Bernanke’s Next Parlor Trick

Ben Bernanke is getting ready to pull another rabbit out of his hat and he’s hoping no one figures out what he’s up to. Here’s the scoop; the Fed chief needs to “borrow up to $3.25 trillion in the fiscal year ending Sept. 30” (( “Treasuries Tumble as Jobs Report Renews Fed Rate Speculation,” Bloomberg.)) without triggering a run on the dollar. But, how? If the stock market keeps surging, investors will turn their backs on low-yielding US Treasuries and move into riskier securities hoping for better returns. The only way to attract more buyers to US debt is by raising interest rates which will kill the “green shoots” of recovery and make it harder for people to buy homes and cars. It’s a conundrum.

In the next year, China will buy roughly $200 billion T-Bills while the oil producing states and the rest of the world will add about $300 billion to their stash. That leaves more than $2 trillion for the domestic market where cash-strapped investors are likely to avoid government debt like the plague. So, who’s going buy that mountain of low-yield government paper?

The banks.

The Fed has been helping the banks raise reserves for the last year. In fact, excess bank reserves have skyrocketed from $96.5 billion in August 2008 to $949.6 billion by April 2009. Nearly a trillion bucks in less than a year. But, why? Are the banks expecting to expand lending at the fastest rate in history in the middle of a depression?

No way; that’s why Master illusionist Bernanke is arranging the props for his next big “Hocus-pocus”. The fact is, Bernanke anticipated the current wave of deflation and set up a straw man (the banks) to deal with it so it wouldn’t look like he was simply printing more greenbacks to finance the deficits. As soon as rates on 10-year notes hit 4%, the banks (that are borrowing money at 0%) will probably start to purchase Treasuries and keep the housing and retail markets from crashing even faster. It’s called “the old switcheroo” and no one does it better than the Fed.

Bernanke pulled a similar stunt after Lehman Bros flopped and he and Paulson decided that it was time to dump 700 billion worth of garbage assets on the public. The Fed chief and Treasury figured out the only way they could hoodwink congress was to stir up a crisis in the credit markets and then moan that if they didn’t get $700 billion to buy up toxic assets in the next 48 hours “there wouldn’t be an economy by Monday”. (I’m not making this up)

Congress swallowed it hook, line and sinker, and weeks later the funds were allocated for the Troubled Asset Relief Program (TARP). Of course, no one in the financial media noticed that the turmoil in the credit markets was NOT caused by “troubled assets” at all (for which TARP funds have NEVER been used) but by skyrocketing LIBOR and TED spreads and other indicators of market stress. Market Ticker’s Karl Denninger was the only blogger on the Internet who figured out that Bernanke had deliberately caused the crisis by draining over $100 billion from the banking system just 10 days after Lehman defaulted. Here are Denninger’s comments on September 24, 2008 along with the damning chart which proves the Fed was scuttling the ship to extort money from congress:

Market Ticker: “Note that this is an intentional drain of “slosh”, or liquidity, from the banking system. $125 billion in the last four days drained? (( “Congress must Excise the Bernanke Cancer,” Market Ticker.))

“It appears to me that he (Bernanke) both orchestrated the crash of the market in the fall of 2008 as a leverage tool to force the passage of the TARP and may have been responsible for Washington Mutual’s collapse and forced dismemberment.

Let us remember that on September 20th, four days prior to Bernanke’s action, Henry Paulson pitched TARP (along with Bernanke) to Congress.” ((Market Ticker.))

As soon as Paulson and Bernanke had pulled off their multi-billion dollar heist, the Fed chief created lending facilities (completely unrelated to the TARP) which provided government guarantees on money markets and commercial paper. This lowered LIBOR and TED spreads immediately and relieved the stress in the credit markets. The crisis had nothing to do with toxic assets; it was a cheap parlor trick by a professional charlatan. To this day, none of the junk securities have been purchased from the banks under the TARP program. $700 billion has vanished in a puff of smoke.


Mike Whitney lives in Washington state. He can be reached at: Read other articles by Mike.

4 comments on this article so far ...

