How Will Bernacke Be Viewed By History? We Think It Will NOT Be A Pretty Picture.

Friday,January 31, 2014

[Editor's Note: The following post is by TDV Editor-in-Chief, Jeff Berwick]

Helicopter Ben has left the Federal Reserve today.  Retrospectives on Ben Bernanke have flooded the internet with misleadingly positive views of Bernanke's time at the Fed.

"Bernanke Should Be Thanked" - New York Times

"Ben Bernanke Deserves Our Appreciation" - The New Yorker

"All Praise Ben Bernanke" - Bloomberg

All of these perspectives miss the underlying truth that the Federal Reserve has done little more than add to the economic destablization of the US it was supposedly founded to minimize.

People are left with the notion that Bernanke is an Ivy League academic who had little to do with the economic policy leading into the financial crisis. The truth is he had been active in Washington since 2002, when he was elected to be a Fed governor due to his radically insane Marxist/Keynesian delusions.  He worked with Alan Greenspan until George W Bush appointed him as head of Bush's Council of Academic Advisors in 2005. Then he took over as Fed chairman in 2006.

So, Bernanke was at the Fed already when the seeds of the housing bubble were sowed.  At the time Bernanke dismissed runaway housing prices as not problematic.

The financial crisis peaked for a first time in the fall of 2008, completely unpredicted by Helicopter Ben.

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Congress was misled by Bernanke and the Troubled Asset Relief Program (TARP) was rushed through... right after the Fed announced its own open-window policy to lend directly to international banks at below-market rates.

Under Bernanke, the Fed and other regulators allowed mergers that would have been subject to serious conditions or not allowed before the crisis. This resulted in more coercive concentration in the financial industry.  After moving the federal funds rate to zero in the fall of 2008, Bernanke pursued large-scale purchases of government bonds and mortgage-backed securities which were intended to directly put downward pressure on long-term interest rates.

Before being appointed as Fed chairman, Bernanke had made the false argument that the gold standard caused the Great Depression. In the January 9, 2006 issue of Forbes, Steve Forbes wrote:

“Ben Bernanke, Greenspan’s about-to-be successor, disdains gold as both an indicator and a guide to monetary policy; he won’t be prepared for what’s going to hit him. He’ll look at the Fed’s multitudinous measures of money and conclude they haven’t grown enough to cause inflation.

Given his statements that gold is an obsolete, if not destructive, guide to monetary policy, Bernanke is not likely to recognize the inflation problem until it hits him-and the economy-square in the face."

When Bernanke took office in 2006, the price of gold was $500. Today it is $1,250. Many who have bought gold during Bernanke's reign have done well, especially if their gold holdings are internationalized.

The chart above tells it all about what he accomplished.  He basically was like a chihuahua who had run across the keyboard of his money printing computer for about five straight years, constantly pressing the "counterfeit more" key.

Of course, it is not Bernanke's fault that the dollar is continuously being devalued. Instead, that's been the work of the Federal Reserve itself. And despite government numbers, the price inflation is real. Government indicators such as the Consumers Price Index do a sneaky job of hiding it. There are other important numbers though which help us get a clearer understanding of the Bernanke legacy.

For instance, when Bernanke took office in 2006, the Fed held $834.6 billion in assets, mostly in US Treasuries. As of this week, a Bernanke controlled Fed held $4.1 trillion in assets. The balance sheet contains various debts, most notably mortgage debt. This is guaranteed by the bankrupt US government.

As Bernanke took office, the Fed's capital ratio (net equity divided by total assets) was 3.22%, This capital ratio reflects the Fed's 'margin of safety,' and the higher the capital ratio the more likely a bank is to withstand financial crises. As Bernanke leaves, the Fed's capital ratio is just 1.34%.

Greenspan left the Federal Reserve right before the housing collapse and financial crisis hit. Bernanke is leaving as well ahead of major crisis. He hands the reigns over to Yellen, a bigger proponent of money printing than Helicopter Ben... the man named Helicopter Ben from his infamous speech where he said that if things get bad enough they'll load up helicopters with Federal Reserve Notes and rain them down on people like financial shock and awe to save the economy.

It is not only Ben Bernanke who is getting out just in time, ahead of the next crisis. Three bankers killed themselves in the last week alone.

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But, in the end, Ben managed to get out just in time and we give him props for that.  As he sits in his box seats at Washington Nationals games eating his $44.95 hot dog in 2015, he might be able to justify to himself that it wasn't he who sowed these seeds, but Yellen.  Or not. We hope he actually chokes on that hot dog.