Epic Instability & Ben Bernanke
The Nobel Memorial Prize in Economic Sciences was awarded on Monday to Ben S. Bernanke, the former Federal Reserve chair, and two other academics who have helped to reshape how the world understands the relationship between banks and financial crises.
Douglas W. Diamond, 68, of the University of Chicago, and Philip H. Dybvig, 67, of Washington University in St. Louis — two economists who created a seminal model that explained the dynamics of bank runs and financial meltdowns — won the prize alongside Mr. Bernanke, 68, who is now at the Brookings Institution in Washington.
The three economists won for a body of work that stretches back into the 1980s. Their research has delved into different aspects of how banks become vulnerable to upheaval, how bank failures worsen and extend financial disasters, and how the system might be made safer in light of those risks.
These findings have repeatedly proved relevant to real-world policy, with central bankers drawing on their lessons in 2008 during the financial meltdown and in 2020 when markets seized up at the start of the pandemic. Those policymakers included Mr. Bernanke, who was the Fed chair from 2006 to 2014.
They were careless people, Tom and Daisy – they smashed up things and creatures and then retreated back into their money and vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.
- The Great Gatsby, F. Scott Fitzgerald
By Gregg Wall (10-29-2022)
When the headlines came out a couple of weeks ago, I knew I’d have to double-back on this event… for one of the key figures, if not the key figure in the 2008 financial crisis, had just won the Nobel Prize in Economics. Often credited with saving America, perhaps the world, from another Great Depression… former Chairman of the Federal Reserve, Ben Bernanke, did so much more than that. And the aftershocks of his actions are with the United States, indeed the world, to this very day.
On the eve of the financial crisis, the US national debt was only nine trillion dollars… today, that national debt stands at no less than thirty-one trillion. And that figure is just what the US government and experts are willing to acknowledge, because there’s a great deal of funny money floating around, as the FED’s balance sheet will presently confirm.
To be sure, the godfather of Quantitative Easing (essentially, MMT for banks, billionaires, congress, multinationals, and Wall St), Ben Bernanke, must have received a great deal of inspiration from the Bank of Japan. As a student of the Great Depression, Mr. Bernanke – Helicopter Ben – was said to have only wanted to avert another Great Depression, in printing up the trillions and trillions of dollars the Federal Reserve conjured out of thin air. In short, Bernanke bailed out the billionaires, Wall St, and the powerful back in 2008… as well as the gross incompetence of the U.S. government and the failure that is libertarian ideology & laissez-faire … while leaving the poor and what remains of the American middle class to pick up the pieces. But there’s so much more. For Bernanke not only bailed out the aforementioned but he made them catastrophically wealthy. And the former FED chair also set in motion events that made ultra- accommodative central bank policies of that era … that is, trickle-down monetary policy… de facto monetary policy right up to the present day.
All this and so much more… perhaps making Ben Bernanke the most consequential individual of the twenty-first century, to date. More powerful than Presidents, more powerful than the Oligarchy & OPEC, Ben played a singular role in helping to create the world we live in today.
So, without further adieu, the Bad, the Good, and the Ugly of Ben Bernanke and ultra-accommodative monetary policy. Due to time and the limitations of this format… I can only commit so much energy. Suffice it to say, volumes could be written about the Financial Hiroshima Bernanke created & detonated. And I sincerely hope some economist or historian gives this subject matter the attention it so richly deserves.
The Bad
Probably the greatest defect of QE and interest rate suppression is that the FED’s action were filtered through the conduit of Wall St and banks. For as much as Ben hinted at helicopter money… essentially a Universal Basic Income… a fantastic amount of Federal Reserve largesse rained down on Wall St, Bankers, Shadow banking, and multinationals that had taken up banking and shadow banking activities. Trillions and trillions were printed up and rained down on the very executives, and companies, that placed the US and global economy in a state of crisis. No one went to jail that I’m aware of and the net worth of many executives involved soared. Golden parachutes enriched the corrupt and the predatory. Billionaires were minted and their numbers grew catastrophically. Thanks to the FED, the value of financial assets soared, and banks were reporting record profits again in no time. While the middle class was crushed, homeowners and home speculators found themselves upside down on their loans.
To be sure, the crushing of American wages pre-dated the 2008 financial crisis, but the economic recovery that Dems and Obama touted was virtually non-existent for millions and millions of Americans. Which paved the way for one, Donald Trump, to become President.
Epic consolidation, M&A, TBTF, Monopolies, and the Stock Market as the great American casino…. The stock market as the sine qua non of all US economic activity…. Yes, we owe that to Bernanke. For whom, but Ben, flooded the markets with trillions and trillion of dollars… sending assets of the rich to nosebleed valuations? After 2008, the United States became a holding company, with the real economy, jobs, and the tax base shipped offshore to take full advantage of free trade (a/k/a labor, government, regulatory, judicial, and tax arbitrage). After 2008, wage & wealth inequality raged to new levels, and the oligarchy really took hold. Therefore, everything that is wrong in the U.S. today: endemic corruption, systemic moral hazard, an increasingly insular world of a handful of ‘haves’ versus the ninety-nine percent ‘have-nots’ and America’s rancid state of politics… we owe to Bernanke.
It’s all derivative and a spinoff of Ben’s actions, not unlike some cosmic, financial Big Bang.
And Wall St is the least of it. The US congress punts all major decision making to the FED. What… we have a crisis because Wall St is out of control. Call the FED. Too much debt… call the FED. Not enough debt? Call the FED. Liquidity crisis (not enough welfare for the Senate’s stock portfolio)… Call the FED. Another endless war to finance? FED. The Federal government is bankrupt again because the rich have taken everything not nailed down and own the United States… call the FED chair. What … inflation? Where the hell did that come from, call the FED. Neoliberalism and Libertarian ideology are in crisis again and an abject failure… tell the FED to print up several more trillion to paper over the crisis and paper over Dem and GOP incompetence, while the FED chair is at it.
