Don’t let his short stature and friendly grandpa beard fool you. Federal Reserve Chairman Ben Bernanke has the power to control the money in your wallet and raise your taxes on all but a whim. And since the financial crisis, he’s been exercising these powers with extreme prejudice.
Yesterday, the chairman slashed the Fed interest rate on dollar swaps by 50 basis points so that the European Central Bank could throw one last life preserver at the drowning Euro. But flooding the Eurozone with Dollars won’t change the fact that profligate southern European governments have been racking up unsustainable levels of debt for years by enjoying artificially low interest rates gained from the common currency. Europe does not have a liquidity problem. It has a solvency problem. Bad debt must be liquidated before recovery can begin, but Bernanke’s latest move does the opposite. By adding to Eurozone indebtedness, he thereby disincentivizes the painful but necessary reform to rein in entitlements and deregulate markets. Helicopter Ben’s Euro stimulus is only the latest in a long history of playing the man behind the economy’s curtain. America found out this week that the Fed made a whopping $7.77 trillion in secret loans to financial institutions like Bank of America and CitiGroup as of March 2009. That’s more than half of US GDP in that year and qualifies as the biggest bailout in U.S. history. The fact that many of the loan recipients were simultaneously reaping the benefits from the Treasury’s Troubled Asset Relief Program (TARP) belies Bernanke’s claim that only “sound institutions” received Fed loans. The entire rancor in public and in Congress over $700 billion in TARP bailout funding now seems trivial compared to Bernanke’s hush-hush behemoth boondoggle. But being master of the printing press bestows greater power than just that of doling out free cash. Big Ben’s success at single-handedly plummeting interest rates gives The President a run for his (now less valuable) money. After two rounds of Quantitative Easing totaling $2 trillion in newly printed greenbacks and a cost-neutral “Twist,” interest rates are at historic lows. Yet the economy still hasn’t recovered. Bernanke did in months what Barack Obama had been trying to do for years: raise taxes. By devaluing the dollar and torpedoing both short and long-term interest rates, the Almighty Chairman has succeeded in imposing a hidden tax on savers. But these misguided attempts to “stimulate” the economy backfired. Polina Vlasenko and William Ford of the American Institute for Economic Research estimate that up to $587 billion in consumption spending (lionized by Keynesians like Bernanke and the president) and 4.6 million jobs were lost as a result of savers receiving less income from interest payments. Add in commodity price inflation, namely in food and oil crude, as a result of Bernanke’s freshly minted money zipping into emerging markets, and Quantitative Easing becomes even more of a losing deal. Who knew that the most powerful man in America was a Washington banker? Move over, Obama -- there’s a new sheriff in town. His name is “The Ben Bernank” and his big white house has scores more unchecked power than yours.
Bernanke makes it rain every day at the Fed.