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Breathtaking Audacity

I don't normally spend time parsing the words of The Bernank. However, parts of his speech today in Indianapolis were so audacious, so utterly disingenuous, that I am compelled to discuss it here.

So, where to begin? We might as well start at the top with what is arguably the most deceitful and insidious passage that The Bernank has uttered during his term as Head Goon:

"The securities that the Fed purchases in the conduct of monetary policy are held in our portfolio and earn interest. The great bulk of these interest earnings is sent to the Treasury, thereby helping reduce the government deficit. In the past three years, the Fed remitted $200 billion to the federal government. Ultimately, the securities held by the Fed will mature or will be sold back into the market. So the odds are high that the purchase programs that the Fed has undertaken in support of the recovery will end up reducing, not increasing, the federal debt, both through the interest earnings we send the Treasury and because a stronger economy tends to lead to higher tax revenues and reduced government spending (on unemployment benefits, for example). Even though our activities are likely to result in a lower national debt over the long term, I sometimes hear the complaint that the Federal Reserve is enabling bad fiscal policy by keeping interest rates very low and thereby making it cheaper for the federal government to borrow. I find this argument unpersuasive."

This is astoundingly disingenuous. Yes, it's true that the bond interest paid to The Fed by The Treasury is ultimately returned to The Treasury, but to say that this "reduces the federal debt" is ludicrous! The Bernank is essentially arguing for direct monetization of debt, like Japan has done for decades. He even mentioned the "Japan Model" earlier in the speech: 

"Once at zero, the short-term interest rate could not be cut further, so our traditional policy tool for dealing with economic weakness was no longer available. Yet, with unemployment soaring, the economy and job market clearly needed more support. Central banks around the world found themselves in a similar predicament. We asked ourselves, "What do we do now?"

 

 

 

 

To answer this question, we could draw on the experience of Japan, where short-term interest rates have been near zero for many years, as well as a good deal of academic work. Unable to reduce short-term interest rates further, we looked instead for ways to influence longer-term interest rates, which remained well above zero." 

So, even though direct debt monetization is a BAD IDEA that will be HORRIBLY INFLATIONARY, don't worry. The Bernank, just minutes later, goes on to reassure everyone that direct monetization is not occurring:

"With monetary policy being so accommodative now, though, it is not unreasonable to ask whether we are sowing the seeds of future inflation. A related question I sometimes hear--which bears also on the relationship between monetary and fiscal policy, is this: By buying securities, are you "monetizing the debt"--printing money for the government to use--and will that inevitably lead to higher inflation? No, that's not what is happening, and that will not happen. Monetizing the debt means using money creation as a permanent source of financing for government spending. In contrast, we are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates."

 

Huh? Confused? You're supposed to be. That how he wants it! He then goes on to tell this whopper:

"At the appropriate time, the Federal Reserve will gradually sell these securities or let them mature, as needed, to return its balance sheet to a more normal size. Moreover, the way the Fed finances its securities purchases is by creating reserves in the banking system. Increased bank reserves held at the Fed don't necessarily translate into more money or cash in circulation, and, indeed, broad measures of the supply of money have not grown especially quickly, on balance, over the past few years."

As if the global treasury buyers, whose exit from the market has prompted this policy in the first place, will suddenly return in a few years with enough gusto and buying enthusiasm to allow The Treasury to raise the funds necessary to refund the bonds on The Fed's balance sheet!! Words fail me here in my attempt show my incredulity at this bald-faced contradiction.

Then, in an affront to risk-averse savers of all generations, he utters this doozy:

"A second observation is that savers often wear many economic hats. Many savers are also homeowners; indeed, a family's home may be its most important financial asset. Many savers are working, or would like to be. Some savers own businesses, and--through pension funds and 401(k) accounts--they often own stocks and other assets. The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth, and led to sharp declines in the values of many homes and businesses. What can be done to address all of these concerns simultaneously? The best and most comprehensive solution is to find ways to a stronger economy. Only a strong economy can create higher asset values and sustainably good returns for savers. And only a strong economy will allow people who need jobs to find them. Without a job, it is difficult to save for retirement or to buy a home or to pay for an education, irrespective of the current level of interest rates."

