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Bernanke’s Bubble: A Counterfeit Boom Based on Counterfeit Money

Written by Gary North on August 15, 2013

A bubble is a counterfeit boom based on counterfeit money.

Some experts think this is a bubble market that is 100% dependent on the Federal Reserve’s $1 trillion a year in counterfeit money.  Today’s Reuters story is indicative.

Stocks fell on Wednesday, with the Dow industrials posting the worst day since late June, as investors speculated when the Federal Reserve might begin to reduce its ultra-loose monetary policy, which has helped propel stocks to record highs.

How does the Reuters reporter know that this was the reason? Let me offer a piece of counter evidence: the 10-year Treasury bond rate of interest was unchanged at 2.71%: August 13 and August 14. If investors yesterday thought there would be a reduction in FED purchases of T-bonds, the rate should have risen. So, I ask: If fear of the taper pushed down stocks, why didn’t it push down bonds, too? But the reporter did not consider this. Neither did the people interviewed.

This is a knee-jerk reaction: “Stocks Fall, Taper Blamed.” This indicates that more floor traders and brokers think this stock market is Bernanke’s bubble than traders who don’t think it is.

Then there is the universal talk about a taper in September. What is the evidence? None is offered. Why do these people think they can read the tea leaves of the computerized boilerplate press release issued by the FOMC every six weeks? It rarely changes. They frantically search the press release, looking for clues. There are no clues. The FOMC may change a word or two just to pretend that it is being transparent. No matter.

Trading volume has been low as the earnings season winds down and economic indicators present a mixed view, complicating predictions of the Fed’s next policy action. The Fed has been buying $85 billion in bonds each month to keep interest rates low. Some analysts expect the Fed to start tapering bond purchases as early as September if data shows the economy is improving.

Who said this? Some analysts. Yes, and other analysts said otherwise. But they were not quoted.

Then there was the unnamed Federal Reserve official. He was not just an official. He was a top official. How do we know this? The reporter said so.

Wednesday’s decline accelerated in the final hour of trading after a top Fed official said the U.S. central bank, which meets again in September, should have more evidence about the economy and inflation before it can make a decision.

What did he say, again? First, the FOMC will meet. Everyone knows that. It meets every six weeks. Second, the FOMC will have more evidence. Yes, but is unemployment likely to fall? Is price inflation likely to change? No. Third, the FOMC will make a decision. Yes. It can decide to do nothing, get out the word processor, and issue the automated press release. It does this every six weeks, like clockwork. So what was new yesterday? We are not told.

We are supposed to believe that this meaningless, zero-new-content statement by an unnamed “top official” drove down the Dow Jones Industrial Average by 113 points.

Then the reporter called someone you have never heard of, who works for a brokerage firm you have never heard of. The reporter needed the filler quote. Someone always provides one.

“There is a growing consensus that individual data points don’t really matter at this point and that the Fed has made up its mind to have completed the bond purchases by the middle of next year,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.

I did a search on Mr. Wilkinson and his employer. I got a bunch of brief quotes just like this one. He will be remembered, if at all, as a supplier of brief, forgotten quotes for brief, forgotten articles.

A lot of people on Wall Street think this stock market is a bubble. And a lot of people don’t.

A lot of people think this market will fall sharply if the FED stops inflating. And a lot of people don’t.

I think the people who blame the FED are right. I also think the FOMC thinks so, too.  That is why it has no intention of tapering. Nothing it has said in print since last December indicates otherwise.

Continue Reading on www.reuters.com

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3 thoughts on “Bernanke’s Bubble: A Counterfeit Boom Based on Counterfeit Money

  1. Texas Chris says:

    No taper until prices put a political squeeze on the White House. And then the FED will try and fix it with a hammer. Yellen will step in and jack interest rates up to 20%, crashing the market, and setting off the biggest recession since forever.

    I hope you've all bought gold. Dear God, I hope.

  2. Rabelrouser says:

    Articles like these, although pointing to an obvious conclusion, are not followed or read with any interest by the average person. Maybe its way over their head, or they simply dont care (for now). What ever the case might be for ignoring the examples that point to a false economic system and a manipulated currency that can not sustain any value or long term structure; it still points out an obvious conclusion. The economy will go into ballistic gyrations that will cause a collapse, period.
    And the average person will suffer greatly, and for an extended period of time: not days, not weeks or months, but YEARS. The larger the house of cards is, the greater it crumbles; and this house of cards is celebrating its 100th birthday this year!!!!
    Suggesting that through these types of articles that the average person prepare for such a calamity seems too much for many to comprehend, its not "political enough"; cant blame any one person or party. Short thinking to say the least.
    But you ARE being Warned. After that its up to you to prepare to ride out the storm of duration, If you dont, best case: you die quickly; worst case, you suffer slowly.

  3. I coined the phrase "Bernanke Bubble" in my blog months ago. It does my heart good to see others pick up on something I started. Anyone that wishes to can go back and check the archives. It is there. I have also used the term many times , since. My blog is at http://cranky-conservative.blogspot.com