Bill Bonner

Here’s the latest from The Telegraph:

Drip after drip of deflation data… Today’s release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at an accelerating pace – before the happy handover to the private sector is safely consummated – and given that the structural East-West imbalances that lay behind the global crisis are getting worse again… This follows yesterday’s horrendous fall in the Texas business activity index from the Dallas Fed, which fell from -4 in June to -21 in July. “Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June,” said the bank. Texas New Orders were -9.6 in July, -8.2 in June, and +15.8 in May. Capacity Utilization was -0.6 in July, +2.7 in June, and +18.7 in May. This of course is why Fed chair Ben Bernanke has been giving strong hints of QE2 (helicopters again) if necessary.

Here is where it gets so interesting we can barely sit still. Ben Bernanke is threatening to drop money from helicopters (quantitative easing). In a better world, a banker who threatened to inflate the currency would be punished immediately. People would take him at his word. They would dump his paper money immediately. The price of it would drop. He’d be forced to protect it.

But this time it really is different. As Ben Bernanke himself put it, even the “credible threat” of monetary inflation by the central bank should be enough to cause people to want to spend paper money rather than save it. Thus, Bernanke promised, he can always speed up the velocity of money and thereby bring about a boom, of sorts, simply by threatening to drop money from helicopters.

But lately he threatens. And still the dollar holds firm. Why? Because the threat is not credible.

Oh what a wicked twist of fate. What has this world come to when a central banker cannot roll the currency markets and whack speculators?

Usually, central bankers are careful to give the impression that they will protect their currencies. Even while they are actually undermining them with monetary inflation. Investors catch on after they’ve been shellacked a couple times. Then, the central banker loses credibility and the currency falls.

But this time, Ben Bernanke actually wants investors to believe he WILL undermine the dollar. He wants to stimulate spending and investing by encouraging people to get rid of greenbacks rather than save them. But people don’t believe him.

Inflation is only really a threat, we conclude, when central bankers are pretending to prevent it…not when they’re trying to cause it.

But why won’t Ben Bernanke drop money from helicopters? Because he’s got a rope around his neck…and it’s getting tighter. As long the US can finance its deficits at low interest rates, he can’t move. It’s uncomfortable, but it’s a damned sight better than hanging. More on this as we figure it out.

Regards,

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

Recent Articles

Kuroda’s Conundrum, a Contagious Desperation

James Rickards

First one to the bottom wins! Competitive currency devaluation is the war game. Jim Rickards takes us on a “day in the life” tour of Haruhiko Kuroda, the head of the Bank of Japan and one of the world’s greatest competitors in the race to the bottom…


Buy Small-Cap Stocks to Avoid the “Rotating Blades of Death”

Greg Guenthner

Small-caps are still in breakout mode. And even though they also ended Monday in the red, they look poised to break ahead of the S&P and the Dow in the weeks ahead. If the Russell keeps eating its vitamins, we could see a double-digit move in a matter of weeks--all without taking on much risk at all...


The Most Bullish Chart for 2015 Oil Prices

Jody Chudley

Last week, our own Jody Chudley came across what the called "by far the most bullish chart for 2015 oil prices since the bottom fell out of the market". Interestingly, the chart came from one of the more credible voices in the business, Steven Kopits of Princeton Energy Advisors. Read on for the details...


My Boots Don’t Believe In This “Bubble” Talk

Matt Insley

A debate’s been raging inside DR HQ. Is the shale revolution sustainable or was it just another credit bubble destined for an ugly bust? Our shorthand for the tussle is Bubble vs. Boots. In the “boots on the ground” corner, stands Matt Insley. Today, he says he’s setting the record straight on America’s oil and gas industry. Read on to see why he thinks all shale bubble talk is fear mongering…