What a jackass. Why don't you come down out of your ivory tower, Ben, and try running that line of shit past the little old lady in line at the bank, sadly renewing her latest CD at 1% and wondering how she'll make ends meet next month. Do you think she's going to buy some Master Limited Partnerships or preferred stocks in order to supplement her social security? Hell, no! She and millions of others are trying to scrape by on social security and their savings alone. They cannot, under any circumstances, afford to take risk but you, you self-serving and arrogant jerk, try to assuage them by telling them that your "strong economy" policies will help them find "higher asset values and sustainably good returns". Disgusting.

Additionally, almost everyone, but particularly those on fixed income, are getting eaten alive by inflation. John Williams at ShadowStats estimates the real CPI to be somewhere near 10%. Never fear, though, The Bernank in his best Colonel Klink impression sees nothing:

"A third question, and an important one, is whether the Federal Reserve's monetary policy will lead to higher inflation down the road. In response, I will start by pointing out that the Federal Reserve's price stability record is excellent, and we are fully committed to maintaining it. Inflation has averaged close to 2 percent per year for several decades, and that's about where it is today. In particular, the low interest rate policies the Fed has been following for about five years now have not led to increased inflation. Moreover, according to a variety of measures, the public's expectations of inflation over the long run remain quite stable within the range that they have been for many years."

Isn't this unbelievable? Now do you see why I had to type this post? Head-shakingly, painfully unbelievable. 

Finally, for good measure on his way out the door, The Bernank "gave the finger" to the idea of a representative republic, Congressional oversight and accountability. Read this and weep:

"While the GAO has access to all aspects of the Fed's operations and is free to criticize or make recommendations, there is one important exception: monetary policymaking. In the 1970s, the Congress deliberately excluded monetary policy deliberations, decisions, and actions from the scope of GAO reviews. In doing so, the Congress carefully balanced the need for democratic accountability with the benefits that flow from keeping monetary policy free from short-term political pressures.

The Federal Reserve's financial statement is audited by an independent, outside accounting firm, and an independent Inspector General has wide powers to review actions taken by the Board. Importantly, the Government Accountability Office (GAO) has the ability to--and does--oversee the efficiency and integrity of all of our operations, including our financial controls and governance.

However, there have been recent proposals to expand the authority of the GAO over the Federal Reserve to include reviews of monetary policy decisions. Because the GAO is the investigative arm of the Congress and GAO reviews may be initiated at the request of members of the Congress, these reviews (or the prospect of reviews) of individual policy decisions could be seen, with good reason, as efforts to bring political pressure to bear on monetary policymakers. A perceived politicization of monetary policy would reduce public confidence in the ability of the Federal Reserve to make its policy decisions based strictly on what is good for the economy in the longer term. Balancing the need for accountability against the goal of insulating monetary policy from short-term political pressure is very important, and I believe that the Congress had it right in the 1970s when it explicitly chose to protect monetary policy decision-making from the possibility of politically motivated reviews."

In other words: "If you think you're going to get inside and look at the books, you're freaking crazy. Ain't no way, no how we're letting some legislative branch beancounter in here. We'll continue to take our orders directly from Dimon and Blankfein. The rest of you losers can go pound sand."

In conclusion, please ignore this speech and the mainstream media SPIN. If you really want to know what's going on, go back and read this, instead: http://www.tfmetalsreport.com/blog/4202/brass-tacks. As always, please make use of the time you've given to prepare and stack. Physical precious metal remains your only financial protection against this impending and eventual financial disaster.

TF

192 Comments

LVStrapped's picture

Yes Sir!!!

first!!!

arch stanton's picture

wow

wow

flaunt's picture

Speaking of audacity, check

Speaking of audacity, check out this EOD smackdown.

