January 27, 2008

Is Ben Bernanke trying to create a new stock market bubble, to replace the housing bubble, which replaced the stock market bubble?


And will he succeed?

We've lost our manufacturing base, incomes are flat, the spending of the past six years was done on home equity, consumer debt is now the only new way to bring new money into the system, and if we don't get a new asset bubble soon to create wealth and drive spending, we're screwed.

Consider these great quotes, from Bubbles Ben Bernanke, speaking right when the housing bubble was inflating in 2002. You owe it to yourself to read his whole reckless speech. You'll better understand what may be coming next.

And my take - don't be a bull, don't be a bear. Be open minded, be prepared to react to new data, and when they change the rules to the game, remember they control the game.

"Aggressive bubble-poppers would like to see the Fed raise interest rates vigorously and proactively to eliminate potential bubbles in asset prices. To be frank, this recommendation concerns me greatly, and I hope to persuade you that it is antithetical to time-tested principles and sound practices of central banking."

"The Fed cannot reliably identify bubbles in asset prices. Second, even if it could identify bubbles, monetary policy is far too blunt a tool for effective use against them."

46 comments:

Democraatus said...

The Fed cannot reliably identify bubbles in asset prices

How about 'The Fed cannot reliably identify the rate of inflation'. They sure as hell are trying, and look at the results.

Abolish the Fed, before it is too late.

gadfly said...

What a bloody liar. If they cannot reliably identify bubbles, why do they frantically try to keep them from bursting. How can you try to do something about a problem you are not aware of. Come on, if this guy is not even good at lying, what the hell is he good at?

Anonymous said...

Can we abolish the Two party Political System and the Electoral College while we are at it?

Anonymous said...

If You reall want to know what Bernanke is up to go to
gloomdoomboom.com
http://tinyurl.com/238ck6
and download the PDF titled "Towards Hyperinflation?"
Dated 02/03/06

Read pages 5-9 at least, The section called "Unconventional Measures:
Bernankeism and the Destruction of the Dollar"
by Robert Blumen

Blumen explains what Ben is all about and has for the most part gotten it right. Much of what he wrote 2 years ago has come to pass and I think we are well into the section of the piece titled "UNCONVENTIONAL MEASURES?" where he says.

"The measures described so far rely
on loaning money into existence in
order to generate inflation. This
channel depends on the willingness
of borrowers to borrow the cheap
money that the Fed prints. But what
if borrowers won’t borrow? Don’t
worry, say the Bernankeists, we will
print the money and distribute it."

Anonymous said...

Ben "Bubbles" Bernanke sounds like a clown...oh wait..he is...

bleak said...

It *IS* different this time... The banking system is saddled with bad loans.

Anonymous said...

lets identify the next bubble and make some money. I say s&p500

Buzz Saw said...

We can't have inflation, we will have deflation. Mish said so, and he is uber-smart.

heath ledger said...

Your right on.They have to keep inflateing an asset class to keep the economy afloat.They cn't seem to create any real jobs so they have to create money in some way.We seem to have a bubble in commodities right now.When will that money come back to stocks?No way in hell I want any part of gold at these prices.They are recruiting the next wave of bagholders right now.

globaltrader said...

Commodities are the next bubble. Why? 1. It makes for a good fundamental story ie: India, China 2. The public has not caught on, when was the last time you saw a commodity broker ad? You cant even find articles on it in papers. 3. Its not about the Gold Bug, its about an entire asset class. 4. People like new asset classes, the rotation into this was was last in the 1970s. 5. Expand outside your horizon of homes vs stocks, think outside the box. 6. Read Jim Rogers are Marc Faber. 7. I will sell when coctail conversation is about making it rich on Sugar, Cotton being the next hit, how stocks and Houses are so passe, how earth resources are going to zero & when magazines pop out not on stocks but commodities. You havent seen anything yet.

Anonymous said...

I went to an open house last week in Pasadena, CA. Actually, I just kinda bumped into it on a mountain bike ride home.

They had 3br/2ba condos @1800 square feet going for $550k. After a tour though, the agent let me know that the price was coming down at least $100k next week as none of the 25 unit had sold since they started 5 months ago even though the places are really nice inside.

