How the Market Really Feels About Bernanke's Money Printing

As you remember, dear reader, we decided to hoist our old, tattered “Crash Alert” flag up last week. About mid-week, as we recall.

Not that we had any inside information. Mr. Market doesn’t talk to us directly. We just read the papers – just like everyone else.

But what we noticed last week was that the Fed had given stocks, bonds commodities, and gold the biggest push in recorded history…$600 billion was coming into the market. It was long. It was going to stay long. And if it didn’t do the job…there was plenty more where that came from.

Plenty more. Because this money came from nowhere. And if you can get money out of nowhere…you can get a lot of it.

In effect, Ben Bernanke gave the market the Mother of All Puts. Stocks go down? Put them to the Fed. They’ll buy anything.

Yes, Mr. Bernanke is trying to give “risk on” investors a put – protecting them from the downside by adding more and more money. No, investors are not sure this plan is really going to do them any good. The stock market went up only very briefly on the day following Mr. Bernanke’s announcement. Then, there was no follow-through.

All very well to get hot and bothered speculating on the fall of the dollar (and the rise of everything else). But there is something so desperate and foolhardy in Mr. Bernanke’s money-printing, it just doesn’t feel right. It feels more like something a banana republic would do.

A New York Times article last week compared the US to a Banana Republic. It pointed out that the rich have gotten a lot richer than the poor. A pity. The author – Nicholas Kristof – missed the point completely. He thinks he knows how much people should earn and believes the difference in income – in itself – is the problem.

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

At a time of 9.6 percent unemployment, wouldn’t it make more sense to finance a jobs program? For example, the money could be used to avoid laying off teachers and undermining American schools.

Likewise, an obvious priority in the worst economic downturn in 70 years should be to extend unemployment insurance benefits, some of which will be curtailed soon unless Congress renews them. Or there’s the Trade Adjustment Assistance program, which helps train and support workers who have lost their jobs because of foreign trade. It will no longer apply to service workers after Jan. 1, unless Congress intervenes.

So we face a choice. Is our economic priority the jobless, or is it zillionaires?

To me, we’ve reached a banana republic point where our inequality has become both economically unhealthy and morally repugnant.

This is typical. The guy doesn’t bother even to wonder why the rich are so rich. He just knows he doesn’t like it. So he’s calling on the politicians to DO SOMETHING about it! Tax the rich bastards. Give more money to the poor. Redistribute income.

He gives some lame reasons why income redistribution would be a good idea for the economy…

How does he know how much people should earn? Of course, he doesn’t. It’s just a matter of taste. Where you sit determines where you stand. If you’re rich, you probably like the fact that the rich have so much money. If you’re not rich, you probably don’t.

But let’s stick to our point. The US is doing something that usually only banana republics do. The central bank is encouraging speculation. Oh, by the way… Who speculates? Is it the poor? The middle classes? The working stiffs?

No? It’s the speculators, right? The rich, in other words, are the guys who can get money at ultra-low interest rates from the Fed (directly or indirectly) and use it to speculate on say, cotton (up almost 100% this year) or Chinese stocks.

Let’s see, how does that work again? Oh yes… The Fed gives out money to the financial elite…the rich… And then the know-nothing journalists at The New York Times want the feds to redistribute the wealth. Why not just turn off the Fed? No, that would be too simple and too honest.

But back to the Fed. It’s just given the elite a huge wad of cash…and a promise that it will put up more cash, if necessary…

..and yet, stocks did NOT go up much. Something is wrong. That’s why we raised the “Crash Alert” flag. It is as if this market wanted to go down – no matter what the Fed was doing. Or maybe it didn’t trust the Fed. Or maybe investors figured that acting like a banana republic was not really good for stock prices.

Friday, we got a big sell-off…with the Dow down 90 points and gold off $35.

We don’t like the looks of it. So, turn your head upwards a bit. See our “Crash Alert” flag a-fluttering. And get out of all risky investments…

And more…

Did we say sell gold? Nope, we did not. Gold is probably beginning a serious correction. If not now…soon.

A serious correction will take the price down 10%…or 20%…or 50%.

What should you do if gold goes down 10%? Buy it!

And what if it goes down another 10%? Buy more!

And what if it goes down 50%? Back up the truck.

The dollar-based money system is going to fall apart. Gold going down? It’s a gift. Take advantage of it.

And here is why the money system is going to come unhinged. Here’s David Leonhardt, in The New York Times:

Imagine that Democrats and Republicans somehow came together and agreed on a grand bargain to cut the deficit.

They decided to cut the pay of federal workers over the next several years, close military bases, reduce foreign aid, eliminate earmarks, expand the payroll tax and cut Social Security benefits for high earners, as the chairmen of a bipartisan commission recommended last week.

Democrats also accepted the plan from John Boehner, the presumptive House speaker, to make large cuts to social programs. Republicans accepted President Obama’s proposal to let the Bush tax cuts expire on income above $250,000.

If the two parties managed to do all of this, how much of the country’s long-term deficit would they eliminate?

About one-third of it.

