13 May 2013

Gold Daily and Silver Weekly Charts - Brad DeLong: 'Bernanke Defines What the Market Is'

"For the greater good, I want to do what must be done."

Dolores Umbridge

Brad DeLong, the Berkeley history of economics professor, said on Bloomberg TV today that Bernanke is 'the whale that can't be harpooned.'   

And hedge funds missed an easy trade by not going along to get along by riding the rising markets.  Those that are fading Bernanke are going to be overwhelmed by his power.  So just follow the Fed's guidance, obey, and get rich.

As Brad says, and I quote,  'Bernanke defines what the market is.'  

That is a fairly profound statement, containing certain judgements and assumptions, if one thinks about it.  So much for old fashioned concepts like price discovery. Wasn't there some lesson in this most recent financial crisis about the mispricing of risk?

I cannot say I was entirely surprised, because Brad also derided the moral hazard objections to the TARP, when it was proposed by Hank Paulson on a single sheet of paper, as puritanical.

What would we call such an intellectual position, that the Fed has and should have the power to define the market and what it is?   

It is a big ironic that the omnipotent Fed doesn't hesitate to claim cluelessness and non-involvement after something in the economy blows up, generally a bubble of their own making whether they admit it or not.

I don't think Bernanke is a whale. I think he is the captain of the Titanic.  And I think that Brad aspires to a position on the bridge.

We all understand the theory of a modern money which can be created and distributed at will, whether it be by a central bank or the Treasury. And control of the world's reserve currency is certainly what some might call an 'exorbitant privilege' of power. 

Bernanke and the Fed may be powerful.  But they do not control the whole world, at least not yet.  And so their power may have some boundaries.  And if those boundaries are transgressed, the result might be rather memorable.

I suppose we could turn to someone with a knowledge  of the history of economics for examples of that.  But perhaps not the history of economics professor from Berkeley.

Hedge Funds Receive Bernanke's Market Decrees, Janet Yellen Escorts Them Out