What the Federal Reserve and Seattle Security Guards Have in Common

After Fed Chairman Helicopter Ben spoke on Wednesday, investors were again confused about the direction the Fed is leading them. There was a lot of talk (Joe Seattle Security Guards into their walkie talkies), but not a lot of action, (Joe security guards, watching while the poor girl's head was getting stomped on) and seemingly not even a plan of action for the future. (Joe Seattle Transit General Manager Kevin Desmond, who said the security guards were not trained for combat, but might be in the future) Indeed, the Fed and Seattle Security Guards have a lot in common.

• Both stand still as beatings happen right in front of their eyes
• Both have names that are misleading
• Both appear to the uneducated/unsuspecting sheeple as if they're performing a service
• Both are condoning criminal behavior
• Both turn their backs on the little guy
• Both are siphoning public money
• Both should be immediately closed down and thrown in jail

Investors were looking for more information regarding the Fed's exit strategy from so-called "quantitative easing" or easy and cheap monetary policies. Security Guards all over Seattle are also looking for an exit strategy, or a rock behind which to hide, or a hole in which to jump.......where they'll have to be careful not to trip over other Seattle Security Guards (Joe oxymoron) who may have found the best hiding places first.

Moving on, since the market dropped 80 points after Helicopter Ben's speech, could it be that the market actually wants a rate increase? Could it be that investors are "Fed" up with the Fed coddling big banks and blowing asset and debt bubbles? YES! The Fed is creating a win-win-win for big banks, giving them cheap money with which to chase high yield bonds at no risk because we keep bailing out failing institutions. They're off the hook with taxpayer freebies so why not chase high risk bonds. (Greece, Portugal, Ireland, Spain, etc) For more depth on a previous post, click here.

And speaking of debt bubbles, where are the credit rating services when you need them? (I don't know Joe, where were the Seattle Security Guards when you need them?) Yes, these same credit rating agencies that stood by as subprime mortgages were getting sliced up and sold all over the world with AAA ratings. The same credit agencies that told us Bear Stearns had plenty of liquidity weeks before they crashed. Yes, these agencies that are supposed to protect us are again turning their backs as bubbles are getting blown all around us.

What does this mean for Joe? Joe, who is currently trying to get JoAnn to settle down with him in Joetown, reminded JoAnn that there has never been a head stomping incident in bus terminals in Joetown -never mind the fact that there are no bus terminals in Joetown, OH. Regardless, Joe also informed JoAnn that he'd never behave cowardly like a Seattle Security Guard and watch while 15 year old girls get their heads stomped in bus terminals. Indeed, Joetown is a safe place. Seattle apparently is not - not only do you have to worry about the Federal unReserve Banking Cartel and blind credit agencies, but ALSO head stompers and defunct security agencies.

Artwork courtesy of Deesillustration.com.

Market Dives 5% in Three Days - Only the Beginning?

Last week US stocks got taken out behind the woodshed for a 5% thrashing in only three days. Why did this happen? Two reasons:

1. Fooled Investors feared Bernanke wouldn't be retained as FED Chairman when the Senate votes on Thursday or Friday, or whenever Hail Mary Harry calls for the vote to take place. Remember, Bernanke's POA to defeat this depression is to print fiat confetti/monopoly money and blow it around like an Oklahoma twister. Dollar drops, stocks go up. So do nominal earnings of international companies because their overseas' sales translate into more US Dollars here. (which is what is happening right now during earnings season. The US Dollar was extremely weak in the 4th quarter) Real value however? Forget about it. We're still knee deep in a depression.

2. Obama, hotter than a cheap pistol over the Massachusetts election and subsequent ego bruising, came out swinging wildly at the banks like a late round amateur cage fighter in a Vegas casino. This troubled investors because some of his proposals include limiting bank trading activities and equity positions. Investing has been a major source of income for banks in this latest earnings round and many analysts are concerned that more regulations on banks will limit earnings potential and stock performance.

