Is This the End for Quantitative Easing (and Ben Bernanke Too)?

A week ago we outlined here how and why Ben Bernanke lost a significant vote in the recent Fed Open Market Committee meeting. The vote was not so much to launch immediately QE3 when QE2 comes to an end this month; it was to keep Quantitative Easing as a tool in the Fed’s arsenal of monetary weapons. So far, the mainstream media have not yet realized how significant a shift this is in Fed policy, but other bloggers are beginning to notice, and so is the stock market. Yesterday Chairman Bernanke spoke at the International Monetary Conference in Atlanta, at which he made no mention of Quantitative Easing now or down the road sometime. The stock market certainly reacted to this omission; having traded noticeably higher during the day, the Dow Jones industrial average closed down 19 points, losing most of its ground in the last fifteen minutes of the session when Bernanke began speaking.

Here are some perceptive comments about the speech from Cullen Roche on his Pragmatic Capitalism website:

*His speech was certainly market moving and as reports of the speech hit the wires the equity markets began to reverse on fears that QE3 is off the table. But there was a more interesting tone in his speech today than we’ve seen in the past. The Chairman was exceptionally defensive. In fact, the entire speech is basically an explanation as to why QE2 did not hurt the economy (of course it did).

*Beating deflation is largely a psychological battle, however, giving the public the impression that you are going to cause massive inflation through policies that neither you nor the public fully understands is no way to accomplish that effect. An economy battling deflation needs real economic growth and leaders who are not only willing to recognize the problems, but are willing to implement the right policy to combat this horrid economic disease.

*The banker of all bankers has zero actual banking and market experience so it would not be surprising to find out that the Chairman is oblivious with regards to the psychological impact of monetary policy on markets.

*It’s time for the Wizard to step out from behind the curtain and inform Congress that he is not the omnipotent leader that everyone thinks he is. The Fed desperately needs the help of the US Congress in recognizing the plight that the US economy faces. The longer we wait and the longer Dr. Bernanke pretends to be the Wizard the longer this economic catastrophe will continue.

Do read Mr. Roche’s entire piece. While he identifies the fact that Ben Bernanke is “exceptionally defensive”, he doesn’t quite get to the point I was making as to the source of his defensiveness. It is not simply that many outside economists and analysts blamed the Fed for the run-up in inflation that began decisively when QE2 was implemented, and which brought us a $1,500 gold price and oil at $120/bbl. It is that criticism of his policy came from within the Fed - from the voting members of the FOMC who are the only people in the world who can cause Chairman Bernanke to shift course. He simply didn’t have the votes to force through even a mild statement of support for Quantitative Easing, but he certainly had quite a few of his colleagues on the FOMC going public with their criticisms of his policy. No Chairman of the Federal Reserve ever wants to be in that position, and Bernanke’s mentor, Alan Greenspan, would never have allowed himself to be out-maneuvered by FOMC colleagues (he was “The Maestro”, remember).

We don’t know how badly wounded Ben Bernanke is within the FOMC. As with anything to do with the Fed, much depends on the future course of economic activity in the US, and on politics in Congress and the White House. Quantitative Easing can always be revived if a desperate nation turns its lonely eyes to the Fed, pleading for it to do anything to combat an economic depression, which is what still lies before us if massive amounts of government support are now withdrawn from an economy which has postponed and forestalled the day of reckoning for over-indebted borrowers and imprudent creditors.

There are no guarantees even in extremis that the Fed will accommodate such pleas. It has already tried Quantitative Easing. It already has a Chairman who has positioned himself as economically and financially omnipotent, and who has declared himself the Savior of the Nation – the person who along with the White House fought off another Great Depression. Now it appears that all this was empty posturing. The FOMC members know that the reputation of the Fed has been damaged because of these policies and this pretence of omnipotence; some of them may have begun to realize that the continuing existence of the Federal Reserve is at stake, if after all that has been done, the economy still meets up with its deflationary destiny. They may understand that it is time for the Fed to withdraw from the battle, not so much to admit defeat, but to admit its own limited resources when faced with a debt overhang that afflicts every economic sector, which is unprecedented in size for the United States, and which has already begun to implode in an unstoppable sequence of personal bankruptcies, corporate defaults, and government debt payment moratoria, all of which will result in a massive economic collapse.



Omnipotent Ben

First, I don't think the high price of oil, commodities can be directly correlated to QE2. The reason is 2008. There was no QE2 in 2008 yet oil was higher. Gold, as well, has much to do with PIGS, safe haven generally, globally. And then there is speculation. On food commodities, there was a physical shortage due to global disasters in 2010, Russian fires being a large one.

