Bernanke’s Reverse Robin Hood

Bernanke’s Easy Money Moves: The Crucial Reality
Excerpt:

Federal Reserve Chairman Ben Bernanke has not kept short-term interest rates at record lows for the past four years just so companies with no need for cash can borrow great sums of it for next to nothing.

So it was understandable, and even predictable, that this week's move by Amazon.com (AMZN) to issue $3 billion worth of bonds due in three, five and ten years at trivial rates scaling from 0.65% to 2.5% would be greeted with complaints about the misapplication of monetary succor.

Here, after all, is a company so dominant and capital rich that, only 18 years after its founding, it can borrow billions at less than one percentage point more than the United States Treasury does — while retirees and other blameless paragons of thrift are deprived of safe income from their savings by the Fed's anchoring of rates near zero.

Comment: Of course it is also easy to borrow at record low interest rates to buy a home too!

Time to print money?

RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve

Excerpt:

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".

"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.

Comment: The speech from November 21, 2002

Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C.: Deflation: Making Sure "It" Doesn't Happen Here


Excerpt:

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Bernanke: won't be like Great Depression

Bernanke says crisis 'no comparison' to Great Depression

Excerpt:

Federal Reserve chairman Ben Bernanke said Monday the current economic situation bears "no comparison" to the much deeper crisis of the 1930s Great Depression.

"Well, you hear a lot of loose talk, but let me just ... say, as a scholar of the Great Depression -- and I've written books about the Depression and been very interested in this since I was in graduate school, there's no comparison," Bernanke said in a question period after an address in Austin, Texas.

Bernanke cited "an order-of-magnitude difference" in the current situation compared to the 1930s.

"During the 1930s, there was a worldwide depression that lasted for about 12 years and was only ended by a world war," he said.

"During that time, the unemployment rate went to 25 percent, at least, based on the data that we have. The real GDP (gross domestic product) fell by one-third. About a third of all of the banks failed. The stock market fell 90 percent."

Bernanke said the situation at that time represented "very difficult circumstances," because "we didn't have the social safety net that we have today. So let's put that out of our minds; there's no -- there's comparison in terms of severity."

He added, "We're very lucky to live in a country as rich and diversified as the one we have. And I hope that we will have a quick and rapid recovery from the current slowdown."

Still, the Fed chief said lessons learned from the Depression may still apply today, including the "excessively tight monetary policy" that led to higher interest rates and deflation of about 10 percent a year over the first three years of the 1930s.

"We have learned from that experience that monetary policy has got to be proactive and supportive of the economy in a situation of difficult financial conditions," he said.

"The other part was -- the other error, the big mistake that policymakers made in the early '30s was they essentially allowed the financial system to collapse and they didn't do anything about it. The Federal Reserve did no action as the banks failed by the hundreds and the thousands."

Comment: It'll be the worst recession in our lifetimes (unless you are the age of my 88 year old Mother)