What does this mean for Joe? Is there reason for Joe to worry? Yes of course, because a Bernanke removal is not in the cards. (Joe, can't you just get another deck of cards?) Nope, the dealer of this card game is Ben Bernanke, and the influential players who put him in office are more powerful than Congress. So just like when embattled Merrill Lynch was force FED to Bank of America, and just like when the US taxpayer was force FED 180 billion AIG debt in the famous Goldman Sachs backdoor bailout, and just like when we were force FED TARP casserole, the FED will have its way and Bernanke will be reappointed. As for Obama and the banks? This is any one's guess. Most likely increased regulation will have a negative impact on banks' earnings and stock performance. Keep your family and friends close, and your stop orders closer.....before not only the house of cards falls, but the entire table collapses with it.

Geithner Hides AIG Bailout Funds

After Time Magazine named Ben Bernanke person of the year, we decided to award him with the wool puller of the year award (here). Honestly, It was difficult to narrow the contest down to just one wool puller among the two well qualified finalists with so much experience - Ben Bernanke and Tim Geithner. (Yes, Tiger Woods was third) It turns out we may have underestimated Turbo Tax Tim Geithner's wool pulling abilities and secrecy as the recent breaking news proves he's just as capable a candidate. Click here for a good explanation of what happened in the Federal Reserve/AIG coverup.

Anyway, turns out the taxpayer bailout money which was supposedly used to help AIG because it was "too big to fail", was simply pipelined right over to Goldman Sachs and other banks. (Joe Backdoor Bailout) Here's how it works. Goldman invests heavily in equities and commodities, then insures its purchases through buying equity insurance from AIG in the form of Credit Default Swaps. Then the market crashes so Goldman outstretches it hand to collect. (Joe Governator) Only problem is AIG doesn't have it, so they get bailed out by the US Taxpayer (Joe Governator again) while we have the AIG-is-too-big-to-fail wool scarf wrapped firmly around our eyes....... er, necks maybe? Yes, there's a lot of sheep shearing going on. The Fed keeps a herd of sheep out back, with three pronged outlets all over the place for heavy duty electric clippers.

I know, you were already aware that the money was funnelled over to Government Sachs and others. We've even blogged about it (here). But what we didn't know is how the Fed ensured Goldman got 100% of what they were owed when everyone else took a haircut, and also that the New York Fed, headed by Geithner at the time, advised AIG to remove this 100% language from the public filing just before it was released. See Below.

What's the problem with this? US Taxpayers own AIG whether we like it or not, and deserve to know where the money is (JoePS), how the money is spent, (Joe idiots guide), and perhaps most confusingly, where the money is sent (Joe Budget Czar with two kids, a pregnant hobby on the side, and a fiance at the same time).

So, what does this mean for Joe? It's extremely cold outside this winter. It's below freezing from Joetown, OH down to the Gulf of Mexico right now. If Joe wants a wool scarf or hat to keep warm while trying to figure out the Federal Reserve Bank, he'd better get one now before the wool is all gone. What else does it mean? It means JoAnn would need some other form of warmth with all the scarves and hats gone (Joe Silver Lining).

Time Magazine Names Helicopter Ben Person of the Year! Joe Names him Wool Puller of the Year

Ronald Reagan once warned to never trust a man who says, "Hello, I'm from the Government and I'm here to help." Joe Shareholder once warned to never trust someone who says, "Hello, I'm from a quasi-government agency and I'm here to help". That's right, the Federal Reserve isn't really a government agency. (Joe, halfway house) It's more like a banking cartel that happens to print money and establish monetary policy for the US Government. Anywho, when Joe Shareholder found out that Time Magazine named Helicopter Ben the 2009 Person of the Year, potato chips went flying at the computer screen, behind the computer screen, down the back of the computer desk, and all over the baseboards. Grease doesn't come off the screen very well by the way. Back to business now. Actually, it's not really that surprising considering how many people think this recession is over, and also how many people have gotten wool pulled down so far over their eyes they get market-disorientation-disorder (MDD). Joe Shareholder gave Ben an award also, "Wool Puller of the year, 2009". Until now, Joe didn't realize one of the main commodity investments of the Fed is wool, which is used to pull down over your eyes. Back to business again. What is surprising, however, is how the Federal Reserve Banking Cartel has been able to pull this off, er, over for so long now. With wool consistently over your eyes, it's surprising the US Taxpayer hasn't struggled to free itself to see clearly yet. Apparently to Time Magazine it's become comforting in this cold weather storm. Which isn't over by the way.

