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Wednesday, 03 October 2012 16:40

Bernanke is killing the working class

Written by 

To the Editor:

It is really quite amazing that anybody would believe anything that emanates from the mouth of Federal Reserve Chairman Ben Bernanke. Quite frankly, the fact that Barack Obama nominated him for a second term as Fed chairman and the Senate confirmed him is proof that our leaders are either as incompetent as all get out or proof for at least one conspiracy theory — namely that the Anglo-American power elite really does run the world and wanted him to continue being their front man.

Let’s be honest. Bernanke’s statements and predictions since assuming the helm at the Fed in 2006 have been, to be harsh, full of mistruths, to be polite, less than stellar. His absurd statements range from “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained,” on March 28, 2007, to “The Federal Reserve will not monetize the debt,” on June 3, 2009.  

His predictions have been even more remarkable. Just two months before their collapse, he predicted that Fannie Mae and Freddie Mac “… will make it through the storm.” And as the economy was spiraling into recession on Jan. 10, 2008, he indicated incredibly that, “The Federal Reserve is not currently forecasting a recession.”

Well, old habits do die hard. Last week Bernanke gave a press conference to answer questions about the Federal Open Market Committee decision to purchase $40 billion of mortgage backed securities per month into the indefinite future. What was astonishing was not his defense of the purchases, but his addressing of three concerns that have been expressed about Fed policy since the Great Recession started in 2008. 

The first concern he sought to ease was that Fed purchases of long-term securities are comparable to government spending. He claims they are not because the Fed is buying financial assets, not goods and services, and ultimately the Fed will sell them off when unemployment eases. He may be technically correct, but does it matter? The buying and selling of assets is one means the Fed uses to manipulate the money supply. When it wants to inflate the supply of money it exchanges new money for assets and when it seeks to slow the growth of money it sells assets to mop up excess reserves in the economy. In the end, Fed asset purchases are comparable to the Fed monetizing the debts of the federal government, which of course are required because of deficit government spending and both will ultimately cause higher prices generally.

Next, Bernanke addressed the concern of those receiving very low returns on interest bearing accounts. While he acknowledged that the Fed’s “accommodative” monetary policies were responsible, he stated that, “Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.”  

Two points need to be made about Bernanke’s comment. First, when are those low interest rates going to produce a healthy and growing economy? The Fed Funds Rate has been at 0.25 percent since December 2008, and unemployment is higher now than it was then. Secondly, is Bernanke suggesting that older Americans on fixed budgets who are getting extremely low returns on their savings just need to be patient until the values of their homes come back so they can sell them to eat? Or is it that he thinks borrowing against equity on one’s house is a sign of prosperity? 

The fact is Bernanke’s policies discourage savings and those that have saved are seeing their wealth eroded and their standard of living diminished.

Which brings us to the last concern addressed by Chairman Bernanke, namely that the Fed’s “accommodative policies” will produce higher price inflation down the road. To quell fears of price inflation he indicated that overall price inflation has been about “2 percent per year for quite a few years now, and a variety of measures show that longer-term inflation expectations are quite stable.”

All one has to do is venture to the supermarket or fill their tank with gas to know that the chairman’s claim about price inflation is hogwash. Gas prices alone are up 7 percent year over year. Higher energy prices mean the cost of other goods has increased as well. Bernanke’s inflation number is absurd.  

John Williams at Shadow Government Statistics produces inflation numbers based on the way they used to be calculated. According to his calculations, if the Bureau of Labor Statistics (BLS) were figuring inflation like it did in 1980, the rate would be 9 percent. If the BLS were using the 1990 method the rate would be 5 percent. The point is that both calculations are much higher than Bernanke’s figure and with the Fed about to embark on infusing $40 billion per month more into the economy for an indefinite period of time, price inflation will go even higher.

Bernanke has a long history of making absurd statements. His attempts to ease concerns about Fed policies were no exception. At the end of the day, his policies have hurt and will continue to hurt the middle and lower classes. What’s startling is that these groups are the very constituencies that Obama and members of the Senate claim to care about, yet both gave Bernanke a second term as Fed chairman. Perhaps the president and those 70 senators that gave Bernanke a second term are incompetent, or perhaps the Anglo-American power elite wanted him to continue as their front man?

Kenn Jacobine

Haywood County

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