Irrational Exuberance to Unusually Uncertain

By Greg Hunter’s USAWatchdog.com  

The decade of the 1990’s is America’s modern day equivalent of the Roaring 20’s.  Back then, we were making great strides in productivity.  We had near full employment, the government had a surplus of cash and the stock market was making many people rich.  The future looked so bright in December of 1996 that Fed Chief Alan Greenspan warned investors not to get carried away with the good times.  Greenspan asked this rhetorical question, “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” According to Yale Economics Professor Robert J. Shiller, Greenspan “. . . never actively used the words ‘irrational exuberance’ again in any public venue.”  (Click here for more from Shiller who wrote the best selling book titled “Irrational Exuberance.”)

Oh, what a difference a decade or so makes.  Just this past week, Fed Chairman Ben Bernanke testified in front of the Senate banking panel.  In opening remarks, Bernanke said, “. . . the economic outlook remains unusually uncertain. We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.” (Click here for a complete text of Bernanke’s prepared statement.) 

The Fed Chairman told Congress he is not sure where the economy is going?  This doesn’t sound like “green shoots” or a “recovery” to me.   It sounds like a warning things may take a turn for the worse.  The only consolation is the Fed will “take further policy actions as needed.” That, to me, sounds like more money printing and bailouts if the economy rolls over, or maybe I should say when the economy rolls over.

I guess I should not be surprised with Bernanke’s “unusually uncertain” comment.  After all, just last month, he said, “I don’t fully understand movements in the gold price.” How can someone in charge of the world’s biggest gold reserve (more than 8,000 tons) be clueless about the rising price of gold?  (Click here for the Bernanke  gold comment story.)

The Chinese may be able to clear up the Fed Chief’s uncertainty about the economy and gold.  According to a Financial Times story (posted the same day as Bernanke’s Senate appearance), America is in deep financial trouble.  The head of China’s largest credit rating agency, Guan Jianzhong, chairman of Dagong Global Credit Rating, said, “The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings. . . Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.” (Click here for the complete FT article.)

I think we are beyond the “borrowed money” phase and will go straight to “quantitative easing” or money printing when there is another meltdown. What else would the Fed do?  Lower interest rates?  They’re already at 0%.  Raise taxes?  Sorry, that is not in their power.  The Fed printed and spent $1.75 trillion, stopping the last near collapse of the financial system, and they will do it again.  Don’t take my word for it.  Just listen to Ben Bernanke’s sworn testimony.  Again, he said, “. . . we remain prepared to take further policy actions as needed . . .”

We have gone from “irrational exuberance” to “unusually uncertain” in just about 13 years.  This is a total repudiation of Federal Reserve policies.  Ironically, in the new financial reform legislation just signed into law, the Fed received vast new regulatory powers.  God help us. 

Comments
  1. John Bernard

    Greg
    We are facing a very strange future that most adults can not imagine. Thanks to the main stream media all these cascading events are being downplayed, spun, or not reported at all. It is amazing the number of people I meet who seem to be completely unaware of what is going on. It makes me feel like I’m a Kafka character at times.

    Apparently, due to Bernanke’s testimony, we are either returning to or continuing the “failed policies of the past”. You know the ones that got us here in the first place. It appears that there is now a Democrat effort to preserve the Bush tax cuts.

    At the same time the three pieces of legislation passed this year will, over the next few years, destroy capitalism in the USA. There is a good chance of some sort of police state and what we will call extreme poverty will be the case.

    Gold and silver must be a good investment, or insurance, as the IRS will be tracking any purchase of these commodities over $600.00 beginning in 2012. While the price of gold has declined thanks to government intervention of 2/3 bullion fractions, its real value is skyrocketing. This means that 2/3 of all gold transactions are not backed by gold thus driving the spot price down.

    Bernanke is correct the future is unusually uncertain. Except that hard times are coming is certain.

    • Greg

      John, Vess, Dino and Daxiong,
      Thank you all for weighing in with good comments!!
      Greg

  2. Vess

    Oh, there is still a lot the Fed can do:

    1) They can print another trillion or two and buy more Treasurys or, even better, more MBS crap.

    2) They can stop paying interest on the bank reserves, thus forcing the banks to lend the money.

    3) They can start lending directly to businesses themselves.

    Make no mistake – the Fed might be unable to avert crises or the final collapse of the dollar – but deflation they CAN prevent.

    As for the price of gold – methinks, they understand it all too well. The law is already in place to track all sales of gold larger than $600. Just wait until the dollar collapse begins in earnest – they’ll slap a 95% capital gains tax on PMs (after all, only the “rich” people and the “nasty speculators” speculate in gold, silver and so on, right?) and there goes your capital protection…

    The US government is criminal. Therefore, there is no legal way to protect yourself from what it can do to you.

  3. dino

    Good read Greg!! If Q-easing is done is hyper-inflation an almost assured threat???????

    • James B

      Once confidence is lost in our currency, hyperinflation will be the result.

  4. daxiong

    Our politians just do not understand that no matter how much frosting you put on a turd, it aint never gonna be a cupcake.

  5. Russell S Wyllie

    I’m convinced that when I hear Bernanke babble that he is saying what he thinks we should hear, and that most of his words are not for the public to analyze at all, but for the thousands of stock traders who are glued to the finance news on televisions, before they actually make a decision to do a trade or not.

    Has anyone watched how those traders worship their televisions, waiting for the mighty mouth to mutter the words that dictate and control the buy/sell button pressing???
    They are under mind-control, and in reality if they simply turned off their dictating television device and did a normal day’s trade, the outcome would probably be much the same- sometimes making money and sometimes not.