Now for the truth about Ben Bernanke, lift the wool up for a second to see these previous posts:

• Ben Begs the Chinese to Become Communist
• Super Ben Saves the World from Collapse
• Credit Crisis is Over, Excess Liquidity Crisis Begins, see Reason #2
• Ben Bernanke vs. Joe Shareholder, Inflation vs. Deflation

Newsflash to Time Magazine, the Federal Reserve Banking Cartel doesn't place the US taxpayer first on the priority list. Sure, they care about the US Taxpayer, but kind of like how Tiger Woods cares about mistress #4. He sees her from time to time, and has moments in which the two are very close, but at the end of the day, she's not his top priority. The Federal Reserve and Tiger Woods have other similarities also, but this is a family friendly blog, so you won't find them here. Back to business a third time. The Federal Reserve Bank exists for one reason, and that is to protect the interests of the big banks. Joe Shareholder's brother, Moe, recently discovered the Federal Reserve Bank's priority list:

1. Goldman Sachs (Fed's AAA minor league ball club)
2. JP Morgan Chase (Fed, only under a different name)
3. Citigroup
4. Bank of America
5. Morgan Stanley
6. Destroy the US Dollar
7. Wells Fargo
8. Bank of NY
9. Ruin the US Dollar
10. Sacrifice Lehman
11. Turn the US Dollar into fancy green toilet paper
12. American Express
13. US Taxpayer (but mainly when bailouts are necessary)

What does this mean for Joe? It means Joe better end this post....and quick. Indeed, black helicopters are starting to swirl up above.....Lincoln Towncars with tinted windows are starting to appear in strange places, from strange places, and Joe's inbox is starting to get flooded by .gov email addresses, which should really be .quasi-gov email addresses. Whoa, what's this? An email from JoAnn saying "Help Me!" An email from JoAnn's mother titled, "strange men in shades standing at my door", and an email from Joe's mother "house broken into, but nothing is gone...strange". Email from Moe titled, "phone's bugged!". Before we all start shouting Kum Bah Yah about the recession being over, first check to see if your eyes are itching.

Ben Begs the Chinese to Become Communist

This past Sunday, Fed Chairman Ben Bernanke emerged from his black helicopter, straightened his black tie, pulled down his black sunglasses, nodded for his bodyguards to open his black briefcase and then delivered a speech on world trade. Within the speech, he specifically cited a need for a "rebalancing" of world trade and encouraged China to spend more and the US to save more. This echoed what the United States Treasury (Joe Oxymoron) Secretary Turbo Tax Timmy Geithner (Joe Oxymoron, minus the oxy) said a few weeks ago about rebalancing world trade.

So what were our fearless leaders really saying? It's unlikely Ben Bernanke really cares whether US citizens save more. If that were the case he'd simply raise interest rates to incentivize (Joe, is that a word?) saving. No, he doesn't care. What he's really doing is begging the Chinese to stop exporting so much and start importing more US products for the "greater good" of the global economy. (Jo-seph Stalin) In other words, the United States is asking the Chinese to become more communist? (Joe upside down world, with Chinese up and US down) If we analyze further, however, we realize he doesn't really care about the global economy - he cares about the US of course.

