Monday, June 29, 2009

Does Ben Bernanke Have a Diabolical Plan to Help Treasury Finance $2 Trillion?

Federal Reserve Board Chairman Ben Bernanke is the most difficult Fed chairman that I have ever followed. Not only is he difficult to read, but he seems to change policy in mid-stream. He also has a penchant to invent new "tools", when the basic tools of controlling money supply, the Fed Funds rate, the discount rate and the reserve requirement, can pretty much handle any money policy that you can think of. .

Now, I'm wondering if the too clever by half Bernanke may have a diabolical plot to finance the record $2 trillion debt the Treasury is starting to raise. While China and pretty much everyone else are watching to see how much money the Fed is going to print to absorb the record debt, maybe Bernanke is going to fake out everyone and go in the opposite direction.

In the summer of '08, he nearly crashed the entire economy when he stopped printing money. A byproduct of the crisis he created was a flight to quality, i.e., Treasury securities. Is he now working toward another September panic that will frighten everyone into a flight to quality, i.e., Treasury securities, that will provide the opportunity for the Treasury to unload $2 trillion in debt? Is this what is going on with the new slowdown in money supply growth?

1 comment:

  1. Robert, Gary Tanashien has been writing about this in his newsletter, thought similar to yours. Get everybody leaning in to the inflation thesis trade, then... whammo. One more deflationary impulse, as Gary calls it. Anyone that moves out of the dollar prior to this will get killed. Equities crash, everybody panics and buys treasuries. Problem solved.

    For about fifteen minutes. Then, like the fish at the end of the "Finding Nemo" movie, Bernanke will call a staff meeting, look around the table, and say "Now what?"