to drive prices higher (and yields lower), that's a recipe for rising prices.

Paul Krugman's Dangerous Misconceptions

by zerohedge.com

How to Deal with Economic History

 

In a recent article at the NYT entitled 'Incredible Credibility', Paul Krugman once again takes aim at those who believe it may not be a good idea to let the government's debt rise without limit. In order to understand the backdrop to this, Krugman is a Keynesian who thinks that recessions should be fought by increasing the government deficit spending and printing gobs of money. Moreover, he is a past master at presenting whatever evidence appears to support his case, while ignoring or disparaging evidence that seems to contradict his beliefs.

Among the evidence he ignores we find e.g. the 'stagflation' of the 1970's, or the inability of Japan to revive its economy in spite of having embarked on the biggest government deficit spending spree ever in a modern industrialized economy. Evidence he likes to frequently disparage is the evident success of austerity policies in the Baltic nations (evident to all but Krugman, one might say).

As readers of this blog know, we are generally of the opinion that it is in any case impossible to decide or prove points of economic theory with the help of economic history – the method Krugman seems to regularly employ. This is why we listed the evidence he ignores or disparages: the fact that there exists both plenty of evidence that contradicts his views and a much smaller body of evidence that seems to support them at an unreflected first glance, already shows that the positivist approach to economic theory must be flawed.

An economist must in fact approach things exactly the other way around, but then again it is a well-known flaw of Keynesian thinking in general that it tends to put the cart before the horse (examples for this would be the idea that one can consume oneself to economic wealth instead of saving and investing toward that goal, or that employment creates growth; it is exactly the other way around in both cases).