2/04/2011 PERMALINK
I think it is starting to dawn on Ben Bernanke how profoundly fracked he is. He shot the nation's wad on trillions in stimulus. Thinking that this would re-inflate real estate prices and bail out the banks. Something that must happen, because banks can only survive for so long on the phantom capital Ben created for them by pressuring the nation's accountants to suspend mark to market rules. This allowed the nation's banks to keep worthless loans on their books at full value, allowing them to avoid bankruptcy by fraudulently making it appear that their lost capital was still intact.

But here we are, with uncounted trillions spent and a big vault at the Fed full of worthless assets, and yet the housing and commercial real estate values are still dropping.

All Ben got for the biggest money creation and spending spree in all of human history was a run up in stock prices and a pop in commodities. And as history shows us, stock bubbles can evaporate in a heartbeat, if unemployment stays this high and real estate prices stay this low. And all a pop in commodities prices does is to force up what we all pay for food and other necessities. And as we've seen in a number of countries lately, rising food prices can get people pretty worked up.

So as both the IMF and Congressional Budget Office recently warned. Ben is staring at a systemic deficit of massive proportions that will continue, said the CBO, all the way out to 2080. It doesn't actually end in 2080. That is just as far out as the CBO felt they could project the deficits.

The systemic annual deficit is so large today. That Congress would have to double all income tax rates and cut all spending by 25% across the board, including social security, to get the budget anywhere near balanced.

Ben knows he's not going to persuade Congress to do that.

Why should they take the heat, when Bernanke has no choice but to print the money to cover the massive deficits they are running?

If Ben stopped soaking up all that new debt with printing money, then private investors would have to be enticed to buy it. And it would require a huge boost in the interest rate paid by the government to get private investors to swallow so much new Federal debt. And because we now owe so much, the increase in interest would mean that Ben would still have to print money to cover the deficit.

Ben's so far in that he has no way out. He has no choice but to keep printing the money to cover Congress's deficits. That is why we are hearing noises about a QEIII being necessary.

But Ben knows that printing so much money will inevitably seriously erode the buying power of American household incomes, and when the anger starts to build, all the accusatory fingers will be pointed at him.