Ben Bernanke “Respectfully Disagreed” With Angela Merkel

Our heroine, Angela Merkel, made the front-page news yesterday. She stood up against almost every mainstream economist, politician, and central banker in the world – and gave them all hell.

“What other central banks have been doing must be reversed. I am very skeptical about the extent of the Fed’s actions and the way the Bank of England has carved its own little line in Europe,” she said at a conference in Berlin.

“Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds.

“We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time.”

You go girl!

“This lady is currently the only person among all of our mighty and famous whom ordinary taxpayers in the western world can look to in order to hope for any protection of their interests,” says a letter writer to the Financial Times.

Of course, the professional economists and the earnest press all replied with the typical blah, blah, blah…

“Ms. Merkel’s intervention may be a political ploy and will probably come to nothing,” says the Financial Times editorial page. “But it is, nonetheless, harmful…”

Bloomberg reports:

“Ben Bernanke, the chairman of the United States Federal Reserve, said Wednesday that he “respectfully disagreed” with Angela Merkel, the German chancellor, about her recent criticism of efforts by the Fed and other central banks to stabilize Wall Street and the banking system.

“The US and the global economies, including Germany, have faced an extraordinary combination of a financial crisis not seen since the Great Depression, plus a very serious downturn,” Mr. Bernanke told lawmakers Wednesday morning at a House Budget Committee hearing, after being asked to respond to the chancellor’s remarks. “In that context, I think that strong action on both the fiscal and monetary sides is justified.”

“I am comfortable with the policy action the Federal Reserve has taken,” Mr. Bernanke said Wednesday. “We are comfortable we can exit from those policies at the appropriate time without inflationary consequences.”

Ha! That’s the question. Like Bill Gross, we don’t think the US can get out of its inflation-causing positions. It won’t want to act too soon – that’s the lesson Bernanke thinks he learned from the Japanese. And then, when it finally does act, it will be too late. It may want to unwind its positions by then, but the market winds will be against it. Bond prices will be falling – inflation will be responsible for that. The feds won’t want to dump more bonds onto a falling market.

Then, traders – especially the same Wall Street institutions that they are subsidizing – will take advantage of them. In effect, the feds will have a massive short position in bond yields. When yields rise, they will have to cover…and shrewd traders all over the world will know it. They’ll stick it to them…selling bonds ahead of the feds’ massive selling.

Finally, the feds will be hung out to dry…like Long Term Capital Management, but with no one to bail them out.

Until next time,

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to