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 and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

Recent Articles

Extra!
Where You Can Make $56,000 a Year Delivering Pizzas

Jim Mosquera

US unemployment rates are some of the most dubious and debatable numbers in economics. And when you look at how the government fudges them it's easy to see why. Today Jim Mosquera attempts to make sense of them, and includes an insightful commentary on another controversial topic: minimum wage. Read on...


Addison Wiggin
The Quickest, Easiest Way to Store Your Wealth Overseas

Addison Wiggin

Over the years, the feds have made it increasingly difficult for you to maintain any semblance of financial freedom. So today, Addison Wiggin details one strategy that will go a long way to keeping them at bay, and allow you to keep more of your hard-earned money in the process. Read on...


The Next Phase of Gold Profits is About to Begin

Frank Holmes

Today Frank Holmes shows how tracking the past history of the Federal Reserve's Funds Rate Cycle can be a powerful prediction tool for gold investors. Specifically, he points out why this is the beginning of a period in the cycle that's historically favorable for the price of gold, and how you can take advantage of it. Read on...


Laissez Faire
A Graceful Way Around Obamacare Mandates

Jud Anglin

Real health care reform isn't going to come in the form of laws, rules, and regulations. It's going to come from people looking to do things differently and find savings where none previously existed. And that means developing new technology that expands medical coverage. Now if only government got out of the way...


188 Stocks that Could Benefit from a Short Squeeze

Greg Guenthner

With the market hitting new highs all the time, many investors are beginning to think that a dramatic drop in stock prices is right around the corner. But while they continue to add short positions to their portfolios, you can take the opposite side of the trade and laugh all the way to the bank. Greg Guenthner explains...