Bernanke's Losing Control Again

by Graham Summers

Bernanke has a real problem on his hands. QE 2 spent $600 billion and got him at best a few months' worth of upticks in well-massaged economic data. In the process it blew up food and energy prices and made the Fed look even stupider than usual (Bill Dudley's iPad comment comes to mind).

However, the US economy clearly took a nosedive starting in February of this year and we now have a confirmed double dip in housing. So Bernanke's little brain is whirring with the prospect of printing even more money because... well, that's all he does.

So, what can he do? He can't just go and announced QE 3 without risking his own neck... but at the same time, he can't just have stocks crater overnight by turning the printer off.

Solution: he continues to funnel money into Wall Street via less publicly offensive policies such as QE lite (see the story below):

While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system.

http://www.bloomberg.com/news/2011-06-27/fed-seen-buying-25-billion-a-month-in-treasuries- after-qe2-comes-to-end.html

The only question is whether this will be enough juice for the markets until the inevitable QE 3 or some such additional liquidity measure is announced (Bill Gross has hinted it will be unveiled at the Fed's August FOMC).

The Fed pulled a similar stunt in 2010 when QE 1 ended. However, at that time the game consisted of pumping the system during options expiration weeks to the tune of $20-30 billion tops. This time around, the Fed could be funneling as much as $300 BILLION... and somehow the Fed's in control of things?

I've said it before and I will say it again: Bernake is slowly losing control of the system. In 2007, he was putting $30 billion into the system here and there. In 2008-2010, he upped the ante to $50 billion PER MONTH. QE 2 pushed the amount up to $100 Billion per month. And here he is, hinting at giving ANOTHER $300 BILLION when QE 2 ends!?!?

Folks, there is a name for a financial game that requires larger and larger sums of money to continue. It's called a Ponzi Scheme and the longer it lasts the more disastrous the collapse will be.

Comment:

You read it comrades. The longer the Federal Reserve's Ponzi Schemes last, the bigger the inevitable collapse will be.

Also, unless the U.S. Government can "work something out" with China, we'll default on our loans in August. The big collapse may be only a month away. However, I'm sure they'll come up with a "temporary" solution. But like Mr. Summers said, delaying things will only make it worse in the long run. It's like getting a cash advance on one credit card to make a payment on another. Eventually, all your cards will be maxed out, and then what? That's exactly what our great government is doing right now. Making loans to pay the interest on other loans. It wouldn't be so bad if we were taking out a loan to pay off another loan. In the real estate game, that's called refinancing. But what the government is doing is taking out more loans just to make interest only payments. That's plain crazy. The well will run dry eventually - like in August. Even if the government finds a few extra drops, it won't last long.

Comrades, I'm no financial expert. I can barely balance my own check book. But what's China supposed to do if we do default? Foreclose? Hardly. The U.S. is their number one customer for all their plastic crap. Sue us? In what court and with what army will the judgement be enforced?

I say just default. To hell with all of them. Like I asked, what are they going to do about it? Cut off our credit? Well, since our credit rating is zilch now anyway, it doesn't really matter. All it will really mean is that this country will have to stand on its own two feet again and take care of all our own needs. We did it for almost 200 years, and we can do it again. National Socialism is the best way. We have a plan, good people, and the determination to make it work. If you want to be a part of it, then become an Official Supporter if you aren't already. Hail Victory!

Dan 88!