hmmm...somethings up, page-53

SaturnV,

He he! Mate, I wouldn't be Ben Bernanke for all the $US in China!

I just read a commenter on www.clusterstock's discussion of this story who was quite prescient about its likely consequences, I think:-

Fedster said:
Dec. 01, 5:15 PM
@ lalala

Fed may buy all bonds

a) to inject money
b) they have lost their inventory by lending it out so they having nothing to sell when tightening
c) they wanna drive people into stoxx by trashing long end yields
d) they wanna drive banks to lend rather then buying treasuries and riding the yield curve with almost zero fed money...

What they forget is they wipe out the few savers that are left and penalize the whole pension and insurance industry which rely partially on fixed income investments to meet their liabilities.

Results will be devastating:
Bank margins shrinking
Banks still don't lend (It's a matter of borrowing capacity not rates, stupid!)
Pension industry (hold it..that's your and my pension) being screwed...but we will only know that as the baby boomers retire.

Ben knows how to fight liquidity problems. He doesn't know how to fight solvency problems. The painful fact is that there is only one way to fight a solvency problem: let the bankrupt go down, do your fiscal best to soften the blow and pick up the pieces after its all over.

But, then, Bernanke and most other modern economists have come to believe that, under a fiat currency system, there is always a way to pull a rabbit out of the hat. The Austrian economists would tell them that they are only making matters worse.