Congress Slams Ben Bernanke and Fed Reserve

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“You are the definition of a moral hazard. Your Fed has become the creature from Jekyll Island”

That was Senator Jim Bunning’s comment to Ben Bernanke during the hearing into Bernanke’s renomination to the US Federal Reserve.

Who would have thought there are members of Congress willing to say it as it is to Ben Bernanke?

But I’m sure you’ve read about it in The Age or the Australian Financial Review?

No, unfortunately not.

Because the mainstream press wouldn’t want people thinking bad things about the Fed Reserve. They are here to save us. They are the cavalry riding over the hilltops to our rescue.

The myth of the purity of the Federal Reserve’s motives is jealously guarded by the mainstream press. Any dissenting voices are quickly dismissed as cranks and extremists.

Currently Senator Ron Paul (One of the rare politicians in America with a brain and a conscience) has been trying to get a bill passed that would audit the Fed and attempt to find out exactly what it is holding on its balance sheet.

In fact he has been trying for 30 years, but finally after the shenanigans of the Fed over the past year, the other members of Congress have finally woken up and agree that something needs to be done.

Of course this is being resisted by Bernanke. He says if Congress interferes in the business of the Fed Reserve it will jeopardise their independence on monetary policy.

That one line is usually enough to shut people up so the Fed can return to their game of printing money and bailing out their banking masters.

It still amazes me how most people have no idea about what money is or how it’s created. They assume it’s too complex to understand and therefore they believe what they’re told.

So much so that you can watch a video here of people in America signing a petition that asks the Fed to deliberately raise the inflation rate to 100% for the next 5 years to cause hyperinflation!

This is the level of ignorance we’re dealing with. Every word that Ben Bernanke speaks is believed and reported as gospel. But it’s not surprising the population has that attitude when they rely so much on the mainstream press.

I was astonished last week to see that CNBC hosted their ‘Squawk Box’ show direct from the Cash Room of the US Treasury. So much for an independent media.

Was that CNBCs reward for toeing the line on the merit of the bail outs and the actions of the Fed?

No dissenting views are allowed. If there are moments such as the tirade from Senator Jim Bunning on Bernanke last week, then it is underreported. Or at the very least reported in a way that makes Senator Bunning look like an extremist with the wrong point of view.

All of this while markets around the world move to the beat of the Fed’s drum.

The carry trade is in full swing and the Fed is more than happy to feed it.

There is no doubt that the historic move in markets this year can be put down to the free money being doled out by the Fed to its banking buddies.

I’ve watched markets for sixteen years and I’ve rarely seen such a sustained explosive rally as that of the last nine months.

Trust me, this is not the behaviour of a free market.

This is a market being managed by unseen hands. Think about this – Hong Kong property prices are up 30% this year, with those in the luxury sector up by about 40% according to Marketwatch.

In my view this is the result of a flood of US Dollars looking for a home.

The Chinese banks were forced to lend out more than 9 Trillion yuan ($1.5 Trillion) last year, an amount equal to 27% of the country’s GDP! China Securities Journal has predicted that new bank lending may fall as much as 30% in 2010 to around 6-7 Trillion yuan.

What affect will that have on Chinese demand?

They’ve already caused a bubble in property development and there are shopping centres sitting empty with no tenants and no customers.

What trick can they pull out of their sleeves this year to create some phantom demand?

Frankly, China is an accident waiting to happen. They already have massive overcapacity and they are trying to force feed more credit into a system that would rather deleverage.

This forced lending is finding its way into speculation rather than investment and so we’ve seen markets shooting off all over the place.

But the speculative binge will stop before long if we do see a 30% fall in lending next year.

While governments are running around blindly “doing something”, that “something” is feeding more instability into a world economy that is already showing signs of cracking.

The private sector is trying to deleverage, but the Keynesian clowns try to keep it going by forcing people to take on more debt via government borrowing.

But if that doesn’t work they change the rules. Get this, Japan has come up with the brilliant idea of forcing companies to hire full time workers instead of part time workers.

Is it possible to be more insane than this? What do you think a company will do in response? Hire workers it doesn’t need at a time when their profits are under pressure?

Or perhaps not hire any workers at all if they are not allowed to hire a part timer. Or maybe sack three part timers so it can hire one full timer.

Anyway, whatever happens, 2010 is going to be a very interesting year.

The public policy madness provides another signal that the great worldwide fiat currency experiment is entering its final stages. And I am intrigued to find out what happens.

Murray Dawes
Editor, Slipstream Trader
for The Daily Reckoning Australia

Murray Dawes
Murray began his career on the Sydney Futures Exchange trading floor in 1993 with Swiss Banking Corporation (SBC). He spent a couple of years in the 3 and 10 year bond and option pits before moving on to the Share Price Index (SPI) futures and options pit. From there he became a broker with SBC specialising in SPI futures and options to institutional clients. After leaving SBC Murray continued his career in broking at Bankers Trust Australia. Then in 2001 Murray moved to Melbourne to work as a hedge fund trader for one of Australia’s wealthiest families. In 2003 he was ready to set up his own firm providing the same proprietary technical trading system to some of Australia’s boutique hedge funds. The success of Murray’s system led to him trading a $10 million account for a high net worth individual. This involved trading Australian and US futures and Australian stocks. Now Murray heads up the technical analysis desk for us passing on to readers some of his experience from 16 years of trading.
Murray Dawes

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Comments

  1. It’s not a prison until you try the door.

    Reply
  2. Just one correction. Ron Paul is a member of the House of Representatives from Texas. So he is not a Senator, but Congressman Ron Paul.

