As expected, Ben Bernanke is not going to taper in the final months of his term. Too risky. Instead, laissez les bons temps rouler!
The Dow rose 144. And look at gold. We hope Mr Obama took our advice. It rose $56 yesterday.
The papers are full of retrospectives on the Lehman bankruptcy and what it meant. We have one of our own. Five years after the financial crisis hit the headlines, and it’s amazing how so much fantasy, delusion and conceit has built up around the event.
According to Nancy Pelosi, then Speaker of America’s House of Representatives, and always Tommy d’Alessandro’s daughter, she called Henry Paulson at 3pm on 18 September, 2008. She asked him to come the next day and explain what was going on.
The headline on her article in USA Today tells us that it was ‘The day I heard our economy might fail’.
It is not clear whether she means that she learned that an economy might someday fail, or that she learned that it might fail that day. No matter. Either way is ridiculous. Economies don’t fail. They do exactly what they want to do exactly when they want to do it.
Fed chiefs fail to improve them. Politicians fail to understand them. And everybody fails to appreciate them.
By 5pm she had gotten together the leading failures in town – including Paulson and Ben Bernanke. Paulson laid out what he had seen, as any blind man might. Then, she turned to the man who had enabled the biggest financial bubble in human history – still in a fog – and asked what he thought. Naturally, he completely misapprehended the events going on in front of him. He mistook the deflating bubble for a disappearing economy.
“If we don’t act immediately, we will not have an economy by Monday”, he famously said.
Where did he think it was going? As silly as it was to think that a $16trn economy might ‘fail’, it was downright insane to think it would vanish.
But these hacks and hallucinators nevertheless worked hand in hand, like mental defectives headed for the short bus, in order to avoid an outcome that couldn’t happen and pervert an outcome that was actually underway into a twisted and grotesque debacle.
In September of 2008, the world’s economy had had enough of the feds’ credit bubble. Companies had drunk too deeply from that cup. Their legs wobbled and their brains turned fuzzy. They collapsed. A great correction had begun. It should have been allowed to continue. It should have been allowed to wash out bad debts and trim back good ones. It should have been allowed to do its work.
Instead, the feds came up with a quick $700bn and spread it out among their friends and campaign contributors. Interest rates were cut to zero, and as much as $23trn of US credit guarantees were put to work on behalf of Wall Street’s reckless risk takers.
This sequence of mistakes and corruptions was greeted by the press and by its perpetrators with high fives and bonuses. Even now, after five years, Bernanke, Paulson and Pelosi regard it as a great triumph, in which they bravely came together to save the US economy and the whole world.
Bill Bonner on markets, economics & the madness of crowds
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But wait. Something went wrong on the road to recovery. We just sent Ms Pelosi the following email:
“Dear Ms Pelosi,
“I’m here in Baltimore enjoying your native city.
“The weather’s real nice, thank you. But I have a question. It relates to your article in yesterday’s USA Today. You pat yourself on the back so hard I was afraid you might have dislocated a shoulder. Hope you’re all right.
“But since you think your efforts to rescue the US economy in 2008 were such a success, I thought you might respond to the front page story on the Financial Times from yesterday:
The typical American family now earns less in real terms than in 1989 after family incomes fell for the fifth consecutive year…
“Here’s my question. What kind of a recovery is it where family income goes down in every single year? What kind of a recovery leaves family income lower than it was 24 years ago? How does a consumer economy expect to grow when its consumers have less and less spending money?
“I know you’re busy. So, I’ll propose an answer. Isn’t it possible that the US economy was in no danger of ‘failing’ or of disappearing? Isn’t it possible that it was just writing down that huge mountain of debt that had been built up over the previous half a century? And isn’t it possible, that by stopping the correction you also stopped the healing process, leaving Americans with an economy burdened by too much debt, weak growth, few jobs, and little real prosperity?
“I hope you will think about this, and the next time you’re in Baltimore please let me know; we’ll have dinner at The Prime Rib right up the street.”
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