And the Fed's frenzy continues.. - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 19 September 2013
And the Fed's frenzy continues.. A  A  A

Baltimore, Maryland

As expected, Ben Bernanke is not going to taper in the final months of his term. Too risky. Instead, laissez les bons temps roulez!

The Dow rose 144. And look at gold. We hope Mr. Obama took our advice. It rose $56 yesterday.

The papers are full of retrospectives on the Lehman bankruptcy and what it meant. We have one of our own. Five years after the financial crisis hit the headlines...and it's amazing how so much fantasy, delusion and conceit has built up around the event.

According to Nancy Pilosi, then Speaker of the House, and always Tommy d'Alessandro's daughter, she called Henry Paulson at 3PM on September 18th, 2008. She asked him to come tomorrow and explain what was going on.

The headline on her article in USA Today tells us that it was the "Day I Heard Our Economy Might Fail."

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It is not clear whether she means that she learned that an economy might someday fail...or that she learned that it might fail that day. No matter. Either way is ridiculous. Economies don't fail. They do exactly what they want to do exactly when they want to do it.

Fed chiefs fail to improve them. Politicians fail to understand them. And everybody fails to appreciate them.

By 5 PM she had gotten together the leading failures in town - including Paulson and Ben Bernanke. Paulson laid out what he had seen, as any blind man might. Then, she turned to the man who had enabled the biggest financial bubble in human history - still in a fog -- and asked what he thought. Naturally, he completely misapprehended the events going on in front of him. He mistook the deflating bubble for a disappearing economy.

"If we don't act immediately, we will not have an economy by Monday," he famously said.

Where did he think it was going? As silly as it was to think that a $16 trillion economy might 'fail,' it was downright insane to think it would vanish.

But these hacks and hallucinators nevertheless worked hand in hand, like mental defectives headed for the short bus, in order to avoid an outcome that couldn't happen...

...and pervert an outcome that was actually underway into a twisted and grotesque debacle. In September of 2008, the worlds' economy had had enough of the feds' credit bubble. Companies had drunk too deeply from that cup. Their legs wobbled and their brains turned fuzzy. They collapsed. A great correction had begun. It should have been allowed to continue. It should have been allowed to wash out bad debts and trim back good ones. It should have been allowed to do its work.

Instead, the feds came up with a quick $700 billion and spread it out among their friends and campaign contributors. Interest rates were cut to zero...and as much as $23 trillion of US credit guarantees were put to work on behalf of Wall Street's reckless risk-takers.

This sequence of mistakes and corruptions was greeted by the press and by its perpetrators with high fives...and bonuses. Even now, after 5 years, Bernanke, Paulson and Pilosi regard it as a great triumph, in which they bravely came together to save the US economy...and the whole world.

But wait. Something went wrong on the road to recovery. We just sent Ms. Pilosi the following email:

Dear Ms. Pilosi,

"I'm here in Baltimore enjoying your native city.

"The weather's real nice, thank you. But I have a question. It relates to your article in yesterday's USA Today. You pat yourself on the back so hard I was afraid you might have dislocated a shoulder. Hope you're all right.

"But since you think your efforts to rescue the US economy in 2008 were such a success, I thought you might respond to the front page story on the Financial Times from yesterday:

    "The typical American family now earns less in real terms than in 1989 after family incomes fell for the fifth consecutive year..."
"Here's my question. What kind of a recovery is it where family income goes down in every single year? What kind of a recovery leaves family income lower than it was 24 years ago? How does a consumer economy expect to grow then its consumers have less and less spending money?

"I know you're busy. So, I'll propose an answer. Isn't it possible that the US economy was in no danger of 'failing' or of disappearing? Isn't it possible that it was just writing down that huge mountain of debt that had been built up over the previous half a century? And isn't it possible, that by stopping the correction you also stopped the healing process...leaving Americans with an economy burdened by too much debt...weak growth...few jobs...and little real prosperity?

"I hope you will think about this...and the next time you're in Baltimore please let me know; we'll have dinner at The Prime Rib right up the street."

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

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 "And the Fed's frenzy continues.."

Prabal Biswas

Sep 20, 2013

Everybody has a logic in their thoughts and their subsequent action. When that logic fails to impress us we call him stupid. Now who is stupid is for an unbiased person to judge.

Like (1)


Sep 19, 2013

I just fail to understand how a tapering of say 5 to 10b per month would have brought down the global economy or is it really so badly placed that even a tapering of such a small scale can cause such a big damage then I think all those financial figures give by the government must be taken with a pinch of salt if they themselves do not trust it how do they expect us to trust the datas

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