Cutting Through Ben Bernanke’s Double Talk

Wilson Fed cc

Really, it all started 100 years ago.

You’ll remember that he was going to make the Fed more “transparent.”

When Bernanke took the Fed on its latest round of “quantitative easing” (that is, money printing), he said that one of his objectives was to keep interest rates down. When rates nevertheless rose, he said that this was not all bad. When he just announced unexpectedly that the Fed would not “taper” the money printing, he said that the rise in interest rates actually was bad after all and one of the reasons the Fed had decided not to “taper.”

Behind all this double talk, however, there may be another factor of which Mr Bernanke and the Fed are saying nothing. Jim Grant’s Bank Credit Analyst currently reports that foreign central bank holdings of US government securities have been declining at a rate of -3.9% over the past three months and -1.2 over the past six months. It wasn’t very long ago that foreign central banks were printing their own currencies in order to buy large amounts of US government bonds.

It is possible, although not certain, that what is really driving US Fed policy is not the US unemployment rate, but rather a fear that the US bond market might collapse if the US government stopped buying bonds from itself.

For further background on this, please see Free Prices Now! ( Fixing the Economy by Abolishing the Fed.)