Bernanke spoke before congress in the face of a Global Slowdown that includes a European Economic Smashup, a slumping USA and a China contracting as its former powerhouse customers have no money left to buy its production. Can Bernanke save us all?
Well if you listen to wise men like Jim Rogers he is sure going to try: “Mr. Bernanke is going to print more money…I wouldn’t pay much attention to the man…He only knows one thing – and that’s what he’s going to do…”
So what have we learned from Bernanke’s testimony:
1. Bernanke bluntly said in response to questions about the state of the economy that the US was “just “muddling through” while Europe was “already in recession.”
2. His prepared testimony went further, noting that GDP grew at a slower rate in the first quarter than in the second half of 2011 … and that the second quarter looks even worse. He also pointed out that payroll growth has plunged by 63 percent … that household confidence in future income remains low … and that business spending is waning.
3. Bernanke said the Fed could consider another round of quantitative easing, or QE3. Consider the effect that is likely to have given the previous attempts at easing (from Mike Larsen):
QE1 came at a time when the lending rates were very high and the credit markets were in complete disarray. It was a brand new policy nobody expected, and it had a huge impact in terms of bringing down spreads, rates, and risk levels.
But QE2 was less effective in terms of impact because market dysfunction was already largely fixed and because the underlying economy was weakening. Moreover, other similar programs from the European Central Bank’s LTRO1 and LTRO2 to Operation Twist 1 and 2, have had even less of an impact than QE2!
Just consider: A Credit Suisse note from a few days ago chronicled the findings of several studies on the impact of QE on 10-year Treasury Note yields. Several researchers estimated QE1 lowered yields by around 90 basis points to 100 basis points. But they also concluded that QE2 moved rates by as little as 13 basis points!
That was the supposed impact on the financial markets. The impact of several hundred billion dollars worth of QE on the real economy — meaning GDP — was as paltry as 40 basis points. That’s the difference between 0 percent growth and 0.4 percent growth, a drop in the bucket!
Yet somehow we’re supposed to believe that QE3 — the THIRD iteration of a policy that’s having less and less impact on financial markets, not to mention a near-zero impact on the real economy — will somehow be different?
Seems best to bet that we are being lead by an Ineptocracy which is “A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers”.
In other words, bet against the leaders of the US Government & Fed. How to do that? I think Jim Rogers say’s it best. He is clearly betting against the Ineptocracy when he states: “He remains totally committed to commodities over the long term as the global economy continues to be drowned in mountains of the bankers’ paper currencies, these hard assets must soar in price – as all that paper collapses in value.