On the Fed being able to do all things, the real problem is this government. They did not enact real stimulus. They refused to add Buy American and Hire only America clauses in the Stimulus. They did not fund infrastructure jobs enough, the best bang for the buck. It was not Keynes, it was some globalization, special interest spending soup. They would not cancel offshore outsourcing contracts or any such thing to make sure America was put back to work. They refused to confront China on currency manipulation.

The Fed has no control over these globalist written bills and agendas. The Fed cannot put together a WPA. At best Bernanke could only recommend such a thing which is overstepping his charter.

Fed bashing really lies at Greenspan's feet and Ben's bail outs, loans and subsidies helping make the financial sector even bigger and perpetuating the financial sector fraud.

I have no idea why the Fed maintains industrial production even. What have they done and what can they do to revitalize U.S. manufacturing as an example?

Who "refused to add Buy American ... clauses"?

My recollection was that there was a 'Buy American' clause in the Stimulus as enacted in 2009.

So, I have googled and come up with that there may not have been as much of a Buy American clause as we needed, but there was definitely more of it than the well-heeled community of WTO apologists found tolerable. How else explain the substantial reaction organized in condemnation of Obama for promoting as much Buy American legislation and regulation as he did.

See, "Foolishness of Barack Obama's Buy American stimulus package" at (May 16, 2009) --

"Barack Obama ran on a platform of protectionism, where “defending U.S. jobs” was one of his primary campaign themes.  This gave rise to the inclusion of a “Buy American” provision in the initial stimulus bill in early February, shortly after his inauguration. As the stimulus debate wore on (to the degree there was ever really a debate), Barack Obama and Congress finally tampered down the “Buy American” language in the stimulus bill, at the urging of international allies [2OLD4OKEYDOKE: "which allies exactly? PRC?"].

"[S]uch a provision in the stimulus package was a clandestine form of protectionism which many feared could spark a trade war. Unfortunately, Barack Obama and Congress did not tamper down the language enough and therefore some level of “Buy American” remained in the final bill."

I think that many have a tendency to use the name 'Obama' to represent actions and trends over which the President has much less than full control and, thus, for which he can hardly bear full responsibility.

President Obama is, after all, a professional politician and a political survivalist - for better or for worse. I don't agree, probably, with his interpretation of the Constitution, but I think that his intention and the thrust of his presidency is to manage his job, to the greatest possible extent, in a way that is compatible with constitutional provisions, our traditions as those have evolved, and, the obvious necessity of uniting the American people at this time in history.

We are dealing with a systemic global crisis, and Obama is really just a cog in a huge machine.

I am not a Democrat, but neither am I a Republican.  As an American, born and bred, I ask this question:


"Of the three branches of government today, how would you rate them as to combined efficiency, effort, willingness to represent enlightened self-interest of the American people, and, independence from corrosive corrupting influences?"

Sadly, I have to rate the White House (Executive Branch) as best (in this "best of all possible worlds"), the SCOTUS (Judicial) worse, and the current Congress (Legislative) among the worst and most corrupt we have ever seen. (Oh, yes, the Tea Party talks a good game ... but where are their real solutions? ... what do they have to offer but obstructionism? ... why do they talk obstruction to everything BUT further "free" trade agreements?)

Unacceptable though he may be to either a majority of voters or a majority of campaign dollars, President Obama is like a bright light compared to the darkness surrounding him. I believe that I am a realist, but if evaluation of the U.S. government at this time makes me an apologist for Obama, so be it.

PS: So where do we rate our extra-constitutional Fourth branch - the Fed? You tell me.

that was bogus

there was no buy America clause actually. We had stimulus money going to China to create green China.

That never ending claim of "protectionist", it wasn't in the bill, some very minor weak things.

There also was never a "must hire U.S. citizens, perm residents" i.e. hire America in the bill as well.

You're quoting a spin machine. At that time, I actually was reading the bill and reviewed it, in detail on this site.

Generally, do not quote opinions or spin but instead, at least quote those reading the actual legislative text. Makes a huge difference. A 2000 page+ bill, believe me, tons of people out there claiming a bill has legislative language that actually does not exist.

Also, remember, they go through two passages and then a conference, so maybe something is up for consideration, an amendment, even passes both houses, but more often than not, it's ripped out in conference at the end. Such was any real regulation on derivatives.

