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Bernanke Thinks the Fed Can Control the Market with Wealth that It Does Not Have

By: Steve Johnson

12/7/2009 - 13 Comments

Chairman of the Fed, Ben Bernanke floated another one of his completely false statements into the market today, saying the Fed will make a profit from the government bailout.

Bernanke said he's confident the Federal Reserve will make money on the trillions it has pumped into the economy.
"I think we're in very good shape," Bernanke said, answering questions following a speech at the Economic Club of Washington. "I do believe we're going to get back all the money, and indeed we'll be showing for the taxpayers fairly significant extra income."

The Fed has pumped some $2.2 trillion into the economy since the financial crisis began in 2008.

Much of the Fed's efforts to pump money into the economy came through the purchase of mortgage securities backed by finance firms Fannie Mae and Freddie Mac, as well as the debt issued by those companies. It plans to purchase $1.25 trillion of those mortgages, making the Fed the primary owner of most of the homes, cars and consumer credit card debt. 

It has also purchased about $300 billion in U.S. Treasury’s in an effort to reduce the burden on the rest of the world who has been force to purchase most of this debt to keep the dollar from sinking and their economies from crashing.

Where to Begin?

I don’t know where to begin with this.  Ben is completely out of his mind to think that we the banks will produce profits when they return the $600 billion that was borrowed to them after the Fed pumped $2.2 trillion into the economy.

Banks Have No Profits

130 banks have already gone bankrupt this year with another 500-600 expected to go bankrupt next year, which will cause the FDIC to borrow $200-500 billion from the Treasury.  But the Treasury doesn’t have any money of there own, they get their money by borrowing it from foreign central banks and creating new money. Both of which will create a major wave of inflation.

Banks are not profiting from anything.  There are no bank profits. The money that large banks appear to have comes from three places;

  1. Shifting money from assets that are not worth there market value, which the Fed has make available by recently changing the mark-to-market accounting rules.
  2. Purchasing many of the bad loans from banks, allowing banks to keep the good loans and increase there perception of gaining profits.
  3. Ultra low interest rates that have allowed the banks to take the bailout money at zero percent and lend it back to the government at 5%, creating the perception that they are gaining wealth.

Ben Bernanke is the same guy that said we are not going to have a recession just before the recession started and the same guy that said the sub-prime housing collapse was contained. 

He should not be allowed another term as Chairman of the Fed.  He is leading us into a much larger economy disaster as noted by the drastic increase in gold prices.

Market Will Correct

The Fed cannot control the market with wealth that it does not have.  Ben can try and try, but in the end he is only delaying and compounding the much needed contraction in the money that the market is trying adjust to.

The contraction of money or a contraction in the value of our money must take place as the market will continue to refuse to justify asset prices at face value after a decade of expansion in the supply of money.

Printing more money does not fool the market for very long. The market will eventual complete the correction that began in 2008, only it will be much deeper because it will also have to adjust for the trillions that Ben added to the market since it started correcting from the previous increase in money. 

It is impossible for Ben to fool the market and create an economy recovery. The contraction will happen no matter what he does.

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