American hero saves the world! Economic Einstein lives!
Can cycles be tamed?
Can prosperity be managed?
Part 3 of 3, White Top View series:
The FED, Bernanke and tapering
Ben Bernanke saved investors and the world from a world-wide depression by using the power to the Fed to stimulate the economy.
Investors everywhere must know this. One courageous, brilliant and patient man stood between us and the abyss. An imaginative economic magician saw the future and took us there to save America and the world!
The stimulus programs of Ben Bernanke have done just that. The ideal person with exactly the right knowledge and ability was in place when the economic alarm bells sounded in 2008. He saved us from again becoming victims of market greed.
Our discussion today continues our review of the massive economic stimulus program authored by Fed Chairman Ben Bernanke. We opened the discussion with Part 1, 5 to 10 years of Fed taper effect coming That discussion notes the unprecedented effects of the stimulus program will continue for years yet. At least 5 more years and possibly even years beyond the next decade there will be direct effects resulting from this program.
Then in Part 2, A billion $ here a trillion $ there! What happens next? examined the massive scale of the Fed stimulus program. Most particularly the direct and continuing effect on housing. In essence America continues to fund the mortgage market. That program provided the foundation for rebuilding housing and the American economic recovery.
Links to Part 1 and 2, White Top View series, The FED, Bernanke and tapering
What if the Fed was not in the mortgage market?
Without that ongoing massive buying program that continues in the mortgage market, that market would implode. That would instantly crater the bond market followed immediately by a massive stock market plunge, a paralyzed banking system and an unimaginably huge economic tsunami. Financial destruction would plunge every economy on this planet into a deep and destructive depression.
Why did this happen?
The stimulus program continues as part of the Fed effort to prevent economic collapse and depression. Depressions are, well I can’t pass this up, depressing! And once established they stubbornly linger.
Getting a depressed economy to turn positive and grow takes massive amounts of stimulus to effect change. The resistance of a depressed economy to any economic improvement would deeply affect virtually the entire population of the world for many years.
Once everyone affected by a depression thinks prices will be lower tomorrow or next year, behavior changes. Their spending stops. You, I and everyone else puts off spending because we all think waiting will bring better prices. A depression mentality becomes entrenched. It grips us all.
Inflation is the opposite. During inflationary times we are willing to spend now or soon, because we believe everything will cost more tomorrow. In the 1970’s the solution to taming the beast of inflation was found. Massive interest rate increases provided the painful economic cure. That, however, is a story for another day.
Today we continue to look at the fright of deflation. Economists and central bankers rightly fear the long-term destructive power of deflation. That economic monster can destroy economies, societies, lives and futures.
At all costs, all central bankers want to keep any deflationary force dormant. To let it emerge or even be thought possible would rapidly freeze real estate markets and chill every capital expenditure program.
In short order such a chill would cascade through the economy and reach into every household and your pocket.
Making sure the population thinks there is no possibility of deflation is a core reason for the ongoing Fed stimulus program. The overnight credit freeze in Sept. 2008 put the world on the brink of a deflationary abyss. Thank goodness Ben knew what to do.
Ben had the answer
The Fed and other central bankers began pumping massive amounts of money into the market. That worked over the years following the Sept. 2008 economic plunge. Now the U.S. and world economy continues the recovery process.
How is this done?
Simply put, a button on Ben’s computer creates Fed credit. That is the incredible power of the central banker at work.
The Fed uses that credit to buy mortgages in the market. That puts the money into play. That keeps the market going when no other buyers were willing to fund mortgages.
An economic Einstein saved the world from depression!
Do you think all depression risks have been eliminated? Let’s talk about it.
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