Ben Bernanke ， Astrology， Horoscope，FED, USA, financial crisis, 2009, 2010 and 2011 Part 2

Very often, we are left wondering what else Ben Bernake has done apart from throwing money to feed the banking d**s when we are watching his appearances on the US congress hearings on FED and the economy.

I had made the same conclusion about Ben Bernanke’s performance as Mt Warren Edward Buffett: Mr Bernanke had performed well under those horrible circumstances during the peak of the financial crisis 2008. Most of you might be wondering what Bernanke has done to deserve some praises from insiders like me (I am not working in Wall Street or London but I do have inside information how they work those things out).

We all know that Mr Bernanke did whatever he could after the financial meltdown begins in 2008 and together with other top US officials they bailed out lots of financial institutions deemed too big to fail. Such actions will definitely outrage the entire world (especially the lovely US citizens who for the majority of them hadn’t got a clue to how important and interconnected are the financial instruments to our daily lives).

He even went on further to extend the regulatory authority to the “Shadow banking system “ by introducing a Alphabetical soup of financial papers, aimed to tackle the problem directly. However, after months of hard work during the later part of 2008, one issue remains: how to stabilize the US dollar and continue its authority as the world’s reserve currency?

From past experience, the dollar position as the world’s only reserve currency was very much untouched for a long time. Even if a financial downturn happened once a while, the very facts that US has the one of the best legal systems in the world and the largest economy in the world made it “the best of the rotten apples “ ( e.g. US economy is bad but the rest of the world is even worse so if you don’t use US dollar as reserve currency, which other one can replace it?). Therefore, when the US economy falls into recession usually the rest of the world will suffer.

However, the meltdown on the Wall Street caused the FED to re-think about such assumptions because this crisis fundamentally damages the credibility and the confidence of the US dollar and thus the US economy.

Think about it guys: if you are the chairman of FED and the world has lost confidence in the US economy. You are immediately faced with the possibility that the world market might sell US Dollar to buy gold and other commodity to advert the risk of inflation and the devaluing of the US Dollar. What are you going to do in time of a Dollar crisis?

Out of thought, eh? Well, if Mr Bernanke were to run out of his tricks in 2008, then US economy probably had collapsed. This is actually what happens: sometime during the end of 2008, Goldman Sachs and HSBC mysteriously began buying gold on the market. Rumours soon started to circulate around the world that the gold price is going to skyrocket soon, come on guys buy gold! True enough the price of gold shot up and the financial institutions made huge profit in the gold trading at that time.  Now, you might wonder: what has this got to do with the position of US Dollar in 2008?

Well, 2008 was the most uncertain period for the US Dollar in decades. Stabilizing the Dollar and continuing its position as the world’s reserve currency are paramount. Actions taken by Goldman Sachs and HSBC helped that course. You may wonder: how? Traditionally, isn’t it true that when the gold prices rise, the US Dollar devalues? Well, that is true “usually”. Think about it guys: how do you buy gold on the market? Well, easy you change your home currency to US Dollar … and then buy gold. Wait a minute, did we just mention that: you change your home currency to US Dollar?

Yes, we did. And that is exactly why when the price of gold was rising, the US dollar appreciate as well, and the rest of the world’s (free-trade) currencies devalued. Smart, isn’t it. This is due to the Seven Killings (Jia 甲) taking effect in his birth chart. The other conundrum that many of you might ask is: since the FED had printed so much money where is the inflation?

Well, there are actually two parts to that question, but I am going to give one of the answers: Bernanke figured a smart way round the problem. Here is how you do it: the Treasury used the National Bond to buy the illiquid assets, so that the Fed can keep the cash (because the private firms have to buy the National Bonds from the Fed first) and the private firms cleared their balance sheet” Perfect, isn’t . This is a master plan probably brought about by Bernanke. The lessons we learnt from the Japanese decade-long recession is that the negative/ugly balance sheet of the private firms was what eventually caused the Japanese downfall. Thus, if the US government can use default-free bonds to clear the damaged balance sheet of the private firms, then that risk is minimized.

At the same time, there are two other obvious advantages:

Net M2 is reduced substantially compared to any other method which means that the chance of hyper-inflation is minimized. Thus, the position of the USD Dollar is also secured.

The cash flow held by the FED can be used to give to those who are really in need of those cash. Smart, isn’t it? That’s why Ben Bernanke is the Chairman of FED and we are sitting in front of our computers reading this stupid post!