Bait & Switch Ben: Was the Bernanke Put Just a Ruse?

A couple more things to add.

That the Fed created the depression is in no doubt. What sometimes
gets lost in the confusion is that there were countrywide
depressions before then with no Fed and the gold standard.
The "depressions" often cited were in reality local panics.
They were isolated to small regions of the country.
Notice the fed structure of districts. This was largely due
to the recognition of this fact.

Until the Fed there was no countrywide depression.
Where we are headed with globalization and worldwide
fiat currency is worldwide depression. No more
Japan of the 90s. No more 87 demi-crash. No more
US recessions. Let's hear it for world wide loss
of confidence.

Crashes or panics are largely cases of lost confidence.
Where things get bad is when there is excessive
confidence. The sum total of confidence is the
fuel for panic. To have the Fed save the stupid
hedgies is a moral hazard that will encourage more
excessive confidence.

By the way it is funny to hear that Chinese buying
will buoy the markets and save us because they
have nothing to do with there dollars. They are
too cautious to buy stupidly like US investors.
They will buy what they can ship out of the country
or bolster their export business to the US, such
as transport, ports and shipping. For example
I could see a chinese takeover of Fedex or
Walmart, but not failing retailers or banks or
commodity manufacture.

Under all this, I have deep suspicion that Bernanke
gets it. He is after all from the last healthy part
of the US that still does some production -- though
the biggest plant in the DFW area is Joint Strike
Fighter, and oil is the basis of the Texas economy.
Just a hunch, but I think BB wants da boyz to take
a dirt nap figuratively. Time to right the ship by
pumping the bilge and raising the sails.

PrintFaster

Now why is it; when people lower on the Totem Pole were losing their jobs know one seemed to care. Now you have these highly paid paper shufflers losing their jobs and Cramer is making a rant. Is anyone more special then someone else. When the people at Radio Shack got fired and rehired Cramer said nothing, When IBM fired part of its workforce Cramer said nothing, when peoples wages are below the National Living Standard Cramer says nothing, when people got hoodwinked into these Bull Mortgages Cramer again says nothing.
Conclusion you have to make 1 million plus dollars for Cramer to care.

Just my opinion

Geoff

I am not an economist, and most of my interests have been in psychology and philosophy. Most of my investment decisions are based on social psychology and mathematics.
I greatly appreciate your insights into the inner working of the fed, and the business world in general. I also enjoy your knowledge of the market's history and the current economic dynamics which are at the heart of Cramer's frantic plea. Yet, from a social psychological level, some things aren't adding up.
First, it appeared to me that Greenspan groomed and hand picked Bernanke. Even though it is the president's call, it seems that Bernanke was the Fed's pick.
These guys do their homework, and I'm sure they knew what they were getting into when they chose Bernanke.
From a distance it appears that Bernanke may have some minor form of Asperger's the red hot diagnosis of academia. This could explain the perception that he is blind to certain aspects of emotional and social nuance. Yet, again this would be common knowledge ( at least experientially) amongst his peers.
Also, isn't Bernanke only one vote, and couldn't the Fed governors out vote him on rate decisions if they so wished?
You end your post with the question I have and that is, How bad is it really?
Right before Fridays session you had a post that showed that the market top and sharp correction may be a fake out just like in March of this year.
On Friday the market bumped back and forth and until its late hour swoon showed every possibility of being the end of the correction.
Today all over the web there are articles discussing the panic in the market, similar to the panic we saw in Cramer. Most are predicting a short term bounce either today or very soon due to the fear gripping the market. Many market pundits are calling this a capitulation.
Even though volatility is up, it still is no where near the historic norm for major corrections let alone capitulation.
Over the last few months I've been bewildered by the number of articles I read which speak of market downturns being "overdone" on "broad based selling" when the Dow's losses are less than 1% off their all time high.
Likewise, the current crisis and panic have not even resulted in the most minor of official corrections. The Dow and Nasdaq are down between 6 and 7%. A little more than halfway to an official correction.
At this point we are still one or two solid days away from ending the "downturn" and one good week away from all time highs. Is this the kind of stuff corrections and capitulations are made of?
Maybe, I'm missing the behind the scenes high drama which is making this a crisis.
Sure I feel it is a crisis, but I think it's been a crisis for a number of years. The real issue is does the Fed and the general business community see this as a crisis, and if so then why are the futures up every morning?
I, too, suspect the PPT is a foot, but why would they bother when the market is only down 6% and there is so much money to be made after a huge correction.
Maybe some hedge fund guys are going to go down, but there are a lot of others in cash just waiting for the next buying opportunity.

guidoworld

You did a good job pointing out Cramer's urge to protect his own as well as the fact that an academic fed chairman brings with it some unpleasantness. I read 'Secrets of the Temple' so while I'm no Fed scholar, I find the Fed much more interesting nowadays.

