Bernanke knows nothing about economics

Feb 24, 2011

Paris, France

107. 12. 220.

We don't especially like numbers here at the Daily Reckoning. You can't trust them.

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But we follow a few of them anyway.

The first number above is for the Dow. The second is for gold. They show us what happened in yesterday's trading. And yesterday, the first number was negative. The second was positive.

Not that there aren't a lot more interesting, provocative numbers around. But we only follow the big picture here. And those two numbers tell us most of what we need to know.

At least, they give us a good starting point.

The Dow number is going down because investors are worried. That's why the gold number is going up too.

What if these Cereal Revolutions get out of hand? What if they spread to Saudi Arabia? What if the price of oil keeps going up?

"Gasoline at $4 a gallon?" asked a headline yesterday.

What would gasoline at $4 a gallon do to the US economy? This is another of those pieces of the puzzle that we mentioned yesterday. Ben Bernanke, who would probably make a fine elevator operator or high school math teacher, knows nothing about economics. He thinks all he has to do is to add more money and the whole 'recovery' picture will be complete. Investors will see their stocks go up. Employers will hire. Shoppers will shop. Bakers will bake more. Shoeshine boys will start slapping the leather. Wheelwrights will... well, never mind.

But then, the puzzle pieces change shape. He pumps in money. The price of oil goes up. And food. And the Arabs, who depend heavily on grain imports, get themselves worked up. And then the price of oil goes up more. And stocks begin to fall. And US consumers pay more for gasoline...

...and suddenly, the picture is not at all what the Fed chairman had hoped for.

But wait. It gets worse. Look at that third number. 220. It's what the big Japanese securities firm, Nomura, thinks the price of oil could reach, thanks to the Cereal Revolutions.

And maybe they're right. Gaddafi is no Mubarak, say the papers. When he says he'll fight...he could mean it.

And others are getting ready for a fight too. Saudi Arabia is trying to head off trouble. And reports tell us that China is worried and increasing its security measures.

And what about France? And the USA?

Has your editor lost his mind? Not completely.

"I'll give you a prediction," said a smart French woman with whom we dined last night. "What's happening in North Africa will soon be happening in France."

"And if you look at how wealth is distributed in the US," said a companion, "it is really amazing. Something like 95% of the population lives below what we would consider the poverty level here in Europe. I don't know how they live. It's only the extremely high earnings of the other 5% that makes the average seem normal. And almost all the new wealth created in the last 10 years has gone to a tiny percentage of the population.

"You and I may know that Ben Bernanke and the US monetary policies are largely responsible for the wealth has been concentrated in the hands of the rich. But the man on the street has no idea. He just thinks it is wrong. And unfair. What is really amazing is that he hasn't already begun a revolution..."

*** We were quoted in the Wall Street Journal last week. "Gold is bet against the Fed," we said.

Gold is now firmly over $1,400 an ounce. The correction seems to be over.

Frankly, we were disappointed. We were hoping for a deep correction that would shake out the speculators and discourage the Johnny-come-lately investors.

Didn't happen. Instead, the price barely went down at all. Less than 10% (from vague memory). Hardly a correction.

We wanted lower prices so we could buy more. Because, if there were ever a sure-fire, under-priced wager here's one: betting that the Fed will err.

You can understand the power of that bet just by taking the other side for a moment. Who, in his right mind, would bet that the Fed won't err? Thanks largely to the Fed and other central banks, the crisis that began 4 years ago with the bankruptcy of sub-prime lender Countrywide Financial was never resolved. Instead, the problems were largely increased. The private sector still has far too much debt. Now, the public sector is headed for bankruptcy too. It is only a matter of time before new crises arise and intensify.

Ben Bernanke has never given the slightest indication, hint or wink to suggest that he has any idea of what is really going on or that he understands how an economy really works. At every point over the last 5 years, his analysis has been incorrect. His predictions have been wrong. And his policies have made things worse.

You want to bet on Ben Bernanke? Yes, thanks...we'll take that bet. We'll take your money!

*** Was there ever a problem so intractable...or a situation so awful...that government planning couldn't make worse? Here's the latest. With food prices soaring, the feds move into the market.

They need to go back and read the Old Testament. An ancient Mubarak in the land of the pyramids was faced with famine. But he had the good sense to save up grain when it was cheap...and release it to the people when it was dear. These morons are doing the opposite. A pox on their houses! May their beer be always flat!

Feb. 21 (Bloomberg) -- Governments worldwide will increase their role in global food markets and may boost stockpiles and subsidies or impose trade curbs to head off the protests that have rippled through the Middle East, commodity traders said.

"Greater political intervention in food matters is only to be expected," Alan Winney, chairman of Emerald Group Australia Pty Ltd., said in an interview at a sugar-industry conference in Dubai. "Governments will be careful to take preemptive measures to prevent increases in food prices," said Winney.

The higher costs of wheat, sugar and dairy products sent the United Nations' World Food Price Index to an all-time high last month. The jump has contributed to democratic revolts in Tunisia and Egypt, as well as other Arab nations. Saif al-Islam Qaddafi said in a televised address Libya is "not Tunisia and Egypt" after thousands demonstrated in the city of Benghazi.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "Bernanke knows nothing about economics"

Ravi Garg

Feb 25, 2011

In your last Webinar about GOLD you said gold can fall 50% in value from here or it cn go to 450$ also soI will buy there these was your words and keeping tht in mind we deffered our purchases and now it has again gone back to the highs, please dont fool us,

What we hv liked about EQUITYMASTER in the past is they give a honest view about anythng, but to get such a doublespeak is totally discomforting



Feb 24, 2011

Is Barnanke bashing your only pastime? Blaming him for the riots in Egypt, Tunisia is a bit illogical. Have you lost it Bill Bonner?

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