Themes: Depression, Bernanke, Economic Recovery
Our story continues...
According to the popular version, Ben Bernanke, our flawed hero, has averted a Second Great Depression. When the crisis came in ’07-’08, he calmly took out the text he had written himself: “Dummies’ Guide to Avoiding a Japan-style Deflation”... or something like that.
Then, he followed his own theory... coolly... confidently... cutting Fed rates down to nearly zero, pushing Congress to pass a huge ‘stimulus’ bill, and even forcing Bank of America to take over Merrill Lynch. In this last event, he is accused of deliberately hiding Merrill’s enormous losses and then threatening the BofA board with dismissal if they refused.
Because of Bernanke’s swift and assertive action, the nation’s banking system held together during those critical weeks of late-2008. And because of his monetary (and fiscal) policies, all the worlds’ economies are now in some stage of recovery. Stocks are rising. House sales are increasing. All the indicators point to a better world.
In recognition of the fact that he saved the world, Ben Bernanke was given the nation’s highest honour; Obama picked him to continue as head of America’s central bank, the Federal Reserve... even though he was appointed by his predecessor, a Republican.
Everyone needs a story. It’s the way we understand things. Data is just data. Numbers are just numbers. Facts are just facts. Without the framework of a good tale to hold them together, they are worthless.
That’s why, here at the Daily Reckoning, we are suspicious of facts, data and numbers. As for the numbers, they are wrong before they get to us... often intentionally. Then, when they are later straightened out, they sometimes tell a completely different story. Even the ‘facts’ often turn out to be not facts at all... but distorted data, information has been twisted to fit into a storyline.
The more precise the data, meanwhile, the more they lie. Give us a CPI rate of 6.24% and we will give you back two numbers that are total fictions... and another one that turns out to be wrong later. As for the GDP growth rate... don’t even bother to give us a number at all. Whatever the digits say, it’s a lie.
This week came news that the GDP is falling at a 1% rate. This number surprised economists. They thought it was falling at a 1.5% rate. This better-than-expected number encouraged investors to buy stocks; the Dow rose 37 points yesterday. Oil and gold remained more or less where they were.
Economists are frequently surprised. In a study of GDP forecasts, a researcher found that economists did nothing more than extrapolate current trends into the future. If the GDP was growing at 2%... they projected that it would grow at 2.3% the following year. Or maybe 1.9%. These projections were mostly correct. Generally, one year is a lot like the year before. But whenever the direction changed dramatically, economists missed it completely. In other words, they’re not really capable of telling us what the economy will do – unless it does nothing different.
We’ve discussed the emptiness of the GDP figures many times. Just because the GDP is growing doesn’t mean people are really any better off. In fact, GDP growth during the Bubble Epoque was really a measure of how fast people were ruining themselves. Seventy percent of the GDP was consumer spending; as consumer spending went up so did debt. The result was a paradox and a shame – at the end of one of the longest periods of uninterrupted GDP growth in history, the typical householder was poorer than he was than when it began.
That’s why we are skeptical of numbers... especially precise numbers. They lie through their decimals.
What matters is the story... and our story now centers on the role of one man: Ben Bernanke. But the story that most people hear... and believe... is false. It is like GDP growth in the Bubble years... it may sound right on the surface, but the real story is opposite to what is commonly believed.
Bernanke ‘wrote the book’ on avoiding deflation, ‘tis true. But he doesn’t really have a clue what he is doing. He didn’t really avoid a Second Great Depression. There isn’t really a genuine recovery underway. And the world is not becoming a better place as a result of Ben Bernanke’s exertions.
Au contraire... he’s making a natural mess into an unnatural one. He’s turning a depression into a Great Depression... He’s making a bad situation worse.
At least, that is OUR plotline. But we’ll let the story tell itself... day by day... and see where it leads us. If we are wrong about the plot... we’ll find out...
*** What a summer.
Last night we invited our neighbours over for a barbecue. Damien, our gardener, manned the fire. Jules took care of drinks.
Along with the farmers, their wives and their children, came the girls from across the road. You’ll recall THAT storyline, dear reader. This has been a summer of awakening for the teenagers. For the first time since we’ve been here – 14 years – our boys have noticed our neighbours’ girls. Every summer before, we would only see them in church, lined up in pretty dresses... quiet... polite... We exchanged kisses, in the French manner, after the mass, but that was it. Otherwise, we never saw them.
“This is a summer the boys aren’t likely to forget,” began their older brother at breakfast this morning. “They all went down to the pond after dinner last night. I went down to say hello, but after a few minutes, I felt out of place. It was pretty hot down there.”
Yes, the girls have grown up. And so have the boys. Back and forth, all the month of August. Playing tennis and swimming in the daytime. Having dinner and hanging out at the pond at night.
“It’s a lot of fun,” our youngest boy, 15, reported earlier in the week. “But it’s complicated. We all seem to like someone else... but not the one who likes us. Eloise likes Henry, but Henry likes Claire. Claire likes me, I think, but I like Sylvie. I don’t know who Jules likes, but I think all the girls like him.”
Last night, however, it looked as though the iron filings were finally lining up. Your editor went down to the pond at 2AM; it was time to take the girls home, he told them.
“I don’t care if the girls want to stay or not... Take them home,” he told them.
The boys obeyed. But it was obvious that none of them wanted to leave. Edward had one of the girls by the arm. Henry and another were deep in conversation on the other side of the fire. Jules was nowhere to be seen.
It was the last time they would see each other until next summer. The girls would go back to their lives in Paris or elsewhere. Our boys would go back to school or on to their careers. Tonight was their last night together. The goodbyes were long... and, probably, tender.
“C’mon... get going,” said Father, heartlessly. “Wrap it up...”
*** “FORGET PROPERTIES OR SHARES,” says a Dear Reader. Here’s how to make real money:
From the Bristol Evening Post:
Outside Bristol Zoo is the car park, with spaces for 150 cars and 8
coaches. It has been manned 6 days a week for 23 years by the same charming and very polite car park attendant with the ticket machine. The charges are £1. per car and £5. per coach.
On Monday 1 June, he did not turn up for work. Bristol Zoo management
phoned Bristol City Council to ask them to send a replacement parking attendant.
The Council said "That car park is your responsibility." The Zoo said, "The attendant was employed by the City Council... wasn't he?" The Council said
"What attendant?"
Gone missing from his home is a man who has been taking daily the car park
fees amounting to about £400. per day for the last 23 years...!
Total sum just short £2.9 million.
Recommended Article: Bernanke to Stay Put: Damned if he does; damned if he doesn’t by Bill Bonner
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