Here's why

If the Chinese export less and the US slows the import flow, then our trade deficit will improve. If the US trade deficit improves, our GPD will go up and we'll escape depression 2.0. The weakening dollar will help achieve these desired trade effects because a weak dollar makes it more expensive to import, and less expensive to export. When we understand what Ben's doing to the US Dollar (Joe Shell game), it's easy to see the true motives behind his remarks.

So what does this mean for Joe? The Chinese have to be upset about our monetary and fiscal policy aimed at destroying the US Dollar. Therefore, Joe decided to hedge against a future Chinese invasion and take up karate lessons. He told JoAnn he's going to learn hand-to-hand COMBAT just in case; and asked JoAnn if she'd like to help him prepare by giving him hand-to-hand CONTACT while they go for a walk. JoAnn simply told him since there may be some angry Chinese out there, and since he hasn't actually taken any hand-to-hand combat lessons yet, that she'd be safer inside.

Super Ben Saves the World from Collapse

While speaking to a group of economists and policy makers on Friday, Federal Reserve (Fed) Chairman Ben Bernanke proudly announced that the aggressive monetary policies implemented by the Fed and the Treasury department “saved the world” from a financial meltdown. (Joe Superman) While markets have indeed responded positively since early March ‘09, it’s not clear whether the rally has been based simply on Fed intervention or on strengthening fundamentals. While some economic indicators have shown signs of bottoming, we have yet to see real sustained growth. (Joe Rogaine) Super Benny has, however, managed several accomplishments which we’d like to discuss below.

He screwed small banks
Late last year, when many large banks were insolvent and broken, Super Benny wielded his power and influence over congress (Joe pull down the wool) and served up a large dish of TARP salad (Joe next Food Network Star), with side dishes of PPIP and TALF from the Treasury (Joe “Bam! Kick it up a notch!”). The central banksters and clueless bureaucrats in Washington not only approved immediate TARP funds and monetary injection into large financial institutions, but also pledged to continue to infuse money should the need arise in the future. Even though the Fed and large banksters helped shape this economic crisis due to lax policies and excessive risk taking in the first place, they have been granted the safety net of taxpayer funds while the smaller institutions continue to struggle on their own. (Joe upside down roly-poly) Additionally, nervous depositors at small banks are pulling funds and fleeing to the safety of the too-big-to-fail empire. (Joe Titanic)

He screwed China
Each week the US Treasury auctions off new debt in the form of Treasury bonds and notes. As demand on the bonds increases, the yield, or interest rate decreases. (Joe Econ 101) Therefore, buyers want as little competition as possible to get the best rate. The Fed announced a plan in March to buy 300 billion of US treasuries in an effort to keep US interest rates low. (The housing mortgage rates closely follow the 10 year bond, for more on this China situation click here) This Fed purchase plan undoubtedly angered China, who is the largest foreign purchaser of US debt. In other words, with each dollar of debt the Federal Reserve purchases, the interest rates on Chinese investments drop. This situation of the Fed buying from the Treasury is similar to when Joe Shareholder asked his Mexican investor friend Jose to help bid up the price on the diamond ring he placed on eBay after JoAnn shot him down. (Joe false start)

He screwed the US Dollar….and Taxpayer…..and Saver
Ben’s plan to avoid another depression is to induce inflation to combat the dreaded economic forces of deflation, which he claims caused the Great Depression. (For reasons why click here) The best way to induce inflation is to crank up the printing press and dump it onto the economy - hence the nickname Helicopter Ben. (For his own words on the topic, click here). Since Ben took the reigns in 2006, the US dollar has slipped roughly 16% and 20% to the Japanese Yen and Euro respectively, with both trading near all-time lows. Inflation on the dollar is essentially a tax on anyone saving money. In Ben’s defense, however, he’s had plenty of dollar destruction help from politicians loading debt on the back of the fragile/exhausted US dollar. The Congressional Budget Office announced on Tuesday that the budget deficit earlier estimated at 7.1 trillion by 2019 has been raised to 9 trillion. Can the US dollar sustain such levels of debt or will it begin a free fall? (Joe Petty, brother of Tom) Will countries continue buying our debt even while it’s climbing to new highs daily? If there comes a time when debt investors decide it’s just too risky to hold US debt, there could be a massive sell off which could get quite scary. (Joe, “stay behind the yellow tape kids, nothing to see here. ”)