Stratajema's picture

Really surprised

... by the positive action in the metals today given the court ruling on Friday night on position limits.

Really not surprised by any meaningless and mistaken drivel coming from Bernak's mouth.

Gont's picture

stack

stacking is the only way out of this mess. period.

Roark's picture

Wow

Ballsy. Really, freakin' ballsy, Ben.

They acknowledge no masters.

gdog's picture

New black swan?

White House targeted in cyber attack

(Reuters) - The White House's computer system was targeted in a cyber attack, a senior administration official said on Monday, but no classified systems were breached.... The Obama administration is preparing to issue an executive order that would direct federal agencies to develop new guidelines to shield computer networks from cyber attacks. The White House undertook the new rules after Congress failed earlier this year to pass a comprehensive cybersecurity bill. (more) -->

ReachWest's picture

More Fed Bafflegab

Today's Turdville focused Cartoon Newscast also 'hones-in' on Chairman Ben's bafflegab. 

For your enjoyment (or dismay).

Edit to add: Honestly, these Central Planners/Central Bankers are lying lunatics from an alternate universe. Thanks for the analysis, Turd. As always - great points.!

TJeffson's picture

Someone needs to confront him on even 2% inflation

because over a working lifetime (20 to 65) that's something like 2.39 times higher prices.   So something you buy at age 20 for 1 dollar will cost you 2.39 when you retire.   I tend to believe Shadowstats when it comes to inflation.. Denninger has been posting similar numbers (6 - 9% depending on what you look at).  

I think the real tell was the post made by Prize fighter the other day.. showing what minimum wage should be compared to the 60s... that was astounding.  It would have to be around 60 to 80 bucks an hour now to maintain the same standards when priced in gold. 

There's no way this ends well for the vast majority of the people on earth. 

¤'s picture

Bingo

The groundwork argument for direct and unapologetic monetizing of the nations debt is coming our way. We're about 75% of the way there already as far as how much we already own.
I've maintained for quite awhile that they'll relieve ourselves of our outside debt obligations. Imho, the Fed/Treasury get one audacious shot at this while the USD still reigns supreme.
They've saved their loudest and most powerful financial accounting firecracker left in their bag once they've used other people's money first for decades.

I'd be a little nervous or PO'd if I were the Chinese or anyone else who is holding lots of US debt.

Istack's picture

Fast Food

saw this advertisement over at kitco.  My two biggest weaknesses: silver and fast food.  I wonder if the combo meal comes with colloidal silver. Definately Super-size me!

agauinvest's picture

Interesting

It would seem to me that if Congress deliberately insulated monetary policy from politics then, it also would have the authority to do the opposite now or in the future.  Not sure that I want congress critters dictating monetary policy any more than I want the Fed Board doing it, though.

Totally different subject - if any Turdite silver fans got the Shape of Things to Come report, flip first and immediately to pages 8 and 9, and then apply for Mensa membership.  You will understand when you see it.

realitybiter's picture

print. blah, blah

Print.  Blah, blah, blah, blah.Print.  Blah, blah, blah, blah. Print.  Blah, blah, blah, blah. Print.  Blah, blah, blah, blah. Print.  Blah, blah, blah, blah.  Print.  Blah, blah, blah, blah.  Print.  Blah, blah, blah, blah.

Really.  It all just denial, nonsense, rationalization, summarized in printing.

A back of the napkin analysis that anyone who hasn't poisoned their head with ivory tower economic bs. Since 1999:

Copper up 6x

oil up 5-6x

silver, gold....

stocks?  Rise during every hyperinflation.  The Bernank is like any drug addict, denying their addiction and doing anything for just one more hit.

print..Print.  Blah, blah, blah, blah.

