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.