So the Fed and Super Benny have stabilized the large financial institutions…..but at what cost? Only time will tell (Joe crystal ball) whether the negative impact on these periphery entities will come back to haunt him (Joe October 31st…..2010, 2011, 2012???). Speaking of Halloween, Joe Shareholder likes this time of year because he offers JoAnn his protection from anything scary that might be lurking out there. JoAnn insists that nothing bad ever happens in Joetown, Ohio. This year, however, Joe can remind her that as long as Super Benny is in charge, plenty of scary things could happen.

Joe Shareholder meets Football

Football season is back! Fans everywhere are making sure their HDTV’s are in fine working order, cleaning their BBQ grills, and reviewing rosters and schedules, hopeful that their team will win it all this year, or in some cases, win any of their games (Joe-Detriot Lion). In football, a team is assessed a penalty if one of the offensive lineman moves prior to the ball being snapped to the quarterback. The lineman then looks embarrassed, shakes his head like he’s done nothing wrong, and the team moves back five yards. Metaphorically speaking, politicians and banking executives (does anyone really trust either source anyway?) may be guilty of a false start in calling for an end to the recession of 08-09. Sure, the stock market is up roughly 50% since March, and the 200 day moving average of the Dow appears to be on it’s way northward for a change. The housing market appears to have turned the corner, and July’s jobs report came in with fewer unemployment claims than Wall Street expected. (Click here for more on the unemployment report) Attention Joe Shareholder: Break out the champaign and let the partying begin! Ah… wait a second… What I meant to say was ah… see what had happened was…

Enter Joe False-Start
July also saw the largest number of home foreclosures in the history of America, and although values have ticked up slightly in parts of the country, there’s no guarantee that the trend of foreclosures will slow in the near future, as more Americans become unemployed. The up-tick in housing and auto sales is likely a direct result of legislation including the tax credit for first time home buyers and Cash for Clunkers, which can’t and shouldn’t last forever. These programs are great for the beneficiaries, but they worsen the budget deficit and consequently put a strain on the value of the dollar. (Click here for more on the budget deficit) Current and future foreclosures could lead to further devaluation of real estate in November when the tax credit is scheduled to expire, due to more aggregate supply on the market (Joe econ 101). Banks, Credit Unions, and home improvement and home furnishing industries will likely continue to suffer as a result. On Friday August 14th, five more banks were shut down by the FDIC, bringing the total for 2009 to nearly 80 failures. Fannie Mae and Freddie Mac, the secondary mortgage agencies who sell and package mortgage backed-securities will also continue to feel the strain of home foreclosures, as well as those who buy these MBS instruments (Joe’s Wall Street firm).

Joe’s Stimulus Package
Much of the credit for America’s ability to pull out of the great depression in the 30’s is given to government spending… perhaps too much. In the 1930’s, government spending helped the economy recover from the depression as the United States was forced to prepare for World War 2 by plowing money into defense. By contrast, a lot of this current stimulus package goes to bizarre funds like government pet projects and special interest groups. Instead of putting a short term, economic band-aid on the economy under the guise of a "stimulus package", America needs to focus on balancing the budget, stabilizing the dollar, and decreasing the national debt. A government option for health care would be nice, but we cannot afford it right now, especially since funding for the proposal is completely up in the air. This has the potential to send the current budget deficit completely out of control…(Joe hang glide during Hurricane Katrina). Finally, the Fed needs to keep interest rates low (Joe Bernanke) to stimulate lending and encourage business and entrepreneurial investment, and this will help to sustain a long term approach to creating and keeping jobs that really build and stimulate the economy. (Joe teach- a-man-to-fish-instead-of-giving-him-a-fish).

