ben bernanke and blissful ignorance! Ignorance is BlissThe Daily...

ben bernanke and blissful ignorance! Ignorance is Bliss

The Daily Reckoning - Weekend Edition
February 18-19, 2006
Baltimore, Maryland
By Kate Incontrera

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MARKET REVIEW: IGNORANCE IS BLISS

Ben Bernanke stepped up to the plate as new Fed chairman this week,
attempting to put out fires and soothe fears - and apparently, he did a
pretty good job. He told everyone exactly what they wanted to hear...but
that doesn't make it the truth.

In his debut before Congress, he delivered his first economic report to
the House Financial Services Committee, explaining that the U.S. economy
is growing at a good, healthy pace.

We know someone who might be inclined to disagree: Dr. Kurt Richebächer.

"The current U.S. economic recovery that began in November 2001 is -
despite all the associated hype - the weakest one by any measure, except
residential building," says the Good Doctor.

"Of all measures, the current U.S. economic recovery looks by far best in
terms of real GDP growth," he explained. "As this is, moreover, the most
popular and widely used general measure of national economic performance,
it has generated a common perception that the U.S. economy has done
extraordinarily well in the last few years.

"That GDP growth looks by far best for this economic recovery has its
overt reason in the fact that it is an abstract aggregate concerning
everybody and nobody. Moreover, it is easily levitated by creative
accounting of the inflation rate, of which the BLS is for well-known
reasons a great master. Just 2%, more or less, in the inflation rate makes
all the difference between apparent solid economic growth and
stagnation."

And what of our record-breaking $725.8 billion trade deficit? The world
improvers in Washington are having a field day with this one - saying that
the Chinese, with whom 28 percent of the entire trade deficit is with,
need to let their currency rise against the dollar - or else...

But Bernanke shoots to minimize the possibility that China might suddenly
dump some U.S. debt, saying, "I don't think that the Chinese ownership of
U.S. assets is so large as to put our country at risk economically."

Yeah, they only own $819 billion worth of U.S. assets, mostly in Treasury
debt...but that's nothing to worry about. It's not like it gives them any
political leverage...but that's a story for a different time.

So, knowing all of this, why doesn't anyone really question the supposed
"growth" of the U.S. economy? There is little attention being paid to the
inverted yield curve, which usually signals an upcoming recession.
Greenspan, without offering any sort of explanation, just empty rhetoric,
said that the flattening yield curve doesn't have to mean a recession. And
Bernanke mumbled something about a "global savings glut" and figured no
one would question it.

"But that doesn't make sense," argues Dr. Richebächer. "Greenspan has
argued that the low longer-term interest rates reflect the Fed's eminent
policy posture over the past few years, leading to the low core rate of
inflation and sharply diminished risk premiums."

Without question, the U.S. bond purchases by Asian central banks help to
keep U.S. longer-term bond yields down. Yet they are grossly insufficient
to accommodate the credit deluge flooding the U.S. economy and its asset
markets at these low rates.

Dr. Richebächer concludes: "Greenspan's reference to low-risk premiums as
an explanation for the low long-term rates just serves as a diversion from
the all-too-obvious true cause: the greatest credit excesses in history."


Kate Incontrera
The Daily Reckoning

P.S. The powers that be say that this trend of overspending and
under-saving is all part of the recovery ahead. However, the moment all
that excess credit is withdrawn, everything falls apart!
House prices fall, stocks fall, U.S. bonds fall, the dollar falls,
everything falls. Because liquidity is sucked out of the system. Nobody
has money to spend. So there's no demand for the assets that only those
with lots of credit and easy money can typically afford.

At this very moment, this is the gravest danger facing the American
economy - and Dr. Richebächer won't mince words. Read his full report on
this false recovery...and learn about his crisis-countering money move
that will not only dull the impact of this coming crash, but could also
make you richer:

The 5 Safest Investments You'll Make in 2006
http://www1.youreletters.com/t/337480/9338910/784548/0/


GZ