Sacrifice And Awakening

Former Federal Reserve Chairman Ben S. Bernanke has come out of the closet with a publicity campaign aimed at defending his policy and, by proxy, the entire central banking complex diaspora. No doubt he will temporarily succeed in the minds of many across the political spectrum.  But at the margins, there are always unintended consequences.

As Fed chair, Bernanke played his role as the straight man elegantly, but it was script nonetheless — a massive well documented childhood fiction.  From the blatant disregard for the breadth of the crisis on the eve of its unfolding, to his nearly unflinching projection of ‘gold as tradition’, the depth of misdirection and betrayal will be explored for years before the veil is lifted on the secrecy of the central banking edifice.

We have been on a collision course path of financialization for a long time. Interestingly, no matter which stage along the timeline one wakes up to the scope of the issue, the enormity of the fraud is shocking.

The participation is from the top down. It ranges across the spectrum from mega banks, through the halls of justice, to the boutique hedge fund, to the momentum trader.

This was the case in 1974, 1980, 1992, 2000, 2007, and up until today. In the age of quantitative easing, they have certainly eased the standards of valueless securities onto the balance sheet of the Federal Reserve.

Protected by the change in GAAP standards, the illusion of mark to market has obscured reality of true collateral. It’s one thing to say the currency is backed by debt — quite another when the so-called debt is, in reality, worthless.

One consequence is the interference in the flow of credit. This occurs when high quality collateral is moved from the overnight loan program (the REPO market – the main engine that keeps this complex system spinning). This practically guarantees the probability of another liquidity freeze. Another credit crisis means even more printing and slow slaughter.

It is one more example of how their assumptions regarding good policy experiment has the potential have much more damaging consequences.

Most people agree that ‘they’ had to do something. Even if what they were doing was backing themselves out from a mess they created.  And, they are doing it all over again.

They didn’t just bail out the financial system. They enriched their little club. Certainly, where there is risk, there should be reward. But this is not risk in the conventional sense — there is no skin in this game. Federally imposed backstops and bailouts remove all hazards. There is only the perception of risk.

The total cost of the bailouts and subsidies ($11 trillion) is quite a bit larger than what the broad public was led to believe ($700 billion).

The result of all of this is artificial perception of growth. Or, no real growth – only that which is perceived by a funhouse of mirrors. In fact, they have only succeeded by turning corporates into tax evading cash holding dividend buying machines.

They’ve saddled generations with massive debt and future liabilities with no real structural economic policy or hope – a failing infrastructure. And they are succeeding in destroying real capital and savings. Look no further than seniors, the retirees who saved. This represents real capital, generational investment…seed corn for the future.

Sadly, the generations which profited directly from this debacle will be remembered as warning and not as an example.

One could argue that there will be no courage to stand up politically. Entitlement is a weird sort of reciprocity — the fear of loss is much greater than wish for gain. But there is no political voice. Sure, seniors will cling ever more tightly to entitlements. That drum beat grows louder as society and broader culture age.

No doubt this is one more reason that the only true defense against this massive indirect (and probably direct) tax on flesh, which means holding physical assets that have no liable counterparty, they are assets owned without debt. They also feel like it is the right thing to do.

Sacrificial Seniors

Recently Bernanke stated among a defensive list of rebuttals to his questionable policies:

“This sounds very textbook-y, but failure to understand this point has led to some confused critiques of Fed policy. When I was chairman, more than one legislator accused me and my colleagues on the Fed’s policy-setting Federal Open Market Committee of “throwing seniors under the bus” (to use the words of one senator) by keeping interest rates low.

The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings. I was concerned about those seniors as well. But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do. In the weak (but recovering) economy of the past few years, all indications are that the equilibrium real interest rate has been exceptionally low, probably negative.”

What a load.

It’s no secret that seniors face a higher rate of inflation than the average person (medical costs, etc.).  Real rates of return are now negative.  And most will walk away believing Bernanke, rather than the reality.

All of these blatant lies and useless defenses must mean we are approaching an inflection point. It is like a light going off, from a feeble flicker. About to shine brightly in awareness.

When it comes to the question of what you can do…You have this momentous option, just before the light becomes blinding.

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