Monday, 17 March 2008

Bear Sterns, bear markets and the coming credibility crunch

The US Federal Reserve Bank has been pumping rocket fuel into the economy for years by the simple expedient of inflating the money supply and debasing the currency.  For year after year after year the Fed's printing presses have been pumping credit into the world's markets, yet as their credit-created chickens are now coming home to roosts all around us the only thing that's never questioned is the existence of the Federal Reserve system and its meddling central bankers.

The Fed's fingerprints are all over the 'credit crunch' and the sub-prime crisis yet not once have they questioned their policy or their existence -- instead they continue headlong with a policy of full steam ahead, and damn the torpedoes.

Sub-prime crisis?  More credit is the answer.
Stock market start to creak? Throw more counterfeit capital at the problem.
Banks and finance houses going belly up? Inject even more credit to throw new money after bad.
Invoke a rarely used Depression-era procedure to bolster Bear Stearns, the latest casualty, and promise to pump in even more counterfeit capital to fund further malinvestment, and instead of being booed the Fed receives the mass plaudits of the commentariat -- most of whom are as eager to see new credit as crack addicts are to see the chance of a new fix.

President Bush says of this latest fix that Fed Chairman Ben Bernanke is "doing a good job under tough circumstances.  Intelligent observers say just the opposite.  Ludwig von Mises for example, who told readers back in 1949 that :

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency involved.

Or observers such as 'Adventure Capitalist' and famously contrarian investor Jim Rogers who told CNBC last week it's time for the economy to go cold turkey, and for the Fed and Ben Bernanke to fold their tent and shuffle off the stage before it's too late.  Rogers' interview is worth watching in full -- he's one man who does know what's going on:



  1. The interviewer in response to Roger’s comment that the Fed should be abolished then asks Rogers “Let’s talk about real solutions…..” She just doesn’t get it, does she? Unbelievable.

  2. I watch CNBC a lot, but missed this impressive Rogers clip. He gets it right every time.

    Julian: yes, the clip does show up what airheads and statists many of the presenters are (although, an excellent channel overall, regardless).

    My favourite sound bite was in response to the 'horrified' notion from the presenter that the Fed should not bail out investment banks: as Rogers says, that's just 'socialism for the rich' :) Which flew completely over the presenters head, who then thought it funny to attack him for driving a Mercedes. Sheesh.

    Great blog post.

    Mark Hubbard

  3. Thanks for that video link. Jim Rogers provided more economic sense in ten minutes than you'd get from the Treasury/RB in a decade.

  4. "She just doesn’t get it, does she?"

    I think it would be fair to say that most democrats just don't get it.

  5. As I write this...the US Federal Reserve have just cut interest rates.

    This sent the Australian sharemarket soaring 80 - 90 points...and then when everyone realised this has hardly solved their collapsed 100 points.

    All this took place within an hour!

    These childish attempts to hold back a tidalwave by the Federal Reserve are a disgrace.

    Mind you, as someone who rode the ASX sharemarket futures up 100 points and then short, down 103 points, within the space of half an hour...I must say, it is rather good business! LOL!!!

  6. How on Earth did you time that, Elijah/

  7. PS My favourite moment too, Julian! Did you hear them snorting in derision in the background when he explained what he meant by agriculture.

    (BTW, the link didn't work for me so I didn't see it on YouTube. I went to their website so I couldn't see the hosts faces. You can look him up on YouTube mind you and you get more videos (with Financial Times, Bloomberg and others) where he keeps telling the same story. He told people to short Citibank in November last year!

  8. It was not too difficult, Andrew.

    The SPI200 futures contract..(the futures contract representing the ASX200 share index)..opened a bit too low at 5103.

    At 12noon nz time the Australian sharemarket opened down at 5175, down as expected but not down enough to justify the SPI at 5103 so I decided to buy it rather than sell as I intended.

    Then, coincidently, the news came through from America which sent the futures contract, and sharemarket soaring.

    Predictably, they both ran out of steam after about 5 minutes (!) and I shorted the futures on the way down.

    Easy :)

  9. Had a good loud laugh at the TV presenter morons. They have not a clue. What dunderheads.

    I like Rogers. Got both his books. In the first one he vists NZ and comments on how NZ was restructuring and that NZers were growing to realise that they had to produce and compete. In the second book he returns to NZ on a another visit and was disappointed. He reckoned the country had slipped as the people turned their backs on progress and the World. He felt that the head in the sand approach of NZers was not going to bode well for the future (and it hasn't).

    There is more to life than trying to justify a worthless existance with that awful Kiwi pronouncement, "it's the most beautiful country in the World(?)". It isn't and it would not matter if it was anyhow. The locals would turn it into a poverty stricken dump one way or another.

    Returning to the topic at hand. he's dead right about commod trades. He's very right about not bailing out the bankers and financiers. Let them eat it bad.
    The most important point he makes is that the solution to the present mess lies in the dis-establishment of the Fed. If one understands not one other thing he said, understand that.

    The Fed is the root cause of the present probem. The problem is well understood and described by the Austrian School. Suggested read is Von Mises or for a more recent commentary, Prof Reisman.


  10. Please note that the Rodgers interview has been taken off.


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