Bernanke’s Latest Speech and My Recommendation

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On June 14, Ben Bernanke delivered a speech on Fiscal Sustainability. He told Congress to balance the primary budget.

Mr. Bernanke has the power to pressure the Congress by selling the FED’s portfolio of bonds. His verbal lecturing on deficits is useless, as was that of Greenspan. No one takes him seriously because of his hypocrisy. If he really wanted Congress to balance the budget, he’d be selling off the FED’s bonds. He wouldn’t be supporting the government’s borrowing by buying this debt and holding it. Since he doesn’t do this, his advice is just hot air.

The FED holds $2.61 trillion of U.S. government and agency securities (bonds). Sell them, Ben!! Sell every last one of them, and don’t ever buy another one. To make this effective, don’t buy any other asset either, ever again (so as not to inflate bank reserves and allow the system to support the U.S. government). This would be the single most constructive step that any U.S. government official has undertaken in the past 30 years! It would force the U.S. to face up to market-driven interest rates. Rates of return on capital would seek their market levels undistorted by the FED. Capital might then flow back to the private sector where it is more productive. Growth would replace stagnation. Ben, you have the power to do so much good by ending the FED. You can do this in large part by liquidating the FED’s portfolio. That is my recommendation to you. You will achieve the dual mandate (full employment and price stability) that you are constantly struggling with if you do this. My advice is the same for every other central bank in the world.

11:37 am on June 16, 2012