TJeffson's picture

of interest to me on politics in monetary policy

is that IF Congress printed the money (like they're supposed to) then we'd have no debt.  We're actually worse off by having the FED control the money because we have to borrow the money from them.   Congress just legislated their way out of responsibility for inflation is all.   (assuming I understand monetary policy as it currently stands).  

There's only 2 ways out of this that I can see... high inflation or default.  I doubt they will take the default route... as that would really anger other nations.  And it would implode all the big banks too... and those are the sole reason the FED does what it does. 

The Green Manalishi's picture

Rejoice, most important news of the day

No 'porkopalypse': Bacon shortage is 'baloney,' experts say

 
20121001__1001bacon~3_VIEWER.JPG
This Wednesday, Sept. 26, 2012 photo shows strips of cooked Bacon at a home... ( Jonathan Hayward )

ST. LOUIS (AP) -- Bacon lovers can relax. They'll find all they want on supermarket shelves in the coming months, though their pocketbooks may take a hit.

The economics of the current drought are likely to nose up prices for bacon and other pork products next year, by as much as 10 percent. But U.S. agricultural economists are dismissing reports of a global bacon shortage that lent sizzle to headlines and Twitter feeds last week. Simply put, the talk of scarcity is hogwash.

"Use of the word 'shortage' caused visions of (1970s-style) gasoline lines in a lot of people's heads, and that's not the case," said Steve Meyer, president of Iowa-based Paragon Economics and a consultant to the National Pork Producers Council and National Pork Board.

"If the definition of shortage is that you can't find it on the shelves, then no, the concern is not valid. If the concern is higher cost for it, then yes."

http://www.mercurynews.com/business/ci_21672580/no-porkopalypse-bacon-shortage-is-baloney-experts-say

Patrancus's picture

To many layers of deception

To many layers of deception leads to nothing, the Bernank is just another layer of deception getting boxed into the corner who will do whatever his handlers direct him to do to stay off the ropes,  if he believes his backside is covered he will perform well enough to cover all the vital areas keeping clear of a fatal KO.

A few weeks ago I read something posted here by DPH and followed up on my own with some additional info located on "what I have been afraid to blog about". If you want to go into the real deep politics of who could be managing all the puppets of deception in the story book, look no further than the us treasury and it's ESF,  connect some dots.

Short Stack's picture

13 States have/are considering making Gold/ Silver Legal Tender.

According to a podcast I got in an email as many as thirteen States (U.S.) have legislation pending to include gold and silver coins as legal tender along side the U.S. dollar.  said coins will be used at metal value, no taxes.  Acceptance of same by businesses is voluntary.

Utah and Missouri seem to be in the forefront on this.   Didn't catch the other ones cause, you know podcasts via email.   You can't stop them or rewind them.  You just have to go back and listen to them again from the beginning (boring!).

The remaining States seem to be considering it but are waiting to see if Obama will sue the States that already have,  a la, Arizona.

Admiral Ag Bar's picture

With 3 new threads in one day...

....Turd is inflating away the purchasing power of a FIRST posting! 

Have you no shame?  wink

peckerwood's picture

its already debt monetization

and Bernanke is lying right now.  here's how it works for QE.  FED must use retired debt to buy new debt, otherwise he's monetizing.  what i mean is that ultimately the banks will have to make good on their mortgage backed securities they are selling to the FED, and the US treasury some day will have to redeem its bonds, or he is monetizing.  another way of saying this is that whenever the FEDs balance sheet is growing, debt is being monetized.  this is because the premise that the bonds will not default (treasuries and mortgage) is beyond ludicrous at this point. 

hope i'm not making this more complicated than it really is.  the FED speak today was Greenspeak at its finest, i'll say that.

The Death Ceiling's picture

Growth

Thanks again Turd for all you do for us, your efforts and character really are continuously appreciated. 

Some astounding golf at the Ryder Cup, Poulter was one funky chicken, bad luck USA.