The main problem is that, although it sounds all nice being in Pasadena, its in the middle of a poor ethnic neighborhood full of cheap apartments and dilapidated homes. The condos in the back overlook a house that is half falling apart and has what looks like a large shack in the backyard.

Even with a $100k drop, I don't think they'll be finding anyone.

Anonymous said...

I'm convinced Bernanke isn't trying to prop up the stock market. He's trying to avoid a collapse of the banking system. At the same time he's trying to keep the economy out of a recession. He needs to keep short rates low enough to clear that hump of option-ARM resets looming in 2009-2010, but not so low as to ignite another bubble. And he needs long rates to come up a bit so that the banks can earn a bigger spread and dig themselves out of the hole they're in. A moderate amount of inflation for a few years is the price to be paid. It's a tricky course, as he mustn't allow expectations of future inflation to get out of control, or long rates will go too high, killing both the housing and stock markets.

There's only so much he can do to fight inflation. World production of fossil energy is plateauing while developing economies expand - inevitably, prices must rise. Is that "inflation" or just the good ol' law of supply and demand? Is there a difference? A sensible course would be to move aggressively to reduce our energy consumption and ramp up alternatives; instead we've compounded the problem with an idiotic biofuels program that is now driving up food prices. Such policy changes are the province of our elected leaders, not Mr. Bernanke. We can only hope for better leadership after this year's elections.

SeattleMoose said...

The FED is a front for global bankers. They rule the world. The bubbles are "scripted" to provide the up/down dynamics that are great for making tons of money if you are the one pulling the strings.

This bubble was engineered and for the FED to deny they had a clue is pure BS. They lie.

I would give anything to go back to 1913 and try to warn our government about what the creation of the FED (by international bankers) would do to this country. It was the perfect coup.

The agenda is one world government and consolidation of currencies. It would appear that the dollar might be a casualty of this agenda. A total collapse of the dollar would allow an existing currency (Euro?) to be the new currency in the U.S.

Only those engineering today's chaos know where they are taking all of this. That is why nobody cares any more about the debt (trillions of dollars). That is why the FED appears to do the very opposite of what common sense would dictate if the goal of the FED was to protect the "common good" for Americans. They are not an American institution and their policies reflect that.

A crash/collapse will expedite the "new system"...whatever they might be.

I fear the worst for America and for the dollar.

no waterfall decline? said...

Anonymous said:
If You reall want to know what Bernanke is up to go to
gloomdoomboom.com
http://tinyurl.com/238ck6
and download the PDF titled "Towards Hyperinflation?"
Dated 02/03/06

Read pages 5-9 at least, The section called "Unconventional Measures:
Bernankeism and the Destruction of the Dollar"
by Robert Blumen

Blumen explains what Ben is all about and has for the most part gotten it right. Much of what he wrote 2 years ago has come to pass and I think we are well into the section of the piece titled "UNCONVENTIONAL MEASURES?" where he says.

"The measures described so far rely
on loaning money into existence in
order to generate inflation. This
channel depends on the willingness
of borrowers to borrow the cheap
money that the Fed prints. But what
if borrowers won’t borrow? Don’t
worry, say the Bernankeists, we will
print the money and distribute it."

The ratio of the "value" of US housing to US labor is too high.

The ratio of the "value" of US labor to some non US labor is too high.

The fiat money system is currently a debt-fiat system.

Under a debt-fiat system a system implode is possible.

So we move to a true fiat system. Where money is truely printed and distributed to combat the deflationary aspects of the housing and other collapses. A system implode is still possible if events happen faster than "Bernanspan" can react.

The water will still run downhill, they just can not have a waterfall decline - will they be successful?

If they can keep the system from imploding, housing will be cheaper in relationship to other things in a few years compared to the peak or now.

Anonymous said...

Once again, you need to look at the other side of his argument or perhaps rather what he is NOT saying. He says nothing about the fed CREATING bubbles, just that they won't actively deflate them.

Anonymous said...

Anonymous

They had 3br/2ba condos @1800 square feet going for $550k.

.....its in the middle of a poor ethnic neighborhood full of cheap apartments and dilapidated homes. The condos in the back overlook a house that is half falling apart and has what looks like a large shack in the backyard.

Even with a $100k drop, I don't think they'll be finding anyone.