The government has not yet solved the deficit problem, the economist William Gale of the Brookings Institution says, because voters have not yet demanded it. They have rewarded politicians who say they are worried about the budget much more than politicians willing to make specific benefit cuts and tax increases. All of us would prefer generous benefits and low taxes.

“Whatever the eventual solution is,” Mr. Gale said, “it will probably be something that is not politically feasible now.”


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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16 Comments on "How the Market Really Feels About Bernanke's Money Printing"

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Dow to 39,000… wheeee….

Bull market, bull market I say!

Yeah baby!

Is patience gonna pay off now?

The Mobs have followed the Messiahs in to the Markets…

Has the stampede started?

Gonna hug my pot of gold… correction fully expected there too.


Nailed it…

Patiently Waiting

Let’s not forget the fund managers who speculate with all our superannuation money – which is a hell of a lot! Manipulating the markets to benefit their own pockets I bet???


Fund managers can only speculate with your Super if you let them. In these days of daily online access, with tools to exactly select (y)our Super asset class(s) down to 1%, we’ve only ourselves to blame if our assets in Super increase or decrease. ;)

(literally and biblically pissed poster alert) yes biker, but with surplus $ to invest, surplus time to investigate and, moreover, surplus trust in anything that is written. blame youselves while Rome burns, winners grinners, losers, well, theyz just losers. meez just spittin’chips. not gambling. not too much to lose, relatively and surprisingly to self … before it comes down to the line, which it wont because of the inherent advantages to ‘the establishment ‘ of advanced technology (media controls, money taps and traps, laws protecting the weak, might is right, and right is, well, self evident for the blind and… Read more »
Biker Pete

Just saying that a few decades ago, before Duty of Disclosure, PW’s argument might have made some sense. But the same technology you just posted on allows instant scrutiny of your funds; and permits you to change the balance immediately. Agree that it’s a mistake to do so p*ssed… .

Anyone in their fifties who permits a fund manager to roll-the-dice with your a$$ets is asking for a personal arm-an-leg-aggeddon. No-one cares about your a$$ as much as you do.

MM4? It’s a regular event in no-go-zones in Mexico. Certainly no terrain for aged hombres… . ;)

Ned S

There’s some good financial reasons for Russian males loving home brewed vodka and collectively choosing a low life expectancy I imagine PeterG?

Ned S

Super – Yep, it’s a classic case (for most) of handing your financial future to someone else on a platter. Still occasionally think of Macfarlane’s comment back around 2006, that In the days of yore the average Aussie would have been busy getting his house paid off and a few bucks in the bank; But with super opening us up to the uncertainties of global stock markets.

Though as Biker says, getting shafted like that doesn’t seem to be strictly necessary these days? Though the fees of all these self aggrandising financial types will presumably always be obscene.

We all have a duty to watch our backs, I mean bucks, Ned. A couple of years ago I was a little horrified to realise a colleague on very high salary a.) didn’t have a clue what he had in Super; b.) didn’t know what asset class he was in; c.) didn’t know he could check online; d.) didn’t know he could switch assets at will. He was astonished when we advised him that _he_ could make these decisions. At the time, we wondered if it might be too much bother to follow through; and expect he was probably taken… Read more »
Ned S

Virtually everyone who bothers reading sites like this, does at least have one thing in common Biker; And that’s a fundamental wish to handle their finances responsibly. Which is presumably a HUGE step up from the norm of It’s da gubment’s job ta look after after me an’ if they don’t then I’ll get cranky! Laziness – Definitely one of the Seven Deadly Sins as I recall?


We still read a lot of ‘blame’ stuff on sites like these, Ned.
It always comes across as an admission of total powerlessness.
Maybe the meek really do believe they’ll inherit the earth.
It will simply fall into their lapse. ;)

Ned S

“powerlessness” – Yes, in a lot of ways both our government and our people would seem to have lost the plot – And think it is government’s job to look after them. Rather than empower them.


Don’t knock home brewed Vodka Ned. I used to brew my own in Sydney and the worse part about it was that it made drinking commercial spirits almost impossible as they were terrible in comparison :)

Ned S

Simply can’t recall enough about it to have a opinion Don? – Presumably some slightly sober Russkie removed the 10 inch twig from the 2 L Coke bottle part way through consumption – Because I’m as sure as I can be that it didn’t get stuck in my throat? :) Then there’s the stuff they put hot red chillies in – But that’s another yarn for another day! :D


Granddad and my great uncles brewed their own famous grappa, supplying the WA goldfields’ only wine bar pre-1900. Made a fortune and bought up extensive properties to the west, founding their own little town.

When we rode thru’ Tirano, in 1995, we drank a bottle of the stuff, in a tiny pension on the Swiss-Italian border, where, as kids, they smuggled cigars across the border to Italian soldiers.

Being there, I felt my grandfather’s spirit… and became quite drunk on it, in fact… . :D

Im here for the truth aspects, not having a pecuniary interest. The Russians used to say “At least we knew the government was lying to us”, comparing to the US situation (particularly post 911). Cant deal in grappa any more (legally) , given the regulatory environment but it was on my wish list here for home production and consumption had I got that far. Looks like my number 89 counterpart was back and sneaked that last post in last night on my behalf. wont see him back for another month. might have to put a longer more complicated password on… Read more »
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