When I try and inform people of the monetary situation I am often told that we'll grow our way out of this, as Ben hopes. I counter by saying that a large part of past growth has been financed with borrowing, and that anyway it's the money supply that must continuously grow. How do we grow in the future without adding to the debt? Usually gets people thinking.

What I'd like to ask the community is, how much do you think the dawning of the computer age has added to economic growth? Imagine if the IT evolution had not occurred, where would we be now?

I found a study by the McKinsey Global Institute on the effect of the Internet alone on world GDP. They found that in the 13 countries they looked at, the Internet accounted for 3.4% of GDP and 21% of GDP growth in the last 5 years. http://www.slideshare.net/agarwalvaibhav/internet-impact-on-global-gdp-worldwide-statistics

That's just the Internet, when you include Hardware, Software, the IT industry....the computer has added so much wealth to the economy and yet we still have no real growth.

It is difficult to imagine that even with the next technological game changer, whatever that may be, the economy could grow enough to kick this debt problem far enough into the future that Bernanke could end up being saved by growth.

Anyway, always looking for new arguments for those that find it hard to accept that tomorrow may well not be like today and that the metals will protect their future.

If I fail at awaking someone to the problems it is not their fault, it is mine.

kingboo's picture

Turd.....you echoed my thoughts perfectly...

"What a jackass. Why don't you come down out of your ivory tower, Ben, and try running that line of shit past the little old lady in line at the bank"... 

thats my favorite line.......       dont' you just wanna bitch-slap him?.......   what a piece of shit.

i couldnt have said it better myself!   well done Turd....well done    (and that's saying a lot...because, unfortunately, i have a pretty high opinion of myself.wink

Watcher's picture

Iran Rial imploding

I'm still mulling that ZH article about the IRAN Rial being down 20% in one day. That could mean black swans and war imho.

As Iran Rial Implodes By 20% In One Day, Follow The Death Of A Currency In Real Time

Submitted by Tyler Durden on 10/01/2012 10:43 -0400

http://www.zerohedge.com/news/2012-10-01....

Iran Middle East Reuters

Iranian clerics' attempts to curb speculation in the Rial and stabilize the currency appear to have backfired as the un-official (real) Rial rate traded as low as 34,250 Rial to the USD this morning - a massive 20% plunge. Demand for gold is surging (as Tehran exchange volume is up almost 18% today) as the population appears to be readying itself for hyperinflationary death - as we wrote yesterday, it really is no fun in Iran. The following tables/links will allow the real-time monitoring of that market's collapse - since Bloomberg's official rates are entirely useless.

Via Reuters:

The rial's losses have accelerated in the past week after the government launched an "exchange centre" designed to supply dollars to importers of some basic goods at a special rate slightly cheaper than the market rate.

Instead of allaying fears about the availability of dollars, the centre seems to have intensified the race for hard currency by linking the special rate to the market rate, meaning that even privileged importers will face sharply higher costs.

"The government's initiative ... brought to the surface a tremendous lack of confidence in its ability to manage the currency," said Cliff Kupchan, a Middle East expert at the Eurasia Group, a political risk research firm. "The attempt to fix it triggered a worse crisis via market psychology."

It appears that locals are extremely active in selling out of their Rials and moving it into Gold (implicitly via the USD we pre-suppose). The rates for Gold across markets and weights/scales in Iran can be found here - www.mesghal.com

ancientmoney's picture

Gold as Tier 1 asset . . .

"The BCBS is a committee of banking supervisory authorities established by the central bank governors of the Group of Ten countries in 1974. The Committee's members currently come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.

If gold is made a Tier 1 Capital asset banks could operate with far less equity capital than is normally required. Gold would be the new backstop for debt, currencies and bank equity capital. 

"Anyone who understands gold’s historic role will grasp the importance of the argument behind extra bank leverage. Direct ownership of bullion by a bank is superior to holding the fiat money issued by a central bank. It should increase confidence in any bank and the system as a whole. Given relative values, bank purchases of bullion will drive the value of gold as Tier 1 capital up relative to other qualifying assets, increasing its desirability for regulatory purposes further without a gold-owning bank doing anything." Alasdair Macleod, resourceinvestor.com

Conclusion

If the Basel Committee agrees to banks using gold as Tier 1 Capital it would create substantial demand for physical bullion and be an important step toward gold’s re-monetization.

