“You are the definition of a moral hazard. Your Fed has become the creature from Jekyll Island”
That was Senator Jim Bunning’s comment to Ben Bernanke during the hearing into Bernanke’s renomination to the US Federal Reserve.
Who would have thought there are members of Congress willing to say it as it is to Ben Bernanke?
But I’m sure you’ve read about it in The Age or the Australian Financial Review?
No, unfortunately not.
Because the mainstream press wouldn’t want people thinking bad things about the Fed Reserve. They are here to save us. They are the cavalry riding over the hilltops to our rescue.
The myth of the purity of the Federal Reserve’s motives is jealously guarded by the mainstream press. Any dissenting voices are quickly dismissed as cranks and extremists.
Currently Senator Ron Paul (One of the rare politicians in America with a brain and a conscience) has been trying to get a bill passed that would audit the Fed and attempt to find out exactly what it is holding on its balance sheet.
In fact he has been trying for 30 years, but finally after the shenanigans of the Fed over the past year, the other members of Congress have finally woken up and agree that something needs to be done.
Of course this is being resisted by Bernanke. He says if Congress interferes in the business of the Fed Reserve it will jeopardise their independence on monetary policy.
That one line is usually enough to shut people up so the Fed can return to their game of printing money and bailing out their banking masters.
It still amazes me how most people have no idea about what money is or how it’s created. They assume it’s too complex to understand and therefore they believe what they’re told.
So much so that you can watch a video here of people in America signing a petition that asks the Fed to deliberately raise the inflation rate to 100% for the next 5 years to cause hyperinflation!
This is the level of ignorance we’re dealing with. Every word that Ben Bernanke speaks is believed and reported as gospel. But it’s not surprising the population has that attitude when they rely so much on the mainstream press.
I was astonished last week to see that CNBC hosted their ‘Squawk Box’ show direct from the Cash Room of the US Treasury. So much for an independent media.
Was that CNBCs reward for toeing the line on the merit of the bail outs and the actions of the Fed?
No dissenting views are allowed. If there are moments such as the tirade from Senator Jim Bunning on Bernanke last week, then it is underreported. Or at the very least reported in a way that makes Senator Bunning look like an extremist with the wrong point of view.
All of this while markets around the world move to the beat of the Fed’s drum.
The carry trade is in full swing and the Fed is more than happy to feed it.
There is no doubt that the historic move in markets this year can be put down to the free money being doled out by the Fed to its banking buddies.
I’ve watched markets for sixteen years and I’ve rarely seen such a sustained explosive rally as that of the last nine months.
Trust me, this is not the behaviour of a free market.
This is a market being managed by unseen hands. Think about this – Hong Kong property prices are up 30% this year, with those in the luxury sector up by about 40% according to Marketwatch.
In my view this is the result of a flood of US Dollars looking for a home.
The Chinese banks were forced to lend out more than 9 Trillion yuan ($1.5 Trillion) last year, an amount equal to 27% of the country’s GDP! China Securities Journal has predicted that new bank lending may fall as much as 30% in 2010 to around 6-7 Trillion yuan.
What affect will that have on Chinese demand?
They’ve already caused a bubble in property development and there are shopping centres sitting empty with no tenants and no customers.
What trick can they pull out of their sleeves this year to create some phantom demand?
Frankly, China is an accident waiting to happen. They already have massive overcapacity and they are trying to force feed more credit into a system that would rather deleverage.
This forced lending is finding its way into speculation rather than investment and so we’ve seen markets shooting off all over the place.
But the speculative binge will stop before long if we do see a 30% fall in lending next year.
While governments are running around blindly “doing something”, that “something” is feeding more instability into a world economy that is already showing signs of cracking.
The private sector is trying to deleverage, but the Keynesian clowns try to keep it going by forcing people to take on more debt via government borrowing.
But if that doesn’t work they change the rules. Get this, Japan has come up with the brilliant idea of forcing companies to hire full time workers instead of part time workers.
Is it possible to be more insane than this? What do you think a company will do in response? Hire workers it doesn’t need at a time when their profits are under pressure?
Or perhaps not hire any workers at all if they are not allowed to hire a part timer. Or maybe sack three part timers so it can hire one full timer.
Anyway, whatever happens, 2010 is going to be a very interesting year.
The public policy madness provides another signal that the great worldwide fiat currency experiment is entering its final stages. And I am intrigued to find out what happens.
Editor, Slipstream Trader
for Markets and Money