[Peace-discuss] Fw: [laborsmilitantvoice] The Old Switcheroo Bernanke's Next Parlor Trick

Sun Jun 14 15:00:55 CDT 2009

----- Original Message ----- 
From: Richard Mellor 
To: laborsmilitantvoice at yahoogroups.com 
Sent: Monday, June 15, 2009 2:21 AM
Subject: [laborsmilitantvoice] The Old Switcheroo Bernanke's Next Parlor Trick

Weekend Edition
June 12-14, 2009
The Old Switcheroo
Bernanke's Next Parlor Trick

By MIKE WHITNEY

Federal Reserve boss Ben Bernanke is getting ready to pull another 
rabbit out of his hat and he's hoping no one figures out what he's up 
to. Here's the scoop; the Fed chief needs to "borrow up to $3.25 
trillion in the fiscal year ending Sept. 30" (Bloomberg) without 
triggering a run on the dollar.

But, how? If the stock market keeps surging, investors will turn 
their backs on low-yielding US Treasuries and move into riskier 
securities hoping for better returns. The only way to attract more 
buyers to US debt is by raising interest rates which will kill the 
"green shoots" of recovery and make it harder for people to buy homes 
and cars. It's a conundrum.

In the next year, China will buy roughly $200 billion T-Bills while 
the oil-producing states and the rest of the world will add about 
$300 billion to their cache. That leaves more than $2 trillion for 
the domestic market where cash-strapped investors are likely to avoid 
government debt like the plague. So, who's going buy that mountain of 
low-yield government paper?

The banks.

The Fed has been helping the banks raise reserves for the last year. 
In fact, excess bank reserves have skyrocketed from $96.5 billion in 
August 2008 to $949.6 billion by April 2009. Nearly a trillion bucks 
in less than a year. But, why? Are the banks expecting to expand 
lending at the fastest rate in history in the middle of a depression?

Of course not. Master illusionist Bernanke is just arranging the 
props for his next big trick. The fact is, Bernanke anticipated the 
current wave of deflation and set up a straw man (the banks) to deal 
with it so it wouldn't look like he was simply printing more paper 
to finance the deficits. As soon as rates on 10 year notes hit 4 per 
cent, the banks (that are borrowing money at 0 per cent) will 
probably start to purchase Treasuries and keep the housing and retail 
markets from crashing even faster. It's called "the old switcheroo" 
and no one does it better than the Fed.

Bernanke pulled a similar stunt after Lehman Bros flopped and he and 
Paulson decided that it was time to dump $700 billion worth of 
garbage assets on the public. The Fed chief and Treasury figured out 
the only way they could hoodwink congress was to foment a crisis in 
the credit markets and then moan that if they didn't get $700 billion 
to buy up toxic assets in the next 48 hours "there wouldn't be an 
economy by Monday".

Congress swallowed it hook, line and sinker, and weeks later funds 
were allocated for the Troubled Asset Relief Program (TARP) Of 
course, no one in the financial media noticed that the storm in the 
credit markets was NOT caused by "troubled assets" at all (for which 
TARP funds have NEVER been used) but by skyrocketing LIBOR and TED 
spreads and other indicators of market stress. Market Ticker's Karl 
Denninger was the only blogger on the Internet who figured out that 
Bernanke had deliberately caused the crisis by draining over $100 
billion from the banking system just 10 days after Lehman defaulted.

As soon as Paulson and Bernanke had pulled off their multi-billion 
dollar heist, the Fed chief created lending facilities (completely 
unrelated to the TARP) which provided government guarantees on money 
markets and commercial paper. This lowered LIBOR and TED spreads 
immediately and relieved the stress in the credit markets. The crisis 
had nothing to do with toxic assets. To this day, none of the junk 
securities have been purchased from the banks under the TARP program. 
$700 billion has vanished in a puff of smoke. Poof!

Mike Whitney lives in Washington dtate. He can be reached at 
fergiewhitney at msn.net
-- 
"Capitalism teaches the people the moral conceptions of cannibalism 
are the strong devouring the weak; its theory of the world of men and 
women is that of a glorified pig-trough where the biggest swine gets 
the most swill." -James Connolly 1910.

Richard Mellor
AFSCME Local 444 retired
Oakland CA
http://weknowwhatsup.blogspot.com/
http://www.myspace.com/unionguy510
http://www.clnews.org

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