No worries, the billionaire owned & operated MSM won’t question a thing. It’s such a problem that the congress has become an insider trading club for a bunch of mummified zombies, that is to say, worthless, highly corrupt, brain dead, and awaiting instructions from K-Street.
But wait… because there’s more. Thanks to Helicopter Ben, the United States government has become subject to the private equity model, apparently an un-hostile takeover. Where the government has been leveraged to the hilt, privatized, and the credit line looted by the privileged and the powerful, while the everyday American faces endless austerity, real wage stagnation, ever diminishing economic prospects, predatory rent-seeking, Gig economy exploitation, and government social policies stripped to the bone. The oligarchy loots the credit line -- and then robs the poor and the 99% -- to pay down the debt. It’s the PE model magnified… instead of looting businesses and multinationals, they now loot global governments (which might explain why you see unelected bankers running country after country, at various times, within the EU). And thanks to the FED and the PE model, Ben made so very successful for thieves, via easy money… the malefactors of wealth and privilege are coming for your Social Security next.
Thank you, Ben.
The Good
Ben, of course, is not entirely evil. About the best thing I can say about him is he proved Modern Monetary Policy (MMT) works. Quantitative Easing (QE) and interest rate suppression are nothing more than MMT for billionaires, congress, the Pentagon, and Wall Street.
Need a couple trillion for another endless war, and billionaires only want to cash in on the newly minted war in the Ukraine, not actually pay taxes to support it…. zero worries. Thanks to Ben and MMT, the central bank has that covered. What a relief. Yes, the FED’s printing presses finance endless wars. Apparently, the U.S. government’s financial statements run red for two reasons: ink and blood.
The irony in all this is that when the oligarchy, or the oligarchy’s U.S. government, needs a handout for the rich or another war, the FED’s printing presses switch on in seconds. The second the talk shifts to restoring some semblance of dignity to essential Americans… and the GOP trot out the inflation narrative. Hence, the mantra… please repeat it with me: QE for billionaires and the MIC is good; MMT to fund entitlements and a safety net for labor and working-class Americans is bad.
It’s what all the GOP are spouting on the campaign trail, as they get ready to retake congress and gut Social Security and Medicare. (Notice however, Biden and the Dems are hardly innocent here... listening to Larry Summers, Biden has bought on to austerity and a higher interest rate regime to contain price gouging. Basically, attacking consumers & labor; and reneging on his 2020 Build Back Better campaign pledge. Clueless Dems can't figure out why they are in deep trouble as the midterm elections draw ever closer.) And the very nasty reality, so-called inflation is little more than The Grand Rip-Off, all over again: Soaring consumer price gouging, Big Oil thuggery, Wall St speculation… and RECORD PROFITS.
Taken right out of the ‘70s. And just like the ‘70s, it’s American consumers and labor that are being crushed.
The Ugly
In writing all this, we easily forget the FED has two mandates: stable prices and full employment. And while Ben and the FED enjoyed stable prices for a long period of time, the consolidation and M&A Ben fostered and financed -- with easy TAXPAYER money -- has led to unprecedented monopoly and monopsony. Which, of course, generated unprecedented monopoly pricing power and monopsony power over small business, labor, benefits, and wages.
In short, easy money for Wall St had led, as previously mentioned, to unprecedented economic, and therefore, political power, throughout the U.S. economy and government. Nice monopoly – slave wage – economy you created Ben. Wonderful oligarchy, you created Ben. (In fairness, Ben has had a lot of help, from Ms. Yellen and Mr. Powell, both of whom continued Ben’s work.)
And we think money in politics is bad. Money printing by central banks, in the 21stcentury, has created some of the most polarizing disruptions, distortions, and inequality in the history of humanity. Disruptions, distortions, and inequality that will not be easy to unwind or unravel. You see, the oligarchy likes their rigged economy & government, their rigged FED, and they will not surrender it lightly, if ever. All of which is nothing more than a threat to sound democratic government, the fourth estate, and human rights. Easy money & debt are the handmaiden of endless war.
Central bank easy money, w/out sound economic and social policies emanating from the legislative body & government… is, well, as we have seen, dangerous.
And full employment, the other FED mandate? Well, as Big Oil, monopolies, and Wall St wage their war against Democrats and any hint of government intervention against the failures & excesses of the libertarian economy, it appears that max employment will eventually be a casualty of the FED’s policies, both QE and QT.
Do you smell that … smells like recession, perhaps a great depression? All the variables are properly aligned (including incompetent and corrupt policy makers, who have attacked aggregate demand instead of taking on and addressing the price gougers, aggregate supply). Remember girls & boys, recessions/depressions can be both economic and political… a display of economic power, government policy, and brute political force. As a bank regulator, the Federal Reserve has entirely failed. Instead of stability, Ben and the Federal Reserve have wrought epic instability, and have played a key role in creating & installing oligarchy, as heads of states. The wealth of the nation redistributed and transferred to seven hundred - plus billionaires, via the central bank.
And my final words on all this… how is it that Mr. Nobel winner is virtually unknown by the majority of Americans? How is it that the most powerful branch of government, The Federal Reserve, is mostly unheard of and the least understood by the American public?
That’s not by accident. And if America is ever to heal, mend, and recover, that must change.
Enjoy that award, Mr. Bernanke.
Copyright JM Hamilton Publishing 2022
