The Bernanke Butterfly/Hurricane Myth

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The Bernanke Butterfly/Hurricane Myth

Post by Pat »

As noted in Answer 25 of the First Short Quiz, The U.S. Federal Reserve Bank (as our Central Bank is called) was given two missions by Congress = (A) maintain a stable currency (i.e., prevent inflation or deflation), and (B) minimize unemployment.

And as also noted in Answer 25 of the First Quiz and the Current Events Answer of the Second Short Quiz, Bernanke thinks that because of the “minimization of unemployment” mission, he has a "butterflies causing hurricanes on the opposite side of the globe" authority to "tilt with windmills"!!! Accordingly, so long as the Fed believes that "a butterfly beating its wings on one side of the earth can create a hurricane on the other side" it has the authority to do anything "under the sun"!!! And the Fed doesn't even have to state its belief "with a straight face" because nobody knows what it is doing unless the Fed chooses to confess what it is up to!!!

As a result, he launched (1) STEALTH QE-3 in mid-September (less than 3 weeks after his 8/26/2011 announcement that there would be NO MORE QE’s) to “print” enough dollars to keep the Italian and Spanish governments afloat through 12/31/2011 -- which, because of his secrecy, we can only assume “worst case” might result in “printing” an additional $4 TRillion, and (2) QE-4 on 11/30/2011 to “print” enough dollars to keep all insolvent European commercial banks afloat through 2/1/2013 -- which appears to be as broad as his QE-1 bailout of insolvent commercial banks 2007-2009 which, per the recently-successful “Freedom of Information Act” lawsuit against the Federal Reserve by Bloomberg News, resulted in “printing” $7.77 TRillion to loan to the insolvent banks (MORE THAN 11 TIMES THE SIZE OF THE $700 Billion “Troubled Asset Relief Program” ("TARP") voted by Congress in the Fall 2008 for the same purpose!!!)!!!

The foregoing is a reminder of material previously circulated.

The reason for this posting is that media reports indicate that the insolvency of some European commercial banks IS CONFINED TO EUROPE and American commercial banks are NOT affected by the European imbroglio, at least NOT to the extent of needing any special loans from the Federal Reserve!!!

And in the hysterical reporting of the European-debt crisis by the American media, there have been incessant unsupported statements to the effect that America and Europe are so “inter-connected” that another economic meltdown in Europe will drag the American economy into a “second-dip” recession!!!

Digressing for a moment, such hysterical reporting appears to be taking its cue from President Obama’s re-election campaign which has been propagating the unsupported notion that “financial meltdowns” always require a much longer recovery (say, 10 years), as well as propagating the unsupported notion that the European-debt crisis would produce a second recession in the U.S.

It is true that that the 2007-2009 U.S. mortgage-debt meltdown did impact Europe -- but only because much of the borrowing to finance the U.S. mortgages came from European investors. But, another major cause of the European recession was Ireland’s own “junk mortgages” which brought down the Irish banks, brought down Ireland’s government when it foolishly tried to guarantee the indebtedness of its banks, and threatened the solvency of major banks in Germany, France, etc., which had been stupid enough to loan money to the Irish banks.

But that does NOT mean that the U.S. media and the American public should leap to the conclusion that defaults on the sovereign debt of Greece, Italy, Spain, etc., (or the insolvency of some European commercial banks as a result of those defaults) would necessarily have much impact on the U.S. economy!!!

That is a “knee jerk” reaction to the European “butterflies” that we should “batten down our hatches” for a “hurricane”!!!

Contrary to unsupported media reports, the U.S. does NOT export much to Europe.

There are only two major international-commerce flows.

First, oil & gas from oil-exporting countries to Europe and to the U.S., but NOT between Europe and the U.S.

Second, manufactured goods of European-based and U.S.-based multi-national companies. But as we have studied in the past, virtually all of those goods are manufactured by the European-MNC’s and U.S.-MNC’s in low-wage countries such as China and shipped from the low-wage countries to Europe and the U.S. -- but NOT to any significant degree manufactured in the U.S. and shipped to Europe or vice versa. [In this regard, it should be noted that even European auto manufacturers make most of their cars for the U.S. market IN THE U.S. from raw materials, such as steel, imported from Asia.]

Accordingly, it should come as no great surprise that U.S. commercial banks do not need any special help from the Federal Reserve.


I propose a campaign to request President Obama and Congressional leaders to enact new legislation to (1) require audits of the Federal Reserve to ascertain on a regular basis what it has been doing, and (2) narrow substantially the Butterflies/Hurricanes interpretation by the Fed of its mission to minimize U.S. unemployment because under the Butterflies/Hurricanes interpretation, THERE IS NOTHING that the Fed is not empowered to do, no matter how tenuous or insignificant the impact on U.S. unemployment.

Just two items to ponder vis-à-vis the second point about narrowing the Butterflies/Hurricanes interpretation.

First, we probably all recall how the markets reacted so violently negative in the Fall of 2008 when Congress failed to pass the “Troubled Asset Relief Program” ("TARP") for a mere $700 Billion!!! [Which, of course, caused Congress to change its mind in only a couple of days!!!] AND NOW WE LEARN THAT THE FED WAS ALREADY IN THE PROCESS OF “PRINTING” MORE THAN 11 TIMES THAT AMOUNT ($7.77 TRILLION) FOR THE SAME PURPOSE!!!

Second, we have all witnessed the epic struggle of Congress since last spring to reduce our federal-government deficits by a measly $ TRillion or two OVER THE NEXT 10 YEARS!!! AND NOW WE LEARN THAT THE FED’S “STEALTH QE-3” TO KEEP ITALY AND SPAIN AFLOAT THROUGH YEAR END, AND OVERT QE-4 TO KEEP INSOLVENT EUROPEAN COMMERCIAL BANKS AFLOAT THROUGH 2/1/2013 MAY RESULT IN “PRINTING” $13 TRILLION!!!

Where is our common sense?????

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