Our story continues…
According to the popular version, Ben Bernanke, our flawed hero, has
averted a Second Great Depression. When the crisis came in ’07-’08, he
calmly took out the text he had written himself: “Dummies’ Guide to
Avoiding a Japan-style Deflation”…or something like that.
Then, he followed his own theory…coolly…confidently…cutting Fed
rates down to nearly zero, pushing Congress to pass a huge ‘stimulus’
bill, and even forcing Bank of America to take over Merrill Lynch. In
this last event, he is accused of deliberately hiding Merrill’s
enormous losses and then threatening the BofA board with dismissal if
Because of Bernanke’s swift and assertive action, the
nation’s banking system held together during those critical weeks of
late 2008. And because of his monetary (and fiscal) policies,
all the worlds’ economies are now in some stage of recovery. Stocks are
rising. House sales are increasing. All the indicators point to a
In recognition of the fact that he saved the world, Ben Bernanke was
given the nation’s highest honor; Obama picked him to continue as head
of America’s central bank, the Federal Reserve…even though his
predecessor, a Republican, appointed him.
Everyone needs a story. It’s the way we understand things. Data is just data. Numbers are just numbers. Facts are just facts. Without the framework of a good tale to hold them together, they are worthless.
That’s why, here at The Daily Reckoning, we are suspicious
of facts, data and numbers. As for the numbers, they are wrong before
they get to us…often intentionally. Then, when they are later
straightened out, they sometimes tell a completely different story.
Even the ‘facts’ often turn out to be not facts at all…but distorted
data, information has been twisted to fit into a storyline.
The more precise the data, meanwhile, the more they lie. Give us a
CPI rate of 6.24% and we will give you back two numbers that are total
fictions…and another one that turns out to be wrong later. As for the
GDP growth rate…don’t even bother to give us a number at all. Whatever the digits say, it’s a lie.
This week came news that the GDP is falling at a 1% rate. This
number surprised economists. They thought it was falling at a 1.5%
rate. This better-than-expected number encouraged investors to buy
stocks; the Dow rose 37 points yesterday. Oil and gold remained more or
less where they were.
Economists are frequently surprised. In a study of GDP forecasts, a
researcher found that economists did nothing more than extrapolate
current trends into the future. If the GDP was growing at 2%…they
projected that it would grow at 2.3% the following year. Or maybe 1.9%.
These projections were mostly correct. Generally, one year is a lot
like the year before. But whenever the direction changed dramatically,
economists missed it completely. In other words, they’re not really
capable of telling us what the economy will do – unless it does nothing
We’ve discussed the emptiness of the GDP figures many times. Just
because the GDP is growing doesn’t mean people are really any better
off. In fact, GDP growth during the Bubble Epoque was really a measure of how fast people were ruining themselves.
Seventy percent of the GDP was consumer spending; as consumer spending
went up so did debt. The result was a paradox and a shame – at the end
of one of the longest periods of uninterrupted GDP growth in history,
the typical householder was poorer than he was than when it began.
That’s why we are skeptical of numbers…especially precise numbers. They lie through their decimals.
What matters is the story…and our story now centers on the role of
one man: Ben Bernanke. But the story that most people hear…and
believe…is false. It is like GDP growth in the Bubble Era…it may sound
right on the surface, but the real story is opposite to what is
Bernanke ‘wrote the book’ on avoiding deflation, ’tis true. But he doesn’t really have a clue what he is doing. He didn’t really avoid a Second Great Depression.
There isn’t really a genuine recovery underway. And the world is not
becoming a better place as a result of Ben Bernanke’s exertions.
Au contraire…he’s making a natural mess into an unnatural one. He’s
turning a depression into a Great Depression. He’s making a bad
At least, that is OUR plotline. But we’ll let the story tell
itself…day by day…and see where it leads us. If we are wrong about the
plot…we’ll find out…
The pound is in trouble. Our currency man, Bill Jenkins, sheds some light on the situation:
“Reason #1: Inflation is falling, which generally
means no forecast for a rise in rates. No rising rates means no
attraction for investors. Inflation has been falling since October ’08:
5.2%, 4.5%, 4.1%, 3.1%, 3.0%, 3.2%, 2.9%, 2.3%, 2.2%, 1.8%.
“Reason #2: U.K. exports have hit the skids for the
period going back to November. Check out these numbers year-over-year:
November: $36,260 billion; December: $35,190 billion; January: $34,412
billion; February: $33,046 billion, March: $32,765 billion; April:
$32,264 billion; May: $32,239 billion; June: $31,888 billion; July:
$32,208 billion. In spite of the flattening out over the last couple
reporting periods, there is no recovery here.
“Reason #3: Industrial production in the United
Kingdom has maintained double-digit losses since January: -12.1%;
February: -12.7%; March: -12.6%; April: -12.4%; May: -11.9%; June:
-11.1%. Without production, nothing sells. No sales.. no income. No
income… no jobs.
“Reason #4: Thus the unemployment rate has been
rising every month since January: 6.3%, 6.5%, 6.7%, 7.1%, 7.2%, 7.6%
and 7.8%. Unemployment is still on the rise. Nearly one in five
households are living on government benefits, with nearly 2 million
children living in homes where no adult is working.
“Finally, in the oddity column…
“Reason #5: Business confidence and consumer
confidence have been on the rise (although I am not sure why). I have
mentioned to you before that sentiment figures are not really
fundamental indicators. However, you can view them in a contrarian
light when the real numbers are falling and the sentiment numbers are
rising. Everybody wants things to be better but, as St. Paul writes,
‘He that deceiveth himself is not wise.’ And when we do ignore the
‘facts,’ they always come back to bite us!
“This is the foundation of a sucker’s rally. People are drawn out of
the woods and back into the mainstream, only to be blindsided by
another whack from the recession paddle.”
“Forget properties or shares,” writes a dear reader. Here’s how to make real money:
From the Bristol Evening Post:
“Outside Bristol Zoo is the car park, with spaces for 150 cars and 8
coaches. It has been manned 6 days a week for 23 years by the same
charming and very polite car park attendant with the ticket machine.
The charges are £1. per car and £5. per coach.
“On Monday 1 June, he did not turn up for work. Bristol Zoo
management phoned Bristol City Council to ask them to send a
replacement parking attendant.
“The Council said, ‘That car park is your responsibility.’ The Zoo
said, ‘The attendant was employed by the City Council…wasn’t he?’ The
Council said, ‘What attendant?’
“Gone missing from his home is a man who has been taking
daily the car park fees amounting to about £400. per day for the last
“Total sum just short £2.9 million.”
What a summer.