'There’s no reasonable justification for Dr. Bernanke taking such extreme risks with financial and economic stability .. I’ll state what others hesitate to admit: this week our central bank took a giant leap from radical to virtual rogue central banking .. As an analyst of Bubbles, I often quip that they tend to “go to incredible extremes - and then double.” '<blockquote>'Instead of moving prudently to rein in egregious Credit and speculative excess, the Greenspan/Bernanke Fed’s went in the opposite direction and repeatedly provided extraordinary accommodation. Amazingly, each bursting Bubble led to only more aggressive monetary largess and more power for dysfunctional (Bubble-prone) markets. Thursday’s policy move by the Bernanke Fed essentially indicates full capitulation to what has become a highly speculative global marketplace. There is at this point no doubt in my mind that we are witnessing the greatest monetary fiasco ever.
In early-2009 I pleaded, “While I understand the necessity of stemming financial collapse, please don’t go down the policy path of fueling a Treasury and government finance Bubble – one at the very heart of our Credit system.” Never at the time could I have imagined the extent to which the Bernanke Fed would be willing to inflate history’s greatest Bubble. Chairman Bernanke has gone from resorting to radical policies during a period of acute financial crisis to one of imposing only more radical policymaking three years into recovery. He has gone from trying to stem Credit contraction to aggressively promoting rapid (non-productive) Credit expansion. Dr. Bernanke has evolved from radical liquidity injections meant to reverse marketplace illiquidity, to pre-committing to years of open-ended money printing in the midst of heightened inflationary pressures and dangerously speculative financial markets. Of course, justification and rationalization are everywhere. History will be unkind.
I have no reason to doubt the commonly held view that Dr. Bernanke is a decent and honorable man. I wish he was a scoundrel – then perhaps someone would do something to rein him in. Many of our nation’s leading economist lavish praise on Dr. Bernanke latest move, while some, amazingly, say he still hasn’t done enough. Quite regrettably, it will require a terrible crisis for the establishment to change policy doctrine, along with economic analysis more generally.
There’s no reasonable justification for Dr. Bernanke taking such extreme risks with financial and economic stability. And I struggle to understand how he doesn’t see the likely consequences. After the cult of Greenspan, I thought we had learned a lesson from having one individual exert such power and influence. Indeed, the Federal Reserve has now grossly overstepped its role. Never was it anticipated that the Fed would resort to massive purchases of Treasury bonds and mortgage-backed securities in a non-crisis environment. Never was it contemplated that our central bank would resort to pre-committing to massive ongoing money printing in the name of reducing the unemployment rate.
I’ll state what others hesitate to admit: this week our central bank took a giant leap from radical to virtual rogue central banking. If Bernanke’s plan was to leapfrog the audacious Draghi ECB, our sinking currency – even against the euro – is confirmation of his success. If his goal was to provide markets a Benjamin Strong-like “coup de whiskey” – he should instead fear the dangerous instability central bankers have wrought on global markets and economies. And I am all too familiar to the adversities of being a naysayer in the midst of Bubble mania. I’ve read about it, I’ve lived it and I’m ok with it – and actually am motivated by it. I highlighted last week the ominous divergence between world fundamentals and the markets. And this week, well, global markets enjoyed just a spectacular time of it. Away from the Bloomberg screen, it sure seemed like a less than comforting week for the world at large.
As an analyst of Bubbles, I often quip that they tend to “go to incredible extremes - and then double.” Timing the bursting of a Bubble is a very challenging – if not nearly impossible – proposition. Yet this in no way should cloud the harsh reality that the longer a Bubble is accommodated the more devastating the unavoidable consequences. It is, as well, the nature of speculative manias for things to turn crazy in the destabilizing terminal-phase. The past few weeks – with more than ample Bubble accommodation and craziness - really make me fear that eventual day of reckoning.'
- Doug Noland,
QE Forever, September 14, 2012</blockquote>
Context<blockquote>
'Well, panic the Fed did..', September 13, 2012
Monetary Anarchy</blockquote>