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  1. Manishevitz said on June 15th, 2009 at 7:57am #

    In a free market economy it is difficult for me to see how and why the auctions of Treasury Bills have plummeted so in recent months. Seeing 0.2% on a 6 month bill is simply crazy! It looks to me that brother “Ben” has somehow manipulated the market in order to get investors out of Treasury Bills and into the banking sphere. Some banks have been advertising up to 3.51% on the first $50,000 for a 3 month introductory period. Anyone invested in Treasury Bills wonders what is going on? During the recession back in 1981, Treasury Bills soared up to as high as 18%! But that was during Reagan. I can’t help but think that the Americans are being “set-up” for a New World Order currency after brother “Ben” and the International bankers trash the dollar. And what happens when the foreigners pull their “T Bills”? Gold could soar to $6000/ounce.

  2. Don Hawkins said on June 15th, 2009 at 4:28pm #

    I wonder do the leaders in China or the oil producing states and the rest of the world including Congress read DV they should.

    Foolishness or empty pretense used especially to disguise deception or chicanery.

    Oh what a tangled web we weave, when first we practice to deceive then disguise the deception and in reality, it’s still here, nothing more than Foolishness. Everything should be made as simple as possible, but not simpler. So far just the opposite and I just heard on CNN that the President is troubled about Iran. Well he shouldn’t feel alone as many people feel troubled on much of what we see and the nonsense passing as knowledge, reason, wisdom. It’s strange how the media can all think the same from one day to the next. It’s almost like earlier today as they watched the pictures out of Iran all was well again with the World for a few hours. I wonder what state of mind is in store for us tomorrow. The President did say he was deeply disturbed by the peaceful protests in Iran and the violence perpetrated upon them. Here in the States we have no reason to have peaceful protests as are leaders are in firm control of an out of control system and using foolishness empty pretense deception and chicanery to solve these problems and we don’t get fooled again. Glenn Beck was even Mr.nice guy today we all need to work together at least today that’s what he said and didn’t bring up Fascism once. Well tomorrow is only a day away I can hardly wait to see what’s in store for us next. Listen to your leaders and watch your parking meters. Yes our leaders grown ups adult’s are in firm control of the situation and there plans for the future are nothing short of brilliant if you enjoy third grade thinking.

    If you hear this message
    Wherever you stand
    I’m calling every woman
    Calling ever man

    We’re the generation
    We can’t afford to wait
    The future started yesterday
    And we’re already late. John Legend

    And we’re already late come on have you seen there plans for the future and we thought all the thinkers were gone and talk about facing the problems with reason and working together for a common cause/money is mind boggling to watch how did the greatest nation on Earth make such men. Remember we are the Saudi Arabia of coal and can go another 100 years at full speed or faster mind boggling isn’t it and let me finish with a TV series that many times was a little to close for comfort.

    The middle ground between light and shadow, between science and superstition, and it lies between the pit of man’s fears and the summit of his knowledge. This is the dimension of imagination. It is an area which we call the Twilight Zone. ”


  3. Youri Carma said on June 17th, 2009 at 1:15pm #

    Indeed Bernanke has been caught between a hard and a rock place! Rising interest rates and not spending will end the “green shoot” dream immediately which Bernanke is not intend to do, nor can he practically and according to his own Greenspan adopted philosophy.

    The biggest sneak eye will be for the taxpayers when looking at the U.S. government using taxpayers money to build and buy so called “Private Institutions” to buy up their own dog food treasuries and toxic assets. But these institutions are far from private and again the markets get rigged.

    The government/Wall Street banksters will be on the long end of the stick again slurping loads of tax payers money into their fees, interest and administration costs!

    Remember that research has shown that the increased money supply is a good indicator for inflation 3 years down the road. So, inflation discussions maybe to early and will expose themselves first with higher oil prices I think.

  4. The Mad Ape said on June 18th, 2009 at 4:48am #

    This posting is the very reason why everyone needs to call their representative in Washington and make sure the he or she supports HR-1207 – Audit the FED Bill by Ron Paul.

    Bernanke has hired a former Enron Exec as a lobbyist to put a halt to this, so you know he is getting nervous. There are currently 234 co-sponsors so this can be made veto-proofed if everyone keeps working hard.

    The new target is to get after the Senators to support their version: S-604.

    Visit Ron Paul’s site and see if your representative is on the list. If he or she is call and thank them. That is very important. If not then call and demand it from them if they ever want your vote again.

    The Mad Ape