Ben Bernanke and the Coming Dollar Crisis: How Fed Stimulus is Destroying the Economy

On Tuesday, Federal Reserve Chairman Ben Bernanke told a Senate hearing that the Fed intends to keep its stimulus policies going until the job market improves significantly. Translation: he will continue the printing of money, the feeding of big fat Uncle Sam and the bailing out of his crony, Wall Street.

However, one can make several other readings from Bernanke’s last report. For example that monetary officials understand the dynamics of an economy only through the lenses of interventionism. For them, the job market will never recover unless the well-intended Fed intervenes. The leaders of this country do not trust in the capacity of their people to self-organize and bring prosperity to the economy.

Be that as it may, last the hearing boiled down to one simple fact: Bernanke wants to allay recent concerns that the Fed might soon restrict its expansionary bond-buying policies.

Hold on. Shouldn’t the restriction of such interventionist therapies be embraced? Apparently, they should not. If Bernanke stopped the printing madness, individuals would go wild, crazy, irrational and hysterical. What is worse, the whole economy would fall into a deflationary spiral with devastating consequences. The lower prices of milk, gas and groceries would have created total chaos. Without the Fed, the American economy would be finished.

But where does this paradigm come from? Ben Bernanke is first and foremost a scholar and a strong advocate of monetary interventionism. As such, he truly believes in the fundamental role of central banks and of monetary stimuli to reactivate sluggish economies. Bernanke honestly expects that the printing of money — plus a “little bit” of inflation — can bring the economy back to sound levels of employment. He operates under the assumption that the inflationary pressure and its side effects are a very small price to pay, if any.

Nothing could be further from the truth. The intellectual elites and the monetary authority (the Krugmans and the Bernankes) have fallen into the seen versus the unseen dilemma. For these champions of monetarism, sudden fall in prices will lead to lower levels of production, which in turn will lead to lower wages and lower demand. This will lead to further decreases in prices, also in production and thus, the whole economy will fall into a deflationary spiral. What they fail to see, however, is that this is hardly the case because once prices begin to fall individuals don’t stay hoarding forever. Yes, individuals are not dummies! In fact, history demonstrates that under a true laissez-faire economy individuals will re-allocate their resources to new business opportunities offered by a sudden decrease of prices. The economy can and will adjust without the need for monetary intervention. Yes Mr. President, it can.

However, there is a much bigger problem in the horizon and that is the dollar bubble. The monetary authority fails to acknowledge the hot potatoes their design have created. (Why bother anyways, they can always pass the hot potatoes on to the next generations).

But this is not trivial at all and kicking the can will not make the problem go away. We ought to understand this today. We owe it to our children. Printing money is not a sustainable solution. Bond-buying therapies can ease the pain, but won’t fix the problem. Even a layman comprehends that one cannot put out a fire with kerosene.

Lowering the fever of a crashed financial economy is only an illusion of success. They have disguised a much more alarming fact: they’ve turned a minor disease into a chronic disorder. The dot-com bust was managed by creating a housing bubble (just the way Krugman called for). And the housing bubble/financial bust is now being managed by the dollar bubble.

So, how can they get away with such irresponsible policies? The answer lies beyond American boundaries. The whole world continues to trust the U.S. dollar. International agents are still giving Americans a leeway. This is known as “exorbitant privilege.” But this is no privilege. The more time the world spends trusting the U.S. dollar, the bigger the bubble and the worse the collapse. Sooner than expected, the world will stop trusting the dollar. Ben Bernanke knows that if such scenario happened, the U.S. economy would be toast. But he is convinced that the American economy is still ages from that reality.

I’d sincerely suggest we start thinking the time is actually closer than we imagine, because if we don’t come to our senses soon and stop the spending and printing madness, we will face a real utter collapse. Just think about it for a minute: if the world were always to trust the U.S. dollar, Americans would need to work no more. We could all just sit home, print all the money we want, and live the American dream happily ever after.

I’m not trying to outsmart anybody here. I’m nobody to pretend that. I’m sincerely trying to educate and to spread out a very important message before it’s too late: this is no longer about the government spending beyond their means. Neither is about the Fed bailing out broken welfare illusions. This is about the elected authorities bankrupting our future generations. This is not about pointing at scapegoats and accomplices. This is about the price our society will have to pay in the near future. This is about the huge social costs our children will have to bear due to decades of irresponsible promises. This is about the Federal Reserve feeding Washington D.C. with easy cash to their populist reforms and expansionary hunger. This is no longer about a sub-prime mortgage crisis or a dot-com bust. This is about the evident dollar bubble and its imminent collapse. This is about the Krugmans and the Bernankes sending the entire U.S. economy into the toilet. This is about asking ourselves to open our eyes and understand what is bound to happen if we stay put.