Consider:

Gold, if moved from a Tier 3 to Tier 1 asset would be competing as a safe haven investment against un-backed bonds yielding less than zero in inflation adjusted terms and issued by over indebted governments.

Gold is set to become the new “good collateral.”

Gold is unique, it is the only non-Tier 1 asset to be universally regarded by investors the world over as a flight to safety asset.

These considerations should be on all our radar screens. Are they on yours?"

                                                                                                             

Some Sunday night, BCBS  will announce they have decided to allow gold as a Tier 1 asset.  Shortly thereafter, COMEX will halt trading in gold (and likely silver as well), SLV and GLD will terminate operations, etc.  In essence, it will be the end of paper trading of the PMs.  It has to be this way if gold is to become the new anchor to the financial system of the world.  There will likely be one-to-one paper gold trading, such as certificates, but no more leveraging beyond bankers' ability to fractionally reserve.   Don't expect the Bernank to announce this is coming . . .

http://aheadoftheherd.com/Newsletter/2012/Sprout-Less-Gold-Tier-1-Capital.htm

SteveW's picture

Fed reduces government deficit

by returning a part of the interest the government pays on Treasuries bought on the open market. (Can't buy directly from Treasury as that would cut out the middlemen, primary dealers).

Now if only the government were allowed to coin its own money. No, that would never work since they'd issue too much and run deficits of maybe as much as 30% of their spending. Good job we have the Fed for monetary policy.

/sarc off/

Watcher's picture

Ben does need slapping

th_Batista_beatdown.gif

benque's picture

Watcher

I agree with you.  It seems that the Eyeran situation is just another can gettin kicked down the road to suit someone's agenda, be it politician, banskter, or what have you.

Why don't they just send Chuck Norris, or Bruce Willis over there to sort out those Eyeranian nuke-junkies; give em one upside the head.  And, where are those guys anyways, aside from traveling through time, or whatever.  Don't they know we're all waiting for them to save the world again?

edit: Yeah, and him too.  One good one upside the head for benny berbankster.

California Lawyer's picture

Bernake - Two Things

Turd: relax.  Nothing new to see or hear or read.  Instead, we should be THANKFUL for getting the reasoning straight from the Bernanke and not from paid for shill.  I, for one, am extremely glad that Bentrod is on record for saying what he said.

In this internet age, Bernanke is FOREVER linked to that statement today.  Forever!

There is no historical ability to go back and pretend he did not say what he said, or that the Fed's actions were done for some other reason.  We now KNOW, with no pretense, or misquotation, EXACTLY why Bentrod and his crew are doing what they are doing.

Secondly, take a step back and ask what, if any, assumptions are built into Bentrod's reasoning.  Attacking Bentrod's doublespeak is worthless.  It's like me trying to attack some expert witness at trial on a subject of which the expert knows far better than me.  No matter even if I think I am scoring points, the jury will ultimately be PISSED at me for wasting time and trying to show off how smart I am.  It is a waste of time and energy.  The better angle is to attack the assumptions as ludicrous, or biased, or take the reasoning to the logical conclusion.  Here, though, let us only look at the assumptions, because trying to trace the reasoning out to the end is too detailed, too arcane, and too much for most to grasp and retell.

So, what assumptions?  First, Bentrod PRESUMED that the deficit is forever.  Why?  Why did he not take a position that the deficit could be reduced, or that the debt could be repaid and reduced instead of constantly accumulating? 

Because the FED cares not one bit about the economy, that's why.  The FED cares only about debt SERVICE!

Debt slavery is the key.  No debt = no FRN's (because FRN's are debt, not money) = no power for FED to skim interest from the productive.