Are we optimistic for the future? Absolutely. Unnecessary pessimism depresses markets (Joe or Johnny Rain Cloud), and is unhealthy for an economy. It will likely be a long and slow recovery, as many economists predict. America has shown resilience that has helped us become the world economic leader for nearly 100 years. There’s not a more suitable country that fosters economic opportunity to create jobs and businesses. We’ve repeatedly shown that when we trust in capitalism, we can pull ourselves up after getting knocked down (Joe Austrailian one-hit wonder band), dust ourselves off, and look forward to a better future. But before you quit your day job to invest in the stock market and drink Coronas at the beach (Joe Commercial guy), pay attention to the warning signs lurking beneath the surface. Let’s give the stock market a five yard false-start penalty, and then let’s trust in capitalism to run its course so that relatively soon we’ll be able to enjoy a nice long economic touchdown drive!

Ben Bernanke Vs. Joe Shareholder, inflation vs. deflation

Who is Ben Bernanke and why do we call him "Helicopter Ben"?

Ben Bernanke is the current chairman of the Federal Reserve Bank (Fed), or the Central Bank of the United States. The Fed is responsible for establishing monetary policy, and specifically the interest rate at which banks can borrow money. Currently the rate sits at 0 percent so banks can actually borrow from the Fed at zero percent interest and charge you whatever they want for your housing loans. (Joe, ask not what your bank can do for you, ask what you can do for your bailed-out bank) The Fed holds the rate low during recessions because low interest rates stimulate economic activity.

Inflation vs. Deflation:
One thing the Fed watches closely in determining monetary policy is inflation. Inflation is simply the increase in prices for goods and services. This means that the purchasing power of each dollar you own goes down because your dollar buys fewer goods. Conversely, deflation means prices are falling so your purchasing power actually increases. Therefore, each dollar you have can buy more stuff. (Joe, Manwich by the case-load, emphasis on Manwich by the way)

Deflation can be dangerous however for those in debt. Suppose there's a nice house in Joetown, Ohio that Joe Shareholder would love to purchase for JoAnn someday. In a period of 10% deflation, if Joe buys this house for $100,000, deflation reduces his value to $90,000 while he still makes payments on the original loan of $100,000. We've seen this occur as housing prices nation-wide have fallen. Not only housing, but every outstanding business loan takes a hit as values fall while business owners are paying off loans assumed at higher prices. Meanwhile, these businesses must deal with shrinking revenue because the prices of their goods and services are falling. This scenario increases the chances of defaulted loans and causes a downward spiral within the economy. (Joe, covered slide for kids at the city park)

Ben Bernanke, a leading scholar on the causes of the Great Depression, claims a deflationary spiral was the catalyst for the extended depression in the 1930’s. To avoid another depression, he promotes the idea of flooding the economy with money, or inducing inflation in order to combat the dreaded forces of deflation. (G.I. Ben Bernanke) Will it work? We don't know but we’ll find out over the next couple years. This has never been tried before so we’re in unchartered waters. Is it possible that an entire economy can simply be flooded with printed and borrowed money to avoid a depression? (See previous treasuries vs. Economic growth post)

Economics 101 teaches that prices are established where supply meets demand. If there's low demand for a product then prices need to naturally adjust downward. The resulting deflation, although painful, might be necessary for the economy to fix itself. If demand is manipulated, through cash for clunkers, home credits, energy credits, etc, then the result could just be a delayed recovery at the expense of a huge debt burden to be repaid later. (Joe Beckham…. kick the can down the street)

Currently, Joe is hoping for a nice bout of deflation since he doesn’t own the home yet and couldn’t be happier to see its price fall. Not only that, but Joe figures ring prices should drop too with the onslaught of deflation. Joe has a good friend that sells diamond rings (Joe Weller) that could certainly offer him a good deflationary discount should the need arise. Upon realizing this however, JoAnn is hoping for inflation. Ben Bernanke is suddenly her hero!