Tags: Bernanke | Fed | money | printing

This Time it Is Different … (Not)

Wednesday, 27 Feb 2013 07:49 AM

By Ashish Advani

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While it sounds innocuous by itself, when you relate it to who said this and what they have said before, it scares the heck out of me. OK, so I may be paraphrasing just a tad, but Tuesday’s testimony by Federal Reserve Chairman Ben Bernanke in front of the Senate Banking Committee did not fill me with confidence or faith.

The man, who has expanded the Fed’s balance sheet by nearly 300 percent during his tenure, downplayed the risks of his own money printing:

“We do not see the potential costs of the increased risk taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery.”

He was responding to the question of what the expansion of the Fed’s balance sheet and the unlimited printing of money was going to do the economy.

The last time he made such a bold comment was back in 2007 when he was giving testimony to Congress about the housing bubble being under complete control and the high-risk mortgage bonds not posing a risk to the overall economy.

Let’s take a peek at what he said on March 25, 2007:

“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”

So forgive me for not believing him this time.

You see, the problem of giving a few people too much power and ability to control the process of creating money is quite old now. This is an experiment that has been tried and has failed each time with disastrous consequences.

In 1789, France was on the verge of ruins. Due to the wonton spending of decades and no regard to deficits, the treasury was bankrupt and the masses were starving.

The monarchy paid the price for it, eventually losing their heads in a 1793 execution. But it took the French economy decades to finally recover.

To manage the crisis, the French government tried the classic experiment by printing a new currency, as if that would restore confidence of the people. French Assemblyman M. Matrineau tried to blame the previous dictatorship by stating:

“Paper money under a despot is dangerous. It favors corruption. But in a nation constitutionally governed, which itself takes care in the emission of its notes [and] determines their number and use, it poses no danger anymore.”

What he meant was: This time is different. We’re different. We’re smarter. We won’t suffer the same fate. TRUST US.

While what followed may not be that easy anymore in modern day civilization, it can still take hold in different forms.

France faced hyperinflation and chaos. The response of the government was to print even more money and flood the market with more paper. When every measure failed, the French government imposed every control in the book — price controls, capital controls, information controls and people controls. They confiscated land, filled the prisons and exterminated their own people.

Here in the United States, we seem to be headed down that path. The United States already must borrow money just to pay interest on the money they’ve already borrowed.

This time it will not be different.

I have been shedding the U.S. dollar for a while now and hope you follow in the same vein.

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