Watch out for Bernanke's Next Move at the Fed.....as it could change your life

So what do you think Bernanke's next move will be at the Fed

? Just months ago, 57 out of 57 economists surveyed predicted that the economy would avoid a double dip recession. Now they're not so sure. Stock market gains have been wiped out and the S&P 500 has dropped 14 percent from its high in April. All of the main economic indicators are testing new lows. The so-called "soft patch" is looking like another hard landing. The fear is palpable. In fact, the markets have been holding on by their fingernails hoping that Bernanke will bail them out. But it's going to take more than the usual promise of low interest rates for an "extended period" to boost enthusiasm. Wall Street is looking for the "big fix", a trillion dollar resumption of the Fed's bond purchasing program (QE) to pump up flaccid asset prices, electro-shock demand, and raise consumer inflation expectations. The big banks and the brokerage houses want Bernanke to rout the Cassandras and the gloomsters and pump some adrenalin into sluggish indexes. The Fed chairman promised to help.....but not just yet, which is why the markets continue to seesaw.

Bernanke takes the threat of deflation seriously. His earlier speeches laid out a deflation-fighting strategy that is so radical it would shock the public and Wall Street alike. But will the bewhiskered professor be able to persuade Congress to follow his lead, after all, the fiscal component is critical to the program's success? Congress passes emergency legislation to suspend the payroll tax for two years stuffing hundreds of billions instantly into the pockets of struggling consumers. The Fed makes up the difference by purchasing an equal amount of long-term Treasuries keeping the yields low while the economy resets, employment rises, asset prices balloon, and markets soar. As the economy accelerates, the dollar steadily loses ground triggering a sharp increase in exports and sparking a viscous trade war with foreign trading partners. Then......it's anyone's guess.

So either Bernanke succeeds in resuscitating the comatose economy or foreign holders of dollars and dollar-backed assets dump their gargantuan trove of US loot in a pile and set it ablaze. It's all a roll of the dice. With all the spin out there, I still believe that Chairman Bernanke is a disaster in the making and should be watched out very carefully. The problem is not merely that he failed to do what the Fed's charter directs him to do: promote employment in an environment of stable prices. The Republicans and some Democrats read out the litany of Bernanke abuses. The Fed could have raised interest rates to slow the bubble. It didn't. It could have stopped wholesale mortgage fraud. It didn't. It could have protected consumers by limiting credit card rates. It didn't. For Bernanke, the current financial system (or more to the point, the debt overhead) is to be saved so that the redistribution of wealth upward will continue.

The Congressional Research Service has calculated that from 1979 to 2003 the income from wealth (rent, dividends, interest and capital gains) for the top 1 percent of the population soared from 37.8% to 57.5%. This revenue has been expropriated from American employees pushed onto debt treadmills in the face of stagnating wages. What Bernanke misses along with his neoclassical colleagues is that the money that is spent bidding up prices is also debt. This means that it leaves a debt legacy. When banks "provide credit" by writing loans, what they are selling is debt.

Watch out for Bernanke's Next Move at the Fed.....as it could change your life

By: Ziad K. Abdelnour

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