Bernanke’s New Helicopter Money Plan – Sheer Destructive Lunacy
By Tyler Durden
Submitted by David Stockman via Contra Corner blog,
If you don’t think the current central bank driven economic and financial bubble is going to end badly, recall a crucial historical fact. To wit, the worldwide race of central banks to the zero bound and NIRP and their $10 trillion bond-buying spree during the last seven years was the brain child of Ben S Bernanke.
He’s the one who falsely insisted that Great Depression 2.0 was just around the corner in September 2008. Along with Goldman’s plenipotentiary at the US Treasury, Hank Paulson, it was Bernanke who stampeded the entirety of Washington into tossing out the window the whole rule book of sound money, fiscal rectitude and free market discipline.
In fact, there was no extraordinary crisis. The Lehman failure essentially triggered a self-contained leverage and liquidity bust in the canyons of Wall Street, and it would have burned out there had the Fed allowed money market interest rates to do their work. That is, to rise sufficiently to force into liquidation the gambling houses like Lehman, Goldman and Morgan Stanley that had loaded their balance sheets with trillions of illiquid or long-duration assets and funded them with cheap overnight money.
There would have been no significant spillover effect. The notions that the financial system was imploding into a black hole and that ATMs would have gone dark and money market funds failed are complete urban legends. They were concocted by Wall Street to panic Washington into massive intervention to save their stocks and partnership shares.
The same is true of the claim that corporate payrolls would have been missed for want of revolving credit availability and that the entirety of AIG had to be bailed out to the tune of $185 billion in order to protect insurance and annuity holders.
In fact, the entire problem of the collateral call on AIG’s bogus CDS insurance was contained at the holding company. The latter could have been liquidated with less than $60 billion of losses distributed among the world’s 20 largest banks. These were mostly state-backed European behemoths—-like Deutsche Bank and BNP Paribas—-that between them had balance sheet footings of $20 trillion. The loss would have amounted to a couple of quarters net income and a big dent in year-end bonuses for top executives. Nothing more.
The most important point, however, is that there was never any danger of a run on main street banks by retail customers. To be sure, there would have been a temporary disruption in the real economy owing to the necessary curtailment of unsustainable activities related to the housing bubble and due to a downshift of household consumption that reflected unsustainable borrowing.
But as I demonstrated in detail in the Great Deformation, the necessary liquidation of excessive inventories and labor that had built-up during the housing boom had exhausted itself by September 2009. That was long before there was even a remote hint that Bernanke’s wild money pumping had caused households and business to increase their borrowing levels.
Stated differently, the US economy was already …read more
Source: Bernanke’s New Helicopter Money Plan – Sheer Destructive Lunacy
