The Truth About Bernanke's Legacy

Historians will look back on this period with awe and wonder. Somehow, three generations of economists and policy-makers have convinced themselves of things that can't be true.

"Not enough demand," they say, in penetrating analysis of today's lackluster economic growth rates. "We need to provide demand," they add, as though demand were like oranges. You just pack up the truck in Florida and deliver them to New York. Easy Peasy. 

But it almost seems as though the world were created just so its creator could have a good laugh at simpleminded economists. 

"Look at them now," we thought we heard a stentorian voice proclaim from the heavens. "They're adding demand that doesn't exist so that people will make products for people who can't pay for them. Hardy har har!" 

 

Ben, the Hero

We bring this up because the newspapers are beginning to opine on Ben Bernanke's legacy. To make a long story short, they have forgotten that when the merde hit the fan in 2008, Ben Bernanke had no idea what was happening. 

They overlook that he not only encouraged the mortgage bubble (as the right-hand man of his mentor, Alan Greenspan), but also he thought the resulting subprime bust was "contained" … and that the economy would continue to hum along nicely, even as real estate prices collapsed.

The newspapers are also willing to ignore that their hero presided over the weakest recovery in postwar history. Instead, they see silver linings and miss the clouds altogether. The most popular summation of Bernanke's time at the head of the Fed is: He saved us from another Great Depression. 

No one seems to care – at least at this stage – that he did it by causing a worse problem. Or that his experiments have coincided with a 13% unemployment rate (using the Bureau of Labor Statistics' U-6 measure, which includes short-term discouraged, other "marginally-attached" workers and those forced to work part-time) … negative real GDP growth (based on the CPI as measured in 1990 and tracked by John Williams at ShadowStats.com), negative real interest rates (ditto), and a Fed balance sheet that now tops $4 trillion … and that will have to be reckoned with sooner or later. 

These numbers are probably a surprise to you. The popular reading of unemployment has it at around 7% – not 13%. But you would be wrong if you thought that only 7% of the potential workforce lack jobs. Nope, that's not the way it works in Washington. Instead, if you lose your job and are unable to find a new one, you are deemed "discouraged" and plucked out of the labor pool. Put back in the people who have given up, and the monthly headline number is six percentage points higher. 

 

Bernanke's Real Legacy

We just completed a report for our Bonner & Partners Family Office members. It details how much of what we take for granted as GDP growth over the last 30 years didn't really happen. It was "phantom growth" … caused by distorting the tracking of price inflation and economic output. 

It's impossible to know exactly how much real growth there was. (It depends on your assumptions.) But take out all the tricks and distortions, and real wealth, in terms of GDP per person, has been negative for the last 10 years … and probably negative since the day President Reagan entered the White House.

If that's so, asset classes that depend to a large extent on economic output – US stocks, for instance – are greatly overpriced. Current stock prices, and much of the demand for goods and services since 1980, have been made possible only by ballooning debt levels – something that can't go on forever. 

The next bear market will sort it out. US stocks will go down – hard. Standards of living, buoyed by a 30-year tide of rising debt, will sink. 

That will be Ben Bernanke's real legacy. 

 


 

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners.

Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 


 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Pushing Past the Breaking Point
      Schemes and Shams Man’s willful determination to resist the natural order are in vain.  Still, he pushes onward, always grasping for the big breakthrough. The allure of something for nothing is too enticing to pass up.   From the “displays of disbelief, revealing touching old-fashioned notions” file... [PT]   Systems of elaborate folly have been erected with the most impossible of promises.  That prosperity can be attained without labor.  That benefits...
  • The Myth of Capitalism - A Book by Jonathan Tepper
      Crony Capitalism vs. Free Markets Many of our readers are probably aware of the excellent work our friend Jonathan Tepper does for Variant Perception (VP)*****, a financial research boutique that really does bring a unique perspective to the table*. Jonathan (with co-author Denise Hearn) has just added a new book to his résumé, which is going to be released on 12 November: The Myth of Capitalism (MoC) – Monopolies and the Death of Competition** (a link to the official site is at the...
  • Crumbling Piles of Sand
      Just a Little Avalanche or an Implosion? A few years ago, we briefly discussed the dynamics of sand piles in these pages, which are a special field of study in mathematics and physics (mathematically inclined readers can take a look at two papers on the subject here:”Driving Sandpiles to Criticality and Beyond “ (PDF) and  'Games on Line Graphs and Sand Piles “(PDF) – unfortunately two other studies that used to be available have in the meantime disappeared from the...
  • When Fake Money Becomes Scarce
      Remaining Focused A rousing display of diversions this week assured the American populace was looking every which way but right under its collective nose.  Midterm elections.  White House spats with purveyors of fake news.  The forced resignation of Attorney General Sessions...   Old drug warrior (otherwise recused) on his way home to Alabama...   Sideshows like these, and many more, offered near limitless opportunities to focus on matters of insignificance.  Why...
  • Fun and Profit - Precious Metals Supply and Demand
      While Not Saving The Planet, Let Us At Least Have A Good Time The price of gold went up seven bucks, and that of silver rose eight pennies. For many people, the attraction to gold and silver began with a desire to protect themselves from the monetary train wreck of 2008. That often grew into a sense that gold is the solution to that problem.   The post 2008 GFC monetary train wreck: US true broad money supply is expanded by more than 153% in a mere decade, as the Fed takes...
  • Wizard’s First Rule – Precious Metals Supply and Demand
      The Last to Go Terry Goodkind wrote an epic fantasy series. The first book in the series is entitled Wizard’s First Rule. We recommend the book highly, if you’re into that sort of thing.   An image from the title page of Terry Goodkind's best-selling fantasy epic “Wizard's First Rule”. We'd be at bit wary of standing around on that stone-slab bridge to be honest. [PT]   However, for purposes of this essay, the important part is the rule...
  • US Stock Market - Re-Coupling with a Panic Cycle?
      The Mighty Gartman Investment newsletter writer Dennis Gartman (a.k.a. “the Commodities King”) has been a target of ridicule at Zerohedge for a long time. His pompous style of writing and his uncanny ability to frequently make perfectly mistimed short term market calls have made him an easy target.* It would be quite ironic if a so far quite good recommendation he made last week were to turn into the call of a lifetime (see ZH: “Gartman: 'We Are Officially Recommending Shorting...
  • Roger Barris for Congress!
      Economic Man Threatens to Leave You Alone if Elected This one is mainly for readers residing in that glorious water source for California commonly known as Colorado. In case you are not aware of it yet, Roger “Economic Man” Barris, an occasional contributor to this site, is running for Congress in Colorado on a Libertarian Party ticket. We will briefly explain why you should vote for Roger, but first two pictures:   Roger Barris, Libertarian Party candidate for the House...
  • It's Not That Day Just Yet - Precious Metals Supply and Demand
      Degrees of Urgency Monday was Veterans Day, a bank holiday in the US. The prices of gold and silver dropped $23 and $0.61 respectively. “But isn’t gold supposed to go up when...?”   Warren Buffet and Aragorn discuss what to do with the gold. Aragorn wants it, because he knows that even if it's not today, “that day” will come. [PT]   Why? Because everyone else will bid it up. Why? Because they expect someone else to bid it up. Why? Warren Buffet is...
  • Revisiting the Halloween Effect
      From Crash Danger to End-of-the-Year Ramp   [Ed note by PT: we are unfortunately a week late in posting this issue of SI, which didn't reach us in time due to a technical problem. We decided to post it belatedly anyway: for one thing, the effect under discussion is normally in effect until the end of the year; for another, the statistical validity of this information goes beyond the current year, as it is a recurring phenomenon. Lastly we would note that we have a strong...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!