That is how it is done everyday in Latin America. Beautiful mansions overlooking cardboard and sheetmetal hovels below, many without roofs so you can watch them bathe and live their daily lives from your uppercrust view. Mexico moving north?

Perhaps this is the future of the U.S. housing market.

Anonymous said...

The Fed will succeed because foreigners keep buying our treasuries and keep accepting depreciated dollars in return for goods that we Americans consume. Then these idiot foreigners will blame Uncle Sam for scamming them. They are true idiots for continuing to lend to us. China has almost 1.3 trillion dollars and they are depreciating quickly.

The Fed will succeed because the people of the United States have this almost mythical worship of this deity called The Federal Reserve. This dance will go on and God only knows when the music will stop and then the bill comes due.

It's a shame. We can either take our medicine now or take it much later. But Americans want to believe that booms go on and there will never be a bust.

Lady Di said...

I think the Fed is out of options, and the bubbles are OVER. It is deflation from here on out.

We will see deflation across the board in assets, equities, etc. and a severe recession.

Cash will be king going forward. We are entering a new era.

I am in the Roubini camp on this one.

hitler lives said...

I told ou guys what to do.The US is going downhill fast.Pretty soon we will be importing a lot of cars from the third world countries.They have a much cheaper labor force and they have a lot more room to run with their asset prices.Much more borrowing power too.Pretty soon we will be a service economy and all working at walmart.The US dominance is ending face it.

Anonymous said...

In my opinion, the Fed is trying to create a bubble in the commodities market: Corn, soybeans, oil, and metal. Inflation is on the rise, and he is scheduled to drop interest rates another 50 basis points. Food and energy are in a bull market and will only go UP!

long termer said...

The fed this, the fed that,
Blah blah blah..
This is all small potatoes.

The big gigantic clumsy elephant in the room is Europe.
(All of Europe, the EU and equally Eastern Europe)

It’s all based on hot air and ‘lies’.
And it’s all about to fall apart.

The Frenchie that supposedly did ‘unauthorized’ trading at Societe Generale
to the tune of $73.5 billion.
- http://tinyurl.com/29fkmf
Is just the tip of the iceberg.

Its all common sense, and if you look a little closer its obvious that all European economies, beginning with the Russian (Putin) boom, all the way to Briton, Germany, Ireland, France, Spain.etc. are all FAKE.

It’s especially important to understand because, I continue hearing the loud incompetent noises at the MSM, that the ‘Global Economy’ is strong
Or that the ‘Global Economy’ is on its own footing, and decoupled from the troubles here.

Not only are the European economies about a tenth in size then actually advertised, but the impact of the US slowdown will have a larger effect on Europe then in the US itself.

HPers: what’s about to unfold in Europe will be surreal, and the MSM will act surprised.

I’m upgrading my buttered popcorn, to Popcorn dipped in flavored caramel,.

bank dick said...

Experts like Bill Gross of PIMCO see the Fed rate dropping to 2.5%. I think the bank liquidity and reserve problems are much worse than they have admitted, and to avert a collapse the Fed will have to lower interest rates below the 1% we saw in 2003.

This will be good news for the banks as it will allow them to refi many of the toxic mortgages that are resetting and earn even higher returns from screwing credit card customers. The downside is it will kill the USD, and that is where you deflationists are wrong.

About 1/3 of our consumption is imported goods and commodities - $5 trillion a year - and prices for those goods are going to skyrocket as the dollar declines. We may have deflation in some asset classes (houses, used cars, commercial RE) but it will be offset by rather extreme inflation for other commodities and services. The Fed is already on record favoring inflation as a cure for the banking system's ills.

Don't fight the fed. Our future is inflation not deflation.

Anonymous said...

The new bushco years mantra:

"No Bank Left Behind"

Anonymous said...

you idiots can cry about it or profit from it. you all seem convinced on what will happen. fine. invest accordingly and you'll be rich.

Anonymous said...

long termer said...
‘The Frenchie that supposedly did ‘unauthorized’ trading at Societe Generale
to the tune of $73.5 billion.
- http://tinyurl.com/29fkmf
Is just the tip of the iceberg.
Its all common sense, and if you look a little closer its obvious that all European economies, beginning with the Russian (Putin) boom, all the way to Briton, Germany, Ireland, France, Spain.etc. are all FAKE.’

