QE3: Helicopter Ben Bernanke Unleashes An All-Out Attack On The U.S. Dollar

The Economic Collapse Blog ^ | 09/14/2012 | Michael Snyder

[William Tell]

DannyTN said: "The Federal Reserve didn't cause the debt crisis. That's 100% Congress."

For an individual, we might define a "debt crisis" as a situation in which the individual borrows much more money than he can possibly justify, given that he must pay the money back with interest.

By printing money, Bernanke is most certainly creating the circumstances which are enabling our government to borrow forty cents of every dollar they spend.

Without the money printing, what would be the interest rate that the government would have to pay on its $16 trillion in debt? At an interest rate of 6%, the interest payments would be about $1 trillion. That's just about equal to the annual deficit.

We can only speculate about what interest rate would prevail if Barnanke wasn't creating new money. There is certainly no doubt that it would be higher. There is certainly no doubt that government spending would have to be reduced to pay the interest.

Perhaps we can also agree that there will come a time when such interest rates must be abandoned. I remember having to sign a loan document bearing an interest rate of 13% in the early eighties.

How much would you be willing to pay for the same mortgage-backed-securities that Bernanke is buying? I wouldn't willingly pay a dime for them. Please recognize that when Bernanke is buying these securities, it is you and I and every other American who is buying them.

[pallis]

“That’s 100% Congress.”

For certain Congress plays its role, and mandates to give high risk loans falls on government, but the trillions bundled up in bad debt deals, while trillions were made trading high risk investments, was both creative and criminal. Bernanke was front and center with the bailout when the house of cards came tumbling down. By all means, stop government from social engineering the market, but also stop it from rushing to bailout the market when it fails.

Yes, oil will cause a rise in all commodities, even though experts here at FR have assured me that won’t happen, and that it isn’t important in the greater scheme of things. QE3 will, if it hasn’t already, causes a rise in the price of oil. The lower value of the dollar will be reflected in higher prices of fuel and food. Of course that will be blamed on crisis in the Mideast and drought, while nothing is done about using food for fuel. At least on that point we can agree, as we agree on a number of points regarding energy and growth.

“The debt crisis will indeed still be here when this is over. And this won’t be over until Congress and/or the Executive wise up about trade and energy policies. But none of that is Bernanke’s fault.”

I’m not blaming the debt crisis on Bernanke, not entirely. I am saying that QE3 is the creation of debt in an attempt to cure what is a debt crisis. I am saying that the attempted cure will lower the value of the dollar. The consequences of that are the equivalent of theft. Regardless of how you wish to defend and justify this latest round of QE3, my initial statement about the effect of it remains obviously correct. People are losing wealth they will never get back, and there are people losing ground who don’t have wealth to lose, not at the pump, not in their energy bills, and not at the grocery market.

I don’t have material pre written, as I don’t claim to be an expert, so I’m going to leave this up to you. Perhaps the fact that that I’m not an expert is the very thing that allows me to understand the street impact of Bernanke’s policies. Theft is theft, and Bernanke shares responsibility in it, along with a lot of people who aren’t in Congress. If QE3 could accomplish what it is purported to do, maybe we could all benefit somewhere down the line, and Bernanke could be let off the hook, but not yet, and probably not ever.

[DannyTN]

You’re proposing killing the patient to stop the disease.

Yes, without the additional liquidity provided by the FED, we’d have sunk deep into a deflationary depression far beyond what we have now. Unemployment would be far greater than the 25% we have now. Government outlays for safety nets would be higher, and government revenues would be lower. And that would have necessitated borrowing even more money than the government already has. And yes interest rates would be higher, so there would be even more government deficits.

Quite possibly, congress would be cutting back on safety nets, as well as the medical and social security insurance benefits that people paid taxes for. But the patient would be nearly dead. Taxes would be headed up, far up. But the net effect on the budget deficit wouldn’t be pretty, it’d be far worse than it is now.

And because of the cutbacks you’d see poor people and people compassionate towards the poor taking a more socialist approach to everything. Obama would be free to do more damage to our free enterprise system and take over more industries, not less.

I don’t see any way your senario ends well for the U.S. Your approach amounts to a tough love approach of taking food and blankets away from the obese patient who has developed pneumonia. You’ll kill the patient before he recovers from either the pneumonia or the obesity.

Fix the trade policies and get our people back to work is the right prescription. That will address the urgent illnesss (pneumonia). Keep a loose monetary policy so that the funds will be there to rebuild the industries that we have lost due to our 0 tariff nonsense.

And once our people are back to work and paying taxes instead of depending on government, we can safely cut spending and bring the deficit down.

And when people are back to work and the credit starts flowing again, Bernanke can (and has indicated he intends to) dump the debt he’s bought back on the market which will reduce the money supply by the same amount he has expanded it. We’ll probably get some inflation but certainly not hyper-inflation.

[DannyTN]

"I’m not blaming the debt crisis on Bernanke, not entirely. I am saying that QE3 is the creation of debt in an attempt to cure what is a debt crisis.'

I think this might be the root of our disagreement. It's not a debt crisis, it's an unemployment crisis.

The debt didn't cause the unemployment. And the debt is bad and moving in the wrong direction, but currently it's no worse than an individual having a mortgage a little bigger than your annual salary (Total Debt/GNP).

Or another way to look at it, is Interest to Total Government Revenues. our interest payments in 2012 will be $420 billion, compared to total government revenues of $5 trillion. So the interest portion of our mortgage payment is 8% of our government's income.

It's bad. It's headed in the wrong direction. It's at historic levels for our nation and almost historical levels for any nation. But "Debt Crisis"? No. It's not. We've got room to maneuver, in part because our taxes as a percent of GNP are still low compared to other nations.

This is an unemployment crisis. And the reason we aren't recovering from it like we should is because we've lost and we're still losing manufacturing to foreign countries with much lower wages than we have. We could fix that with import tariffs and put our people back to work, which would cure a lot of government budget ills. But no one seems to recognize the true problem yet.

Cutting taxes and regulations to be more competitive when wage differentials are as large as they are is a joke. Sure I'd like to see them cut, but they aren't the problem. And they aren't going to cure anything. They are a distraction.

Cutting government spending needs to be done and will help us long term. But it's not why we are in this mess. And it's not going to cure anything either. In fact short term, it might cause more pain than it cures if we don't fix the structural issues in the economy first like trade and energy.