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Breaking News: Bernanke Can’t Get It Up

Politics / Central Banks Aug 29, 2010 - 11:44 AM GMT

By: Andrew_Butter


Best Financial Markets Analysis ArticleThe worry that many people had this time last year (or gleeful anticipation (for those who held gold)), was that with all the QE and the bailouts, not to forget the stimulus, hyper-inflation would become ignited in USA and that would signal the final death-rattle of Evil Fiat currencies.  

All of those pesky toxic MBS and CMBS and CDO etc would have magically regained their AAA status and homeowners would have been able to service their mortgages. And everyone could have “unlocked” the extra equity in their newly valuable homes, and gone out to spend-spend-spend, (don’t forget 70% of America’s GDP is consumers spending, so what’s good for the bimbo with a credit card is good for America), and The American Dream would have been rocking and rolling all over again, in three part harmony!!

Then gold would reach $10,000 and become the only true currency, and at last order would be restored to the world; Ron Paul would be elected President, and everyone would live happily ever after.

Nice day-dream, but it didn’t happen.

But just think how wonderful the world would have been if the Fed had done its job and created 20%, nay 100% inflation per year!!

Now folks are angry, they say the Fed are to blame. And they can’t understand  how, after nearly a hundred years of creating inflation, the Fed can’t create some when it wants to?

America, and the world, is waiting with baited breath, to find out “if” and in that case “when” Ben is going to be able to get it up.

But sadly Ben’s much awaited speech at Jackson Hole was a bit of a disappointment, some folks felt a bit like Linda must have felt after the Prom, when Chuck passed out in the bridal suite, after vomiting in the flower arrangement.

Although it was interesting to see the 30 Year bounce from 3.55% to 3.7% that happened the moment that Ben explained that his “Cunning Plan” was all along to push long-term interest rates down.

And the “Good News” is that $140 billion of the $1.25 billion that the Fed advanced to buy agency debt and MBS got repaid. 

Err…One question Ben:

“How much did you pay for the $140 billion that got repaid? Like did you make a profit, or are you going to wait until Ron Paul’s audit before you let us know how that went?”

I know I’ve got a dirty mind, but I can’t help thinking that if Ben had made a profit on that transaction, he would have been crowing about it.

I loved this bit, particularly the “Thus”:

Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.


1: Even Alan Greenspan and Larry Summers conceded that there is absolutely nothing that the Fed can do to change long-term Treasury yields, but now Ben the Boy is saying that he can do that. He must be Superman!!

2: Good to see that Superman is also taking the credit for pushing down yields on agency debt and toxic MBS. Obviously he is a genius, the Maestro is re-incarnated, Err…but there is one little thing, he’s the only guy buying that garbage!

3: Oh, and whoopee, Ben thinks that the “investors” (translate deadbeat zombie banks), who sold him their (toxic) MBS, have all rushed out to buy corporate bonds. I’m not quite sure what planet he’s on, I thought they either kept the money on deposit with the Fed or bought Treasuries to repair their capital adequacy. Note the “may”…as if he didn’t know!!

But this was the kicker, admittedly hidden away between jargon-heaped on jargon, but there all the same:

(All those good things)...” provided further support for the economic recovery while maintaining price stability, the Fed has also taken extraordinary measures to ease monetary and financial conditions”.

I love the “further” support, as if the banks are going out and lending onto main-street, as opposed to simply using their free, Fed supplied, get-out-of-jail card to create an illusion of solvency whilst they “extend and pretend”. Just like what happened in Japan after their bubble burst.

But the real gem was the idea of “maintaining price stability”, what that means is stopping assets prices (house prices, commercial real estate, and to some extent stocks), from going down to where they have to go before market clearing can start.

Funny how when asset prices were bubbling through the roof, that was not considered “inflationary” by the Fed, and so that was not something to be concerned about.

But when asset prices fall through the floor that is considered deflationary (or disinflationary), and that’s VERY BAD!!

Ben looks to me suspiciously like a greenhorn lost in the woods that used up all his ammo shooting at shadows.

And yet there is the Big Bad Wolf of private sector deleveraging faster than he can run the printing presses, (and more important, get that money out into the real world), lurking round the corner.

Talk about a New World Order

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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