Federal Reserve Chairman Ben Bernanke was nicknamed “Helicopter Benjy” after a speech in which he mentioned dumping money into the economy from helicopters. Years later as Fed Chairman, he has done it instead by buying Treasury and mortgage bonds (i.e. loaning out-of-the-air money to the U.S. Treasury and mortgage lenders). He has called the process: “Quantitative Easing” since that sounds better than printing money. But he spoke of backing away from that and now he is being replaced by his number two, Janet Yellen. Who is Janet?
Janet matters because if you keep printing more and more money, pretty soon you have too much of it sloshing around in the economy. That is because, printing money creates no wealth; real wealth is property and investments and such that can be bought with money but can’t be created with it. Dumping more money into the same amount of real wealth just dilutes the purchasing power of the money. We call it: “inflation.”
Our governors hold, because it serves their interests, that dumping money into a sick economy (stimulus) will cure the sickness. They fail to mention that the money they dump has first, to be taken from that sick economy. Your patient needs a transfusion, so you drain his blood in order to give it to him, right? Sure! Because that ‘free’ money from the Fed is a LOAN, that has to be repaid, plus interest…it’s a claim on the economy! No free lunches in the real world, remember? Maybe Congress forgot. The President probably has never understood, from the way he talks.
Thing is see, once you dump too much money into an economy, there are so many dollars (in our case) that non of them will buy much. In fact, things finally reach a point where they become worthless. Refer to Zimbabwe or Weimar. Chairman Benjy knew about that, which is why he started talking about backing away from his money printing program, he called it ‘tapering’ off. But at the first word from him about backing off, the stock market dropped. When the Fed stops shoveling out cheap money, the rental of other people’s money will go up; i.e. interest rates will rise. That means that the upkeep on our national debt will shoot up; how will we pay more interest on our government’s borrowings when we’re already in deficits? Governments that can’t repay their debts, default. Governments that default, collapse and are replaced and their people remain very poor for a long time. That has worried Benjy.
So now, Benjy is going and we will have Janet. The Obamans and the Boehnerites–the existing Dem and GOP leadership–are continuing to pass the quarterly spending bills in Congress, the ones that provide the deficits that in turn, depend on the Fed’s manufactured money and keep bumping the debt ceiling upward. To stop that spending, they will have to cut Social Security, Medicare, Medicaid, Obamacare and their world-wide military adventures, none of which are they willing to do since they will be tossed out by infuriated voters. So they keep spending in the hope that the manufactured money won’t become worthless until they’ve left office. And into this, comes Janet Yellen to run Benjy’s Fed in his place.
Will she pursue Benjy’s ‘taper’ and try to save the dollar by backing away from printing money? Or will she, as the London Telegraph seems to think, turn the printing presses loose, hoping thereby to somehow, create employment? That, as Shakespeare’s Hamlet famously said, is the question. We know that Senate boss Harry Reid want a trillion more debt, if that’s a clue. The answer to that will probably determine whether we see the result sooner or later, but either way, we aren’t likely to enjoy it.