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  3. I knew Ron Paul was the man for the job all along. I hope he can muster up even more support in 2012 and take the election. People have totally lost faith in Obama now who is appearing as George W Bush with his war time policy and lack of explanations that even very left shows like The Colbert Report and The Daily Show are mocking him. Also he has flip flopped and dealt with Republicans in a way which has allowed many people to feel he betrayed them and in fact it lowers his support base which is just crazy. It turned out he wasn’t aggressive enough after all. Ron Paul wouldn’t let us down if he got in he would make it his first stop to embrace the constitution of America and tell the people what really happened to their country. What an amazing event that would be and I have no concept of the chaos it would let loose in the markets. It would be a necessary evil to unleash to learn and prosper with a functioning and free economy. I bet he’d get those damn lobbyists out of Washington too.

    Reply
  4. If Ron Paul got in he would be very lucky not to meet the same fate as JFK. The people in control of the Fed will do anything to hold onto their golden goose (the Fed).

    gut feeling
    December 9, 2009
    Reply
  5. Congressman Ron Paul. He is not a Senator.

    He SHOULD be President though!

    Ron Paul Fan
    December 9, 2009
    Reply
  6. Ron Paul would indeed shake things up, mainstream media would crucify him if he even looked like a chance at president.

    All the chat about the corrupt Fed is OK, but what about the RBA, another private organization is it not? Who do they really serve?

    Reply
  7. How typical

    On one hand this website champions free markets, then we get this garbage suggesting politicians should have greater meddling in central bank operations. Murray if you open the door to an ‘audit’ you open the door to other means of control.

    Then the article says free markets are being meddled with by an unseen hand, however this directly contrasts your other writers that say ‘it is fallacy for governments to try and control free markets’.

    Some editorial control of jumbled facts and statements is required, and stop patting yourself on the back as ‘the people’s champions’ with conspiracy theories about ‘telling you what the mainstream press won’t!’ it’s beginning to sound a lot like a Today Tonight spiel.

    Reply
  8. Hi bob, shouldn’t you be on a property spruiking site or something?

    But seriously, your opening statement makes no sense at all and a bit embarrassing to have to address it myself, but I like to savage nonsense like an irate dog.

    What is being proposed in the US is transparency (auditing) of the Fed which is a cornerstone of free markets and a critical counter balance to human tendancies toward self enrichment (stealing), hubris, and megalomania. This is not meddling, this is shedding light. This is not decision making or influence, but forcing honesty. If you believe that by shedding light on the most powerful money creators in the world is dangerous for you, then you’re a sucker for propaganda and you deserve the misery that such fascist nonsense eventually brings.

    Simply put, the proper role of government is to play referee in a free market system.

    Reply
  9. Nothing undermines free markets more than a manipulation of currency value – I think we can all agree on that. The Fed is the one with the “printing press” and therefore has the largest effect on the value of the dollar – especially at the moment. I don’t see any problem whatsoever in having their dealings revealed.

    Reply
  10. So true Don. Lucky not to live in North Korea but where two zeros have just been wiped off the currency…you have to give up 100 of your older won notes for one new note. Your savings just obliterated. Why bother saving?

    Lachlan Scanlan
    December 10, 2009
    Reply
  11. Article on North Korea…
    http:/www.timesonline.co.uk.tol/news/world/asia/article6946482.ece

    Lachlan Scanlan
    December 10, 2009
    Reply
  12. Slight error in that link:

    http://www.timesonline.co.uk/tol/news/world/asia/article6940482.ece

    In short – holy crap. You have to feel for the poor buggers in that place, talk about ripping your heart out. This is the reason why no government in its right mind is ever going to surrender its printing press :( – no North Korea, not the US, not Europe – NOBODY!

    Reply
  13. Dan I think it’s a bit silly to blame laymen for not understanding inflation, as you said “This is the level of ignorance we’re dealing with.”

    Professional economists debate the meaning to this day, and while the basic concept is not too hard to understand, when you start scratching beneath the surface there are shifting ideological sands on how to deal with it and indeed whether it’s actually a good thing or not!

    Reply
  14. One of the so called tenants of the free market is transparency.For an informed decision, whether buying currency,shares or futures (very scary) you should have the information available to you. Noone knows the true extent of the US dollars true value or the debt or the volume of futures contracts. The Fed needs to be just as accountable as everyone else. To suggest they never get it wrong or are infallable is absurd.

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  15. Peter E, dollars have no ‘true value’ at all. The statement in itself envisions that somehow money has value and is being moved from its ‘real value’ like a deviation from a mean because of manipulations and what have you. Money is now fiat, it has nothing to base it on except whether people use it and how much supply there is of it. However, because the federal reserve can now cheat the entire system by buying up bonds from the government directly and is using ’emergency procedures’ to deal with the ‘unforseen sigma 6 event’ catastrophe they have effectively wiped out what used to be the way the system even worked. Money was valued because of people believing in the system, the money was valued because it started with the value of gold, then when uncoupled the people had no concept of what it meant (by government and banking spruikers) who continued to maintain they would use it at the imagined value. This imagined value has as previously mentioned, been now valued by the federal reserve because they directly purchase the debt from government allowing more money whether people demand it or not. It’s not now that money has no real value (because it never did without a gold backing, which is transient value anyway) but that we are forced to interact with a system where money not only has no value but also has no control by the people meant to use it in the first place to value goods and services with. No value, no concept of what effects take root by practically arbitrary printing by the federal reserve and therefore no free market.

    Reply

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