The Great Depression Online




Great Depression Online Archive Issue:

Madman On Fire

Great Depression Online
Long Beach, CA
January 26, 2010

Inside This Issue You Will Discover…

*** Caught Up In The Hullabaloo
*** The Bernanke Doctrine
*** Madman On Fire
*** And More

Caught Up In The Hullabaloo

Poor Ben Bernanke.  What an unfortunate turn or events.  Several months ago his stature was riding the stock market to new heights.  His legacy was secure.  He would go down in the history books as the man who saved the United States from the second Great Depression…the perfect ego stroke for the former Princeton University economics professor and Great Depression buff.

But then, wouldn’t you know it, Senator Edward Kennedy did something it seemed he’d never do; he up and died.  Then the Democrats controlling Congress, and the President, went on a universal health care blitz to ram the public option down the people’s throat for Christmas.

The people, of course, did not appreciate this all that much.  Many were annoyed.  Some were insulted.  Others were outraged. 

~~~~~~Cheap Oil Is Gone~~~~~~

Over the next year or two, you will likely find yourself paying a LOT more at the gas pump.  Big changes are taking place in the oil industry.  With increased global demand and declining supply, easy oil is not so easy anymore.

Everything is about to get more expensive.  From gasoline to anti-freeze, life jackets to golf balls, and eye glasses to fertilizer.  There are very few things in the modern world that aren’t made from oil, made by machines dependant on oil, or shipped by vehicles powered by oil.

That’s The Good News

~~~~~~~~~~~~~~~~~~~~~~~~~

The next thing we knew Chris Dodd, the Democratic Senator from Connecticut, withdrew from his sixth term reelection bid – it was a lost cause – and Massachusetts liberals voted for a nude posing Republican model to fill Ted Kennedy’s now vacant seat. 

By the end of last week Bernanke had become caught up in the hullabaloo too.  Now, what had been practically a guaranteed confirmation to a second term as Federal Reserve Chairman was as questionable as the sincerity of a John Edwards paternity admission.

“Ben Bernanke’s confirmation to a second term as Federal Reserve chairman suddenly appeared in jeopardy on Friday even after U.S. Senate Majority Leader Harry Reid said he would back him,” reported Reuters.

“With the U.S. job market in disarray and voters angry at Wall Street, members of Congress facing mid-term elections in November have come down hard on the central bank.”

The Bernanke Doctrine

Bernanke’s confirmation hearing should take place this week.  We don’t really care if he keeps his job or not.  In our opinion the Federal Reserve shouldn’t exist in the first place.  The Nation did fine without it for its first 137 years.  But over the last 97 years of its existence, the Federal Reserve’s managed to inflate away $0.95 of a dollar’s value. 

Still, with Bernanke’s confirmation in doubt, let’s take a moment to review the Bernanke doctrine, as outlined in his November 21, 2002 speech: “Deflation: Making Sure “It” Doesn’t Happen Here.”

Then as Federal Reserve Governor (now Chairman), Bernanke laid down the rules for combating a depression…

“The U.S. Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.  By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. Government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the price in dollars of those goods and services.”

Later in this same speech, Bernanke made reference to a “helicopter drop”, alluding to a central banker hovering in a helicopter – dropping suitcases full of money to individuals.

This little oration earned him the name ‘Helicopter Ben’.

Madman On Fire

At the time of Bernanke’s speech his ideas were largely academic.  Sure governments had printed paper money before to inflate away debts and pay for wars.  Governments have been doing this for thousands of years, always with disastrous results.  But never before had anyone of such immaculate standing professed these to be credible policies.

Perhaps Bernanke never imagined he’d have the occasion to test his theories.  Yet in late 2008, and to his surprise, the financial market’s frosted over like the Alaskan tundra.  

On September 15, 2008, Lehman Brothers went bust and several days later AIG was granted an $85 billion dollar bailout…effectively nationalizing what was the 18th-largest public company in the world.  Ten days later Washington Mutual – the largest savings and loan in the U.S. – disappeared from the face of the earth.

The stock market also crashed, with the S&P500 falling more than 56 percent from its October 9, 2007 high.

Through it all, Bernanke went about it like a brain surgeon goes about separating conjoined twins.  What we mean is he acted with calm hands, intestinal fortitude, and plenty of guesswork.  He put into practice ideas that, just the thought of, would have made Alan Greenspan soil his pantaloons…

TARP, CPFF, MMIFF, TAF all served to bailout the big banks, rinse toxic asset backed securities from their balance sheets, and reliquefy the credit market with phony money.  He doubled the size of the Federal Reserve’s balance sheet in a year and a half…accomplishing what it took numerous other Fed Chairman and 95 years to achieve.  He employed quantitative easing policies to artificially suppress mortgage rates and place a false bottom under the housing market.

Bernanke, no doubt, is a total madman.  Yet he goes about his business with the composure of a Buddhist monk on fire.  He helps the world ruin itself with peace and serenity. 

In other words, he’s a central banker par excellence. 

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  If you’re looking for the best way to capitalize on the end of cheap oil, there’s no better time to sign up for our friend Marin Katusa’s advisory service, Casey's Energy Report.

Subscribers have been handed 19 consecutive winning stock picks in 11 months.  Now you have the opportunity to learn which stocks he believes will profit from the looming oil shortage.  For more information click here.

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