I could not agree more:

It is very likely that the previous French government (Chirac) had a lot to do with what was going on at Societe Generale, don’t believe that it was a lonely investor.

What about this story – in Britain
http://tinyurl.com/2awpgx

Northern Rock, is also a story of European corruption.

I have never bought into the Euro story.

Anonymous said...

Bank Dick,

Tell that to Japan that's been at 0% for years trying to get some inflation going. I think Japan is the only country where inflation growth is a good thing.

Danny

Anonymous said...

how do you refi at these lower rates when your house is worth less than the outstanding loan? do most fb-ers have enough cash to bring to the table?

Anonymous said...

Went to a boat show over the weekend and saw the salesman that my buddy bought a boat from last year. Since I wasn't buying and he didn't look busy we started talking. After awhile I asked how was the boat show going and he said its slow. Same show last year this high end dealer (Grady White) sold 45 boats, this year 14. He said the news is scaring people that tough times are coming.

Right on target said...

He belongs to the tribe of "God's chosen people". In a country ( left, right and center) that is more loyal than the king regarding a key foreign policy matter, how can he fail ?

The chances of AIPAC passing anti-Israeli resolutions is higher than Bernanke not succeeding.

True Americans want Bernanke to succeed and he will....

Anonymous said...

I'm not a Mike Huckabee guy, but I did gain some respect for him this morning on Late Edition. He was allowed to ask one question of Paulson and he asked, "If we borrow 15 billion dollars from China in order to distribute it to the American people, who will spend it on 15 billion dollars worth of goods from China, which economy did we really stimulate?"

Paulson of course stumbled, bumbled, avoided the question, and Blitzer let him.

Bernanke is trying to stimulate his wall street buddies with his rate cuts. He's determined to avoid 1929, but apparently forgot about the 70's.

Anonymous said...

If you want to know about Bernanke, read the papers he wrote before he became the head of the Fed. He's a scholar of 1929 and will avoid deflation at all costs. He is going to attempt to pump the economy up and hyperinflate, dollar be damned.

Paul E. Math said...

Bank Dick, I agree that the fed will lower rates even further and will opt for what they consider to be the lesser evil, inflation, rather than systemic collapse.

But I don't see how the fed will succeed. The fed needs to implement their interest rate policy by increasing the money supply through increased borrowing - I don't see how they are going to increase borrowing.

Banks will NOT be able to refi these toxic mortgages, nor many of the supposedly 'safe' conventional mortgages. The reason refis are unlikely is that so many borrowers now owe more than the home is worth after home price declines and therefore will not qualify for a refi.

Commodities may rise dramatically but I don't believe they will be a bubble because the average J6P on the street will not be getting a 100% LTV loan to buy soybeans.

The more I think about it the more I believe in 'bothflation' - deflating assets (homes, stocks) and inflating consumer goods and commodities (food, gas, cars).

I'm not sure about electronics and things made in China. While they may remain low for awhile, as Jim Rogers has said, prices will creep up as the Chinese begin to purchase these products themselves.

yikes! said...

The Fed is now in collusion with the BOJ (Bank of Japan) to establish a 0% rate in order to prevent systemic national bank failures.

Game over.

Anonymous said...

I know one thing, count me in to game the system, too. No more Mr. Nice Guy. I'll rape this country in the next bubble like anyone else. Nobody cares, from the White House to the FBI and IRS, so why should I? All the con artists, including bankers, are enjoying the fortunes they made with the housing ponzi scheme. And the honest taxpayer is the ultimate bag holder. So f*ck this sh!t!

Anonymous said...

Long Termer and Lady DI

Your both right on!!!


Keith I sense a full blown panic is about to start in Riverside. Everywhere I go it seems like all I hear is conversations about the poor economy and horrific housing market.

Check these numbers out :

Mira Loma - oct-dec. 2007 $158.60 sf
oct-dec.2006 $320.29 sf
zip code 91752 % change -50.48


riv. 92503 oct-dec. 2007 $200.40 sf.
oct-dec. 2006 $279.20
% change -28.22

source: First American real estate solutions

These are just samples of numbers here in Riverside area.

Listings on MLS under $229,000 are a total of 246 homes in the city of Riverside. One year ago avg. med home was $415,000 here in city.

