Ben Lied

Over the years a good number of speeches by our leaders have been marked by history. Abe said, “Four score…”, Jack said, Ask not…”, George said, “Mission accomplished…” I think we got more of those memorable worlds today from Bernanke. His comments will be remembered like George’s. They will stick in our minds and thoughts for decades. And like George’s words, history will prove them to be a lie. Ben’s lies will cost us trillions, and quite possibly our way of life. His lie:

I am confident that the FOMC will be able to tighten monetary conditions when warranted, even if the balance sheet remains considerably larger than normal at that time.

How could he possibly be “confident” that this can be done? It has never been done before. No sane man can make such a promise when there is no history to guide us. Bernanke is sane, therefore I conclude that he is lying to us on this critical fact.

What economic environment would exist when “conditions warrant tightening”? That’s simple to forecast. If inflation goes above 4% in any 12 month period or averages above 3% in 24 months they would have to tighten. Bernanke thinks he can sell a few trillion in Bonds in that environment? Not a chance in hell. If the Fed said, “From now on we will be selling 100b a month” the bond market would fold. Long-term interest rates would pass 5% in months. 6% mortgages and competition for credit from the private sector would collapse the economy.

Bernanke is an academic who studied the Great Depression. He has never sat on a bond desk. He has no idea what it is like when the holders of your paper say, “No mas”. He thinks that because there is an insatiable demand for fixed income today the same conditions will exist when tightening is required. He says he is confident of that. Not possible.

For me the Grand Experiment of QE rests on the issue, “Can we get out this?” If that is in doubt (as I strongly believe) then the policy can only be viewed as a reckless gamble. Before Bernanke pulls the trigger he needs to convince me and many others that his confidence is justified. I want to hear some thoughts from others on this issue. I want to hear from Brian Sack at the NY Fed. It is he who will have to execute what Bernanke is so confident about. He would never soft sell that risk. He knows full well that it can’t be done without the possibility of a spectacular blowup. He would never use the word “confident”.

I want to hear from the primary dealers and the likes of PIMCO. Put them on a stand in D.C. and ask if they are confident that this can be accomplished. Not one would. Get some former Treasury Secretaries to opine. I would like to hear from Greenspan. NO ONE would say they are confident on the outcome. I want to see just one credible source chime in with Bernanke on this. Just one.

Bernanke put his reputation on the line with his “confident” remark. How can anyone be so certain about an uncertain future?