Fed Chairman Ben Bernanke will testify before Congress

BROOKINGS, Ore. - May 21, 2013 - PRLog -- On Wednesday Federal Reserve Chairman Ben Bernanke will testify before Congress, and the markets will be looking for more clues on any possible tapering of the Fed’s $85 billion a month purchase of bonds.

It is expected Bernanke will give the Fed mantra that the fed will watch the economy and adjust its bond purchase program up or down as circumstances dictate. This language is needed to obtain the vote of both the doves and hawks on the FOMC committee. However, the reality is that Bernanke’s inner circle of Yellen, Evans, Dudley, and Tarullo control Fed policy as doves, and they will not reduce bond purchases any time soon.

Anyone who has read Bernanke’s speeches knows he supports the Bernanke-Krugman-Svensson theory, which endorses interest rates at zero, devaluation of the dollar by quantitative easing, and the manipulation of opinion to create fear of inflation to stimulate the economy.

Lars Svensson, Paul Krugman and Ben Bernanke, as fellow faculty colleagues at Princeton in the 1990s, shared the belief that currency devaluation is a method to increase exports at the expense of other countries. Bernanke accepts the Keynesian multiplier theory that a dollar of government deficit spending can produce more than a dollar of total economic output. The Obama administration estimates one dollar of government spending increases GDP by $1.54. They reject the Taylor and Cogan study at Stanford, which demonstrates every dollar of government spending reduces the amount of goods and services produced by the private sector and does not add to GDP.
　
Bernanke, who considers himself to be an expert on the 1930s depression, blames the Federal Reserve for not using easy money and clinging to the gold standard. He rejects the Austrian concept that recessions are the result of bubbles caused by easy money.  

“Those who cannot remember the past are condemned to repeat it“, George de Santayana. Bernanke believes the printing of fiat money can bring prosperity. He apparently learned little from the Greeks, Romans, French and Germans. 17th century Swedish banker Johan Palmstruch,  and 18th century Scottish banker, John  Law, have attempted prosperity by issuing fiat money, and failed. Bernanke may be wise to step down as Fed Chairman, in January of 2014, and let Janet Yellen attempt a Fed exit from easy money.

Nearly 50% of the total outstanding debt of the world’s top 10 debtor nations needs to be rolled over by the end of 2015. Global central banks will need to monetized debt in massive quantities over the next several years. Bond purchases by central banks will absorb government debt rollovers and cheapen currency to spur exports.

Without quantitative easing holding interest rates down to all-time lows, the federal government would face a debt crisis. Although the US. situation is not a bad as Japan, interest payments still compose approximately 10% of the federal budget, and 19% of revenues. If interest rates climbed up to historical averages, interest payments would take more than 38% of tax revenues. Europe is in a recession, Japan is flirting with a recession, and the rest of Asia is slowing down. The Fed appears to be trapped in a zero interest rate bound, until a spike in oil prices forces their hand.

　

For more information on currency wars and the clash of worldviews see:

Teapartyculturewar.com

“Tea Party Culture War: a clash of worldviews”, by Dr. Stephen Johnston