Thanks for information

Yes, I quoted a spin machine as from "well-heeled community of WTO apologists." I intended the quote to be identified as from a spin machine.

The only information from that quote is that even "very minor weak things" are condemned as "protectionist" - but that condemnation did not come from what you term "the government" (certainly not from the White House) that failed us but from interests seeking to undermine us.

I think that if there is any possibility of political reform, then I want to focus my condemnation of legislation on the legislative branch - which, under the Constitution, is independent of the Executive. I think that's an important distinction, as opposed to just "the government" -- unless we are pursuing an anarchist solution.
Thanks again for the summary information. (I wasn't following or even aware of EP in 2009.)


JPMorgan Chase hates pesky regulations, confronts Ben - video!

If you have not seen this exchange, here is the CEO of JPMorgan Chase, Jamie Dimon, ambushing Bernanke in a press conference. Oh, what's with all of those pesky regulations? Those regulations, has anyone analyzed how this is dragging on the economy?

Give me a break, they are not enough regulations!

Dimon makes Bernanke look like a Saint, which I think gives some insight of what the government is up against with the corporate oligarchy.



I watched it this morning

You mean Jamie Dimon. I thought his laundry list of things that have changed was reasonably comprehensive. In fact, he got to the point you and I were discussing last week: the US is operating on a credit platform that has regressed back to the 1990s. He was asking Bernanke whether any studies have been done on the amount of credit (and GDP growth) has been lost due to all these new regulations and other changes, but that gets back to our question of just where are we in 1990s credit scenario. Are we back to 1990? 1995? Bernanke said he has seen no such studies, but it shows both of them are aware of the fundamental reality that the economy is operating on what some would consider an antediluvian financial system, in which credit derivatives don't exist, and neither do mortgage backed securities, nor other asset backed securities.

The part that is strange is that Dimon suggests over-regulation is holding him and his bankers back from lending. What is really holding him back is that investors no longer trust banks to sell them securities at anything other than rip-off prices, banks have extracted as much equity from the American consumer as is possible, they are holding on to hundreds of billions of securities and derivatives that no one wants to buy and none of them want to properly value, and the Fed is squeezing their net interest margins to nothing with its ZIRP. All of this means banker bonuses are going to collapse with the rest of the economy - unless the Fed puts in QE3 with more guaranteed profits for the trading desks.

The one bit of regulation Dimon does have reason to worry about is the 3% surcharge on capital that will also crush ROEs, as well as hurt banker bonuses. Maybe that is what he was referring to, but the laundry list above ought to be enough to worry him.

Dimon, corrected, laundry list vs. regulations

Hey folks, for anyone else making spelling and other mistakes, you should have an edit button on your comment box.

The laundry list was great, oh really? For a second there I thought the Fed actually did some positive things. I thought the ambush was over new capital requirements, 7% proposed of quality capital for banks with > $50 billion in assets.

That will affect them and they hate the idea of going back to smaller leverage and capital requirements. Oh shucks. I guess they didn't cause financial Armageddon, just some rogue quant did it all somewhere. Yeah right, blame the geek.

Nice analysis, yuppers, they have sucked the consumer bone dry, now kicking millions out of their homes and vacuuming out the last bit of equity, seemingly not caring that it is further depressing the housing market.

I haven't followed the latest of this global capital requirements but I'll bet they whittle that down to nothing.

I don't see how these cats can say this affected GDP growth, the real economy. Last I saw and this would be a nice chart, they were busy pouring investment capital into EEs, refusing to invest commercially in the U.S. as a general rule.

Why doesn't Ben give banks some subsidy for them to act as VCs, fund startups made up purely of the U.S. unemployed and the business plan of the start-up has production 100% or 99.9% located in the United States.

They could even enlist other VCs to help incubate these companies. I know there are many with executive level management experience out of a job and hell, no reason a lower level skills set couldn't be turned into a CEO/COO and so on.

BTW: We have a massive new round of layoffs coming from the financial sector today.

How about that instead of free robo trades?

My 2¢

Maybe you know my opinion - the crisis is systemic and requires structural reform. For example, income from trading in derivatives should generally be treated by the same IRS rules as apply to other gambling. Also, let's bring back tariffs, but not targeted - one big across-the-board tariff.

Even my favorite guy to quote lately, the Nobelist in economics, Robert Lucas, Jr., notes succinctly that "a fractional reserve banking system will ALWAYS be fragile, a house of cards" (emphasis in original, Milliman lecture PDF).

