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Wednesday, June 3, 2009

Ben Bernanke: The Concerned Financial Drug Dealer

Ben Bernanke issued a peculiar warning today.

Federal Reserve Chairman Ben Bernanke is urging Congress and the Obama administration to start plotting a strategy to curb record-high U.S. budget deficits. Failing to do so could eventually erode investor confidence and endanger the economy's prospects for long-term health, he said.

Bernanke's comments, before the House Budget Committee on Wednesday, come as concerns grow at home and overseas about the United States' mounting red ink.

"Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance," Bernanke said.

This is peculiar because to me at least the Federal Reserve Chairman telling the government to get serious about their deficit problem is sort of like a drug dealer telling his client to get serious about their drug problem. After all, it is Bernanke, through quantitative easing, who is perpetuating the out of control deficits.

Bernanke has spent the better part of the last three months buying hundreds of billions of bonds, both mortgage and U.S. treasury, using money he created out of thin air. This has allowed the Federal government to bankroll its massive new defecit while keeping its borrowing costs relatively low.

Now, he's suddenly concerned over the massive deficits being created. Had Bernanke not decided to bankroll all of these deficits with massive quantitative easing, they never would have happened. Borrowing costs would have simply exploded before the government could actually produce them all.

The only reason that Obama is still talking about universal health care and a massive $3.4 trillion budget is because Bernanke has managed to artificially keep the U.S. Treasury bonds below 4%. Had Bernanke not engaged in massive quantitative easing all of these plans would have been tabled.

Yet, after essentially financing all of Obama's wild spending ideas now Bernanke is concerned that they will have lasting and long term effects. That appears to be sort of like a drug dealer concerned with their buyer's long term health because of their crack habit.

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