    Bernanke is one man who has control of the minds of people who have control over trillions of dollars, and it seems crazy that they listen to one man who is only a spokesperson for the people who direct him to give a positive speech one day, and a negative speech the next day…
    The big players get Bernanke to meld the small trader’s mind to take a specific course of action which plays into the web of the big investment spiders -so that the big spiders catch more flies when they need to.

    Bernanke just helps to spin the web…

    • Greg

      Russell,
      I can’t believe the Fed got more power after all the wrong calls and all the wrong moves it made. I just goes to show you how corrupt the country has become. Thank you.
      Greg

  6. James B

    One thing is for certain. Money printing does not work, and it is now proven. More of the same is coming with money printing, just on a larger scale this time. When the stock market takes a big hit (dare I say even crashes) before the end of this year, we will put the printing presses into warp speed. Hope for the best, prepare for the worst!

    • Greg

      James,
      You are correct overall, but money printing does work for the few at the top who get the money and its buying power first. Again, you are right money printing will not work for the masses! It is going to be quite painful. Thank you for your comments.
      Greg

  7. Mountainaires

    Excellent work Greg. You’re linked at jsmineset.com

    This is fascinating:

    Gold Swap Signals the Road Ahead:
    http://www.zerohedge.com/article/guest-post-gold-swap-signals-roadmap-ahead

    • Greg

      Thank you Mountainaires.
      Greg

  8. Rick

    How much power does the Fed have in actuality? If the US still had a sound economy, what they did would have an impact, but since we are now a nation of shell companies and gargantuan financial entities (bye bye Freddie and Fannie!) and all of these are able to hedge the Fed’s moves and profit on them with derivatives, the truth is the Fed has very little direct impact on labor-intensive business!

    What does is market demand- people buying and consuming the things they need to live. The Government in a free-enterprise system doesn’t create jobs, and isn’t supposed to. It is supposed to create an environment favorable to business.

    It is the US internal tax structure, and it’s trade policies and it’s currency that affect that, and the Fed is only either accomodative or not to that demand for it’s currency.

    The entire Western World is going kablooey, because asset values have been skewed upwards as real businesses that produced things were failing. You can blame China for much of this, along with the rest of the world’s willingness to allow them to PEG THEIR CURRENCY. It was this idiocy that has led to this situation, and NOTHING ELSE!

    Everyone forgets that the 20′s was a time of expansion too. At first it’s wonderful, as there is a new source of inexpensive productive goods. The price is the undermining of the economic systems in the previously wealthy countries.

    The regulatory agencies were inadequate and unable to handle the rapid innovation in the financial markets. Innovation in financial markets means just more ways to perpetrate fraud!

    The Fed is culpable, but this problem has political roots. Inevitably it will take political change to remedy.

    • Greg

      Rick,
      Great points!!
      Greg

  9. Common Tater

    I believe the Fed will try another round (or 3 or 4) of Q/E. Upon this path, China will decrease it’s purchase of Treasury Bonds and it will become obvious to all that the debt is being monetized by the Fed directly or by proxy banks across the Atlantic. Gold will power higher and ultimately into permanent backwardation. Capital gains taxes on gold and silver will not bring PMs back into contango. Ultimately, congress will appropriate treasury to issue non interest bearing notes (greenbacks). That will commence the final stages of hyperinflation and the dollar will be destroyed completely. What happens next is anyone’s guess.

    • Greg

      Common Tater,
      I agree.
      Greg

    • George

      China has already cut their buying. They are slowly moving their T-Bills from Long term to short term.

  10. James Lanier

    Greg,

    What solutions are the Republicans offering? Their main dogma seems to be “Vote for me, I’m not a Democrat”. This country is heading for a world of hurt if we don’t elect “responsible representatives”, providing we aren’t already in a free fall.

    Are we to be the next post WW1 Weimar Republic or Zimbabwe?

    May God Bless us all.

    • Greg

      James, BLT, David, RHS and George,
      Your prove my thesis that I have some of the smartest people in the world reading this site!!
      Greg

  11. BLT

    Here’s the problem. Being smart is not cool anymore. Being an astronaut or an engineer used to be a good thing (remember kennedy?) Its like the govt has infiltrated the schools and turn peoples brains off. As long as people know who lady gaga is and not know their senators names (let alone their mailing adresses) or can do simple math, we are done for. Heaven help the fed when a witty cowboy (or girl) is truly elected by the people who can THINK for more than 10 seconds straight. We need R. Lee Ermey for president and fast. No more tolerance for ignorance and purposeful wrongdoings by the people who already have enough power in the first place. WE must save this country, for its the only one we have. Thanks Greg and great work!

  12. David Conrad

    Greg,

    A stellar post. My, my …. how quickly time flies. I believe the new phrase should be irrational stupidity. Bernacke doesn’t have a clue – he is just ordering ink for the printing presses. Yes, God help us.

  13. RSH

    Greg,

    I recommend you read a transcript of a presentation given by Niall Ferguson (Harvard historian) titled “Historical Perspective on Current Predicaments” (a link to this transcript was included the latest Monty Guild newsletter). It is an unbiased look at the history of nations that have run debt to GDP rations in excess of 100% and a comparison to current events. Furguson idntifies six ways out of a dept crisis (raise the growth rate of the economy, lower interest rates on borrowing, get bailed out, fiscal pain, print money, or default). He immediately eliminates the first three options leaving only cut, print, or default and the effecitively discounts the possibility of cutting spendings based on historical evidence. That leaves only print money or default. The transcript is sobering and and very much worth the read.

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