In this "best of all possible worlds," JP Morgan Chase is probably one of the more solid houses of cards, but even they are just a little nervous about where things are headed.

How Hank Poulson Saved the World

HBO seems to think so in the piece likely sponsored by Goldman - "Too Big To Fail". It seems it was all Vuld's fault. Even Blankfein and Thain are completely blameless. At least it showed Congress to be stooges.

Burton Leed

Thanks for catching that

I did not know that HBO had anything like that kind of in-depth stuff (even if sponsored by Goldman).

"continued existence of the Federal Reserve"

Numerian notes that "continued existence of the Federal Reserve is at stake."

On the one hand, I sure hope so. On the other hand, as Robert Oak has pointed out, what would replace the Fed when our Congress is so hopelessly corrupted and/or in denial of reality? -- when the economy is so shock-ridden that the people are numb, disintegrating, confused and totally cynical?

The Gold Bugs have already staked a claim

Even someone as reasonably mainstream as James Grant sees the potential of a gold standard down the line. There are some alternatives:

1) An oil standard. Control money supply, or growth in the monetary base if you prefer, to the price of oil. This was a lot more palatable when the US was not such a big importer of oil.

2) A commodity basket standard. Control money supply, etc. to a basket of important commodities.

3) A fiat currency with strict controls on money supply growth come heck or high water. You could go the Karl Denninger way, wherein no depreciation of the currency is allowed (zero inflation). You could go the Ben Bernanke way, where 2% annual depreciation is allowed. But you have to be extremely strict about things, forcing the Fed to tighten no matter how many people scream.

All of these assume some degree of strictness, to the point where the Fed is only a caretaker with no option as to where the levers are pulled. In such a system, the manipulation could then occur at the point of definition - changing the commodities in the basket, redefining money supply, shifting from Brent Crude to WTI, e.g.

None of these systems is as attractive as a gold standard in one basic respect: it is hard to have the currency backed by a real asset unless you use precious metals. It has always been argued that a gold standard will place the whole world in the hands of the Russians and South Africans as the only countries with any sizable mining operations (maybe the Australians too). Because of limited production, global economic growth would be much less than we are used to; China for example on such a standard would not be able to grow at 10% a year. On the other hand, with global population growth slowing, then stagnating, and eventually turning down, it is possible to postulate a world economic order, say around 2025, where a gold standard works precisely because growth is no longer expected or possible since population has ceased to expand. This fits in nicely to a world of neo-Feudalism that some of us here see coming as a replacement for capitalism.

Flush that private banking cabal

The Federal Reserve is a fundamental lie to begin with. It masquerades as some sort of government agency dedicated to helping the little people, when it is in fact a private banking cabal substantially owned by the Rothschild banking family and JP Morgan.

The only thing it is dedicated to is keeping the wallets of bankers inflated. It has blown one bubble after another forcing the malinvestment of tens of trillions of dollars over the past 20 years, and in doing so perpetrated the largest transfer of wealth from the bottom to the top in world history.

The cabal didn't see the savings and loans blowing up, it didn't see the dot com bubble, it didn't see the housing bubble, it didn't see the 2008 meltdown, it denied the recession.

What has to stop is this endless lunacy of idolizing this cabal of private bankers. Nowhere was it ever intended that such an institution should exist. And here we are constantly turning to this unelected unaccountable private banking cabal to "do something" about problems that this unholy den of thieves caused to begin with.

This never ending idiocy of turning to the Federal Reserve to solve problems that the Federal Reserve caused is utter madness.

Gold standard

I agree that gold standard would likely usher in an era of global neo-feudalism.

Henry Simons (1899-1946) - who is the real deal for libertarian economic theory, including monetarism - adamantly opposed the gold standard or any such standard.

A democratic nation, to survive, requires a people, a legislature and governance by law - including a sane monetary policy.

No gimmicks are actually needed. What is needed is integrity and honesty. Does gold foster integrity and honesty? Will it? Could it?

It's another gimmick, promising everything, returning nothing but more graft and corruption.

Not the basis for a sane economic policy.

Realistic view - commodity basket inevitable

We don't really need a metal standard at all, certainly not a gold standard. The truth is that we must have some medium of exchange, but the key to that is confidence pure and simple.

People tend to fear 'fiat' currency, but isn't all currency 'fiat'? Bottom line is it doesn't matter what kind of money the tax collectors demand, they have more guns and ammo than you do. Like in the Bible, "Render unto Caesar what is Caesar's" - referring perhaps to the image of Caesar Augustus on Roman coins.

