Ben Bernanke Fears QEII Will Not Work

Ben Bernanke - Fed Chairman

We are now on our second round of “quantitative easing”.  In round one Fed Chairman Ben Bernanke increased our national debt by about 2.1 Trillion by buying up US Treasuries.  These bonds were purchased from various banks and financial institutions such as Goldman Sachs.   Now we are on round two and doing it again to the tune of 600 billion dollars.

The reason given for doing so was to stimulate the economy, incentive banks to lend money and reduce unemployment.   The problem?  The “genius” behind the decision now says it probably won’t work but full steam ahead anyway.

This and other revelations were dropped like financial bombs on Chairman Bernanke’s December 5th interview with 60 Minutes on CBS.

Chairman Ben basically says in this interview that any real reduction in unemployment will take “5 to 6 years”.  He also claims that they are using “their own reserves” to execute the 600 billion of quantitative easing.  The problem with this claim is that it ignores the fact that the Fed creates reserves by buying US treasury bonds.

He also ignores that they buy treasuries by simply entering numbers in a computer, this takes the bonds out of the hands of the banks, allows the Fed to now be the holder of the debt and puts money back into the banks.  None of this actually costs the Fed a single penny, again it is simply making a computer entry and that entry creates brand new money right out of thin air.

The net result is the Banks simply are buying bonds short term solely for the purpose of flipping them back to the Fed for a quick profit.  In the end the profits are simply reinvested in new bonds (more debt) and it costs the Fed nothing to do this at all, not a single penny.

This might sound totally impossible or at least hard to believe. Well the Federal Reserve says this is exactly how it works, the following is a quote from one of their publications called, “Putting it Simply”

“When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.”

In the end we the people end up owing more money to the Fed and more money to the banks and foreign governments.

So basically what Chairman Bernanke is telling us here is that…

  • He created trillions of dollars in new debt with the first round of quantitative easing
  • He did this to stimulate the economy and create jobs
  • It did not work
  • So now he is creating another 600 billion in new debt
  • The goal is to stimulate the economy and create jobs
  • It probably won’t work
  • He is going to do it anyway

Does this seem to not make sense to you?  I guess the problem is that you and I didn’t study economics at Harvard and MIT the way he did?  I guess it is just me but I always thought you only spent 2.6 trillion dollars  if you were going to get what you paid for?   If you have the stomach for it you can listen to Mr. Bernanke’s entire interview with 60 minutes below.

3 comments to Ben Bernanke Fears QEII Will Not Work

  • Kathleen

    “Inflation is very, very low… but we’re getting awfully close to the range where prices would actually start falling”. (Not sure where he shops or buys gas!!) Because the Fed is acting, the risk of deflation is pretty low.

    So let me get this right. Inflation is low, the risk of deflation is low… and the Fed will unwind this policy at the appropriate moment.

    The way Ben’s voice is shaking, I don’t think even HE believes his own bull$h!t. >:[

    • ModernSurvival

      The issue we really have is that we have what I can only call offsettingflation.

      Houses have deflated, wages have deflated and the price of much of the low end “consumer crap” has deflated. Additionally the high unemployment and reduced wages combined with a climate of fear has cased spending reductions. Those are all at least the remnants of free market forces.

      Of course the presses are printing (actually computers are making 1s and 0s) non stop for two years now. So inflation is hitting the stuff we actually need, food, gas etc. Many of the things that are no longer part of the CPI, this gives artifically low inlfation numbers because it focuses on “core” but apparently your core expenses do not include gas, electricity, natural gas, steak, roast beef, etc, etc. according to the government.

      The only thing keeping a chain on the inflation monster is recession. Ben tells us deflation is the illness and inflation of the money is the drug that can cure the disease. The reality is inflation is a monster especially for those on fixed income, Ben and his boys are feeding the monster and be ready for this…

      When inflation first begins the stock market will go up and unemployment will fall (say by a point). Right wing media shills will call Ben a genius and give him the credit, left wing shills will laud credit on the all powerful Obama. This will once again prove to us how completely ignorant both are to money and economics. This party will last 6-24 months or there about.

      As prices rise at first companies are selling products composed of yesterdays costs for tomorrows prices. At the onset the Keynesian economist gets what he expects, the modern version of success, growth. Damn everything growth is good, growth is the God to be worshiped above all because a debt based financial system requires it. They are acting like ancient shamans praying for rain when they pray for growth.

      Though the shaman isn’t really going to make it rain with dancing and chanting, the Fed however, can really make things grow especially the M3 and the debt. I call it a monster because it will come to a head and once it begins to roar they can’t pull it back, then we get the real inflation. Much of it is waiting to come out right now. Wholesalers and distributors are eating it right now, but when growth comes they will let the cost flow to the consumer. Right behind it will be the new inflation from all the printing of the money. Once the money flows, velocity, the pain really begins and Ben and his boys will have gotten their rain.

      My fear is just like the ancient shaman, they don’t get the rain can be dangerous. What happens if you have a three year drought and then get all three years worth of rain at one time?

  • […] Bernanke Says QEII Probably Will Not Work, Let’s Do It Anyway – (article on […]


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