Banana Ben Bernanke Blows More Smoke, More Bubbles...

Question:  How do you know when Bernanke is lying?   A:  His lips are moving.

Bernanke gave a speech today in which he blames global imbalances on Asian exports and a low U.S. savings rate.  How about blaming the level of exports on a high rate of U.S borrowing-based consumption, fueled by Bernanke's monetary policies?  If Bernanke REALLY believes that the U.S. needs to increase its rate of savings to a much higher level, then he would, first and foremost, raise short term interest rates to a level which would encourage savings and discourage borrowing/consumption.  If Bernanke REALLY wanted to address the global imbalances, he would reduce the amount of U.S. dollar-based liquidity in the system by raising capital ratios in the banking system and he would stop printing money to monetize Treasury debt.   Not only would this address his "global imbalances" concern properly, it would create a stronger banking system and support the dollar.  Here's a summary of his comments:  LINK

On another note, dollar weakness and stock market ebullience - no, rather stock market irrational exuberance - is being attribute to a statement made by the Fed that it is testing its "reverse repo system," which will be used to drain liquidity from the system when the Fed good and ready LINK.  Here's the problem:   1)  It will be close to impossible for the Fed to remove most of the money it put into the system for many reasons, not the least of which is that it would require the Fed to unload trillions in toxic assets back onto bank balance sheets and the banks would have to send cash back to the Fed in exchange.  The banks don't have that kind of cash on hand;  2)  If the Fed removes even a very small "sliver" of printed money from the system, our entire eonomic system will collapse.   Before you believe anything Banana Ben has to say about this, please revisit the Q&A at the introduction of this post.

Finally, the money manager, Steve Einhorn,  who grabbed headlines a year ago with his massive bet on the collapse of Lehman, is now making news with his massive bet on the collapse of the dollar:  LINK. He's actually making this bet in two ways.  First, he has accumulated a big position in physical gold and mining stocks.  Please note that Einhorn is the guy who announced in July that he dumped his big position in GLD and bought physical gold that he safekeeps (I'd like to claim an assist in this decision of his, because I sent him my research piece on why GLD is a fraud, once in early March and once in early June - his announcement was made in July).  Second, he has placed cheap, long-dated options bets on a rise in interest rates in Japan (I'm sure he has other plays but this is the one he disclosed in public).   Interest rates in Japan vs. the U.S. have only one way to go, and that's dramatically higher, as the zero interest rate policy in Japan which fueled the yen-carry trade is unwound and the zero interest rate dynamic shifts into the new dollar-carry trade.   I expect Einhorn to do very well on this trade, although not as well myself and the fund I co-manage will do in junior mining stocks.