So long as Bentrod allows for the USA taxpayers to pay debt service, no problem.  Period.

Savers getting screwed?  So what?  Inflation being artificially managed from bogus stats?  So what?   Quality of life diminishing gradually for USA folks?  So what?  NOTHING matters except debt service.

The USA will raise the debt ceiling, as it HAS to.  The debt ceiling is meaningless anyway.  The only thing that matters is that the rest of the world believes that their DEBT that they hold will be paid back.  Debt service.  No default = No problem.  Can't afford to pay down the debt?  No problem so long as debt service is paid.

Debt service can be paid with higher productivity, thus greater revenues, which allow for a larger payment = debt service is the same whether for a household, or a sovereign.  When debt gets too big, no problem, the terms get changed to allow for debt service without default.

The ONLY thing that matters is debt service.  Period.

When debt service is about to fail, there will be a war to erase debts. There will be a scramble for resources, and to restart the whole debt service mess.

It is out in the open now, no turning back.  Get out of paper, or watch wealth erode.

Lamenting_Laverne_and_the_Scoundrel_Suctioncups's picture

In tune with Bernanke quotes - Gibberish warning!

[Monetizing the debt means using money creation as a permanent source of financing for government spending. In contrast, we are acquiring Treasury securities on the open market...]

[Moreover, the way the Fed finances its securities purchases is by creating reserves in the banking system. Increased bank reserves held at the Fed don't necessarily translate into more money or cash in circulation...]
 
The Fed says that the Fed itself is acquiring Treasury securities in the open market - and that they finance the purchases by creating reserves - not to be confused with outright money creation, according to Bernanke. 
 
I thought that the only way the Fed can create reserves in the banking system, is by lending money to the banks - i.e. the new reserves are in fact loans to commercial banks. How can the Fed itself buy securities in the open market with money lent out to someone else??
 
If above is wrong and the Fed actually can create reserves, that they themselves can use for securities purchases - where is the difference between "creating reserves" and "creating money" then?

Or is what he is saying in fact - that we, the Fed, make loans to commercial banks, hereby creating reserves in the banking system, which the commercial banks use to buy government securities, which the Fed accept as collateral for even more loans and greater reserve creations??.

If that is so, then how does the Fed receive interest payments on the Treasury securities from the US Treasury, which the Fed claim it will pay back to the Treasury to help "reduce" the debt over the long term, when the securities in this example are  purchased and owned by commercial banks and thus the real recipients of the Treasury interest payments?? 

And when the interest payments that the Fed will receive from the commercial banks are close to zero, as per desired Fed ZIRP policy in order to stimulate commercial bank reserve lending to the public, which Bernanke says will, however, not necessarily happen, in this context as a good thing to avoid inflation, how is that really contributing positively to long-term reduction of the debt, when commercial banks must receive 30 year bond interest from the Treasury, while the Fed only pays close to zero back to the Treasury??
 
Would it in fact not be a better idea, if the Fed actually did print the money outright and directly themselves to buy long dated Treasury securities, so they could return a bigger interest amount to the Treasury, while not risking that the printed reserve money could enter circulation by other means than government public spending, which oddly enough is not inflationary according to Bernanke, because there would be no commercial banks in the loop, that could one day suddenly choose to lend all those created reserves to the general public at higher interest rates, instead of buying government securities, that are in a 30 year bubble, with little upside to go, when the heat is turned up a notch.??
 
Somehow, this reminds me of an episode of "Yes, Minister"!
Mad5Hatter's picture

Ron Paul thinks gold is money

http://news.goldseek.com/RonPaul/1349119439.php

Last I heard, he was all over the mining shares, probably got a stack as well.

Rattling Bones's picture

"The Bernank in his best

"The Bernank in his best Colonel Klink impression sees nothing"- Sargent Schultz was the character that "sees nothing";  Colonel Klink was the character that had the same hair style as Bernanke.

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