David Einhorn ‘I Asked Bernanke Questions, And The Answers Were Frightening’

David Einhorn “I Asked Bernanke Questions, And The Answers Were Frightening” (ZeroHedge, May 6, 2014):

Ben Bernanke may be gone from the helm of the world’s most centrally planned economy, but his ample cluelessness remains. David Einhorn, president of Greenlight Capital, better known for comparing QE to jelly donuts and who recently confirmed what we have been saying for a long time that the second dotcom bubble is here, spoke with Bloomberg TV covering a wide range of topics, but what caught our attention was his synopsis of a private dinner he had with Chairsatan-emeritus Ben Bernanke, on March 26.

What he found, in his own words, is disturbing.

“I got to ask [Bernanke] all these questions that had been on my mind for a very long period of time, right? And then on the other side, it was like sort of frightening because the answers weren’t any better than I thought that they might be. I asked several things. He started out by explaining that he was 100 percent sure that there’s not going to be hyperinflation. And not that I think that there’s going to be hyperinflation, but it’s like how do you get to 100 percent certainty of anything?”

It goes without saying that only fools are 100% certain of anything, which in fact explains pretty much everything.

So is it too late to cross off the final “conspiracy theory” of the tinfoil hat list: that the entire world is led by clueless Keynesian economist fools, whose adherence to perpetatuing the broken and insolvent status quo means that the only outcome possible after this final, all-in (luckily) bubble finally bursts, is either systemic collapse or world war?  Or do we actually have to live through it before we are proven right once more?

That’s ok, we are in no rush.

Curious for more? Here is the full transcript of the key part of the exchange between Bloomberg anchors Schatzker and Ruhle, and Einhorn.

RUHLE: … you recently had dinner with Ben Bernanke. What went down? We didn’t get to be there.

EINHORN: Well, it was — I watched him for years in front of Congress and speaking and watched him on TV and “60 Minutes” and —

RUHLE: And what was your opinion of him before you had dinner?

EINHORN: I was — I’ve been critical. I’ve been critical of him for a very long time. And the dinner for me, in one way it was cathartic because I got to ask him all these questions that had been on my mind for a very long period of time, right? And then on the other side, it was like sort of frightening because the answers weren’t any better than I thought that they might be.

SCHATZKER: What did you ask him?

EINHORN: I asked