Look up home 9242 Agave pl riverside ca. 92503 its on sale for $100,000 on MLS. your looking at a whopping price drop. Listings have just begun an aggressive downturn in price started by the banks. I smell fire sales are just around the corner.

I spoke with city employees who are in the budget dep. and they tell me that pain is being held up as possible. If poor times linger, then there are some serious cuts that will be felt throughout deps. A hiring freeze has already been enacted and School Districts are bracing for the same scenario.

I think the Inland Empire is on the verge of Implosion.


ICEMAN

Shakster said...

Buzz Saw said...
We can't have inflation, we will have deflation. Mish said so, and he is uber-smart.

-----------------------------
Yaaahhh.Nein Sheist.

Anonymous said...

i don't think it was low rates that caused the bubble as much as the offloading of risk and housing "euphoria". this helped mortage rates track as low as the fed funds rate. Mortgate rates aren't determined by the Fed, but by the supply and demand of mortgages.
In the early 90's (last crash here is CA) the fed funds rate was about 3% yet mortgages were still about 6-7%. (Banks had to price default risk into the loans). There are obvously too many lenders that think this is a blip and a not a full correction. Once it becomes clear that it is a correction (prices dropping YoY for years, mortgage rates will be well higher then whatever the rate the Fed sets.

Anonymous said...

Too many people are stretched beyond their limits. Those who aren't stretched are too smart to start borrowing. The banks are also stretched beyond their limits and are now very careful about lending money. The government can push on a string all it wants, but it cannot force consumers with good credit to borrow or banks to continue making risky loans.

The only option are these tax "rebates" to force money into the hands of consumers and hope that they keep buying uselessjunk

Anonymous said...

Of course he is.

Next year around election time, the stock market will be reaching new highs, gas will be at multiyear lows, of course home prices will be down another 10% nationally but no one will care cuz their 401Ks went up by twice what their home lost.

Happy days will be here again.

Worried about inflation? Hahahahhahahah. They are going to lie and say they are for the next 10 years right to the point that we are at 20% inflation or so.

What will undo some of the massive the inflationary pressures of the "stimulus package", and the deficit spending, and the stock market bubble (the next one), will be when they actually allow the stock market to tumble in 2009 or 2010 and wipe trillions from the economy overnight. That will be perfectly timed deflationary stimulus and by then all the suckers stuck in their ARM rate homes will be forced to fight their way toward the next 25 years of their loan term.

The government can make money but they can also take it all away.

What ever inflation remains will be great! Inflation is the biggest tax anyone pays in their lifetime. Invest wisely to beat inflation and essentially everyone else is paying more taxes than I am. That's all I hope for.

Suckerzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz!

Anonymous said...

they have a name for it now:

Bernanke put.

you can go long knowing that ben is there to back you up with a rate cut if the market start to move against you.

Anonymous said...

The essence of a Chinese fire drill, is to display action, as if to solve the problem, but what is done accomplishes nothing, kind of like our Congress at work!

ohhhmyyyygaahd said...

pyramid schemes always eventually crash.

bank dick said...

"how do you refi at these lower rates when your house is worth less than the outstanding loan? do most fb-ers have enough cash to bring to the table?"

They will work something out. I envision some kind of bridge loan package guaranteed by Uncle Sam to effect the short sale and get the borrower into the new mortgage. If the bridge loan is at some ridiculous low rate or has a long term, then the numbers might work. As inflation floats the equity back up in a few years, the bank can refi the mortgage again to get rid of the bridge loan.

Of course the bank earns fees and interest on both transactions while Uncle S takes all the risk -- sweeeet!

Anonymous said...

Bernanke LIVES!! I hear helicopter blades whirring over my house. MORE FREE MONEY WHEN WE SUCKER TAXPAYERS END UP BAILING OUT THE STOCK MARKET! Who's next? Gamblers in Las Vegas?

Anonymous said...

Commodities Index Funds.

Since Joe Sixpack can't actively participate in commodities trading, mutual fund companies will setup CIFs allowing Joe to buy into agro, energy, metals commodities.

The brainless masses will buy anything if it has two-digits followed by a percent sign and an arrow pointing to the moon.

Anonymous said...

Good article about Fed being push around by markets...

http://money.cnn.com/2008/01/28/markets/morningbuzz/index.htm?cnn=yes