It isn't the 'fiat' nature of some money more than others that really matters. It's really all about who is the boss of 'fiat' - an emperor, a central banker, or the people through their trust-worthy elected representatives

Look at how today we actually use digital signals recorded on servers in the ubiquitous 'cloud' as the primary medium of exchange. If confidence in electronic money is lost, the whole system will collapse.

But then some other system would soon take it's place, because there is always a need for some medium of exchange.

So, of course, the basis of any medium of exchange is psychological, along with governmental restraint    and governmental enforcement

Seems likely that, at some point, some kind of gimmick will be necessary to restore or bolster confidence. Maybe that's inevitable - not a gold standard though. Why would you want to limit it to gold? Or even a bimetallic mix of gold and silver? There's no particular reason for that, except that some interested parties would become even more rich and powerful than they already are.

BUT a commodity basket standard of maybe 30 raw metals (or maybe even some alloys or amalgams) - now that's an idea. And, by all means, let's include aluminum, which has the great value that it requires a lot of electrical juice to create it - so that ties it to all the energy-related commodities.

A commodity basket approach, I recall, was seriously proposed to President Kennedy back around 1961, but it lasted as a headline in the NYT for about a day and then disappeared. Kennedy, of course, was a big fan of gold, as was his father before him. Probably, Kennedy briefly considered the commodity basket idea, but discarded it as politically unrealistic.

F. A. Hayek is identified with the idea of "free banking" - not a bad idea - and the central concept was any number of commodity basket-based currencies, none subject to the greedy whims of nations and their corrupt leaders. Sometimes Hayek makes a lot of sense. (Of course, it still all relies on trust, unless you're going to carry your commodity basket around with you in a pretty big wallet, and then you would probably need to also pack your guns and ammo!)

Recently, there's been discussion of a more-or-less official commodity-backed reserve currency. See how it all comes down to who gets to manage the 'fiat'?

Maybe something like that is inevitable. Or, if not inevitable, maybe people will make it happen anyway. That's a big question: how much of economics is psychology?

A Defined International Unit of Value/Account

The responder here is absolutley correct in advocating a "commodity-basket" rather than a single commodity, such as gold, as an Internetional currency. As a matter of fact such a currency has already been conceived and is being actively promoted. It is called The Terra TRC (Trade Reserve Currency). Readers can log on to the following URLs for details: ,

Thanks for reply and link

I hope that FairTaxChamp will become more than a hit-and-run one-post participant here at EP. Anyway, after registering it's possible to post the link like a link --

Webpage on the Terra TRC at

I was already aware that the concept of the commodity-basket currency has been around for some time, but I don't think it is being "actively promoted," at least not effectively -- not here in the USA anyway. Many good progressive ideas don't get the coverage that they deserve, and it's difficult to keep references and links organized to direct interested persons toward helpful sources.

The more familiar action these days is the IMF's SDRs, which are based on a basket of currencies -- USD, UK sterling, Euro and Japanese Yen. Rumor is that China wants to have its renminbi included in this IMF basket for what amounts to an implied SDR 'reserve currency'. So far, that hasn't happened because the idea has always been that the currencies in the basket must be freely exchanged, and the renminbi is anything but that.

There's little or no open talk about this, but it seems likely to me that the current buzz about China bailing out the Euro zone  is probably operating as the visible surface of negotiations about including the Yuan in the IMF SDR currency basket. What's likely, IMHO, is some kind of compromise whereby the Yuan will become part of the basket, but only after China makes a fairly firm commitment to letting the Yuan float freely. Here in the USA, the powers-that-be don't like these IMF developments to be much discussed because many Americans are highly reactive to any talk of the USD being replaced by anything. It's a very touchy political topic.

Anyway, thanks for the link! Also, the p2p (Peer-to-Peer) foundation! It appears that the idea of is to document or catalog a distributed network approach to anything and everything. It's envisioned as a catalog or collection of documents on open-source developments -- 'Open Everything', 'Open Hardware Directory' and 'all things open'.

It's interesting that the had shown an interest about the Occupy Wall Street movement and similar "15-M" movements in Europe, but p2p hasn't gone beyond setting up two pages -- for OWS and for 15-M movements, with no contributions or documentation as of yet.

BTW: p2pfoundation page on Terra Currency was last updated in 2006 and contains a nonfunctional link at the top.