Bernanke: Hyperinflationary Printing in a Contracting Economy
September 22, 2012 • 11:07AM

The U.S. and European economies continue to contract at a more rapid rate as "Helicopter Ben" Bernanke's Fed steps up the money-printing, just as in the Eurozone. U.S. unemployment claims were over 380,000 for the second consecutive week; both the New York and Philadelphia Fed Banks have just reported industrial contraction again in September; even the Index of Leading Indicators dropped, from declines in manufacturing orders and weekly hours worked. Bank of America announced that it will cut 16,000 jobs immediately — not next year, as previously thought. In Europe, the Eurozone Purchasing Managers' Index dropped to 45.9 in September (for both manufacturing and services), its deepest contraction since the depths of the 2009 collapse.

Dallas Fed President Richard Fisher is leading others in raising the alarm that inflation ("expectations", in the bond markets) has already made a big jump since Bernanke's QEIII announcement on Sept. 13. Meanwhile, Paul Krugman leads the ritual Keynesian economists in responding that inflation is the sole purpose of QEIII, and that Bernanke is really "inflation-targetting".

Reports beginning this past Saturday in the Financial Times have shown that Bernanke's money-printing is simply increasing bank profits (offsetting continuing securities losses), not mortgage or other lending. The New York Times version of the report, published Sept. 19, exposes that under Bernanke's QE policies, the differential between the banks' 30-year mortgage rate, and the interest rate banks pay on (Fannie and Freddie-guaranteed) MBS which they sell investors on the bond markets, has ballooned from 0.74% 18 months ago — and an 0.77% average from end-2007 to end-2010 — to more than 1.45% now. The Fed is driving down MBS bond yields, obviously, by printing money to buy MBS; but mortgage rates stopped falling more than a year ago. Now QEIII will push that differential up higher; pure bank profits to cover losses, producing no additional "lending."