I think it's a virtual crime that investment funds and banks are never held accountable for their flimsy business practices simply because they know they will always be bailed out. All those folks who took the subprime loans sure didn't get bailed out...but now that billionaires have to pay the price they send their figurehead...Cramer, to go cry for them. Crocodile tears Jim...crocodile tears.

I hope Bernanke sticks to his guns, and if a global depression does ensue, it sure as hell wont be his fault. It will be moreso Greenspan's fault for delaying the inevitable.

Let's face it...if this scare is quelled, the next one will only be worse until the bomb does drop. Sooner is better than later. Last thing we need is a depression coupled with the total failure of the social security pension system, which isn't too far off.

Jim Cramer is basically correct. However, the Federal Reserve is in a major bind. Lowering interest rates might lift the spirits of those in the markets. On the other hand, lowering rates might be fuel for the dollar sellers since that might impact the interest accrued by dollar holders (e.g., China, Japan). Then again, a fall in the dollar might encourage the dollar holders to buy US assets before the dollar falls further- thus lifting the markets. Certainly, raising rates would panic the current holders of over-leveraged funds as well as exaserbating the mortgage rout. In all liklehood the Federal Reserve will quietly pump liquidity into the sysytem; perhaps even lending new money directly to hedge funds in trouble. That would stop the panic dead in its tracks.

In the early 20th century. prior to the creation of the Federal Reserve the Morgan and Rockafeller banks were the short-term lender of last resort to over-leveraged speculators (viz., the Panic of 1907). The Federal Reserve was a scaled up version of this activity.

Bernake is correct in the sense that the tools available to the Federal Reserve 1n 1930 - 34 were inadequate. However, with the gradual creation of fiat currencies worldwide, periodic injections of liquidity have been quite successful in easing credit bottlenecks initiated by speculative over-leveraging. I, for one would not wish to return to 19th century gold monetization. Due of the limitation of gold-to-credit the economy would seize up every 10 years. For example, the depressions of 1825 onward to 1929.

Speculative "excesses" were and are the driving engine of industrialization and economic development. Unfortunately in the 19th and early 20th centuries the expansion of productive capacity (due to speculation) met the limited buying power of the population. That, together with the inability of the banks to inject liquidity into the sysytem would cause a large part of circulation and distribution to shut down. And, of course, it would turn into a vicious downward spiral.

Cramer, himself, must be caught in the financial entaglements of the moment; hence, his panic. I only hope that the Federal Reserve heeds his advice, injects massive amounts of liquidity into the banking system and impaired homeowners, and communicates his intentions to his counterparts in the rest of the world.

Must finally be a depression, the Street is whining.

The center of the US has been in a depression for 20 years
since 87. The coasts and the paper chasers have gotten
rich at the expense of industry. We cannot pay our bills
except by printing more, and this is especially true of
of our overseas debt.

Our industry is being sold out overseas. Less than half
of our cars are made in the US and this is due to the
export of our capital. There ain't enough capital to
build decent factories to compete. Look at the recent
case of Bobcat for example: Here a US industrial
company is being bought by a Korean firm. What
do you think that they will do? Invest in the US
or invest in Korean plants to sell to the US?

All we have to offer to pay our bills are real estate
and corporate assets and Tbills if they pay enough.

We are approaching the time when overseas dollar
holders are shunning US assets in return for real
goods. If Ben raises rates, then they might want
the Tbills. If he lowers rates, then it becomes
a race to buy all available US property to pay for
our current accounts.

We are precisely in the position of the Weimar
Republic: The foreign debt holders were carting
off the productive assets of the country, leaving
Germany unable to pay any debts except with
currency and assets. Come to think of it,
the last time I was in Weimar, California, a
Chinese investor had bought a century old
apple farm and was trying to make it productive.
He could barely speak any English but had
lots of the stupid things call "doolars".

PF

I just want to say that I've been reading your blog for a few months now and you are a very clear writer. I do not have an economic or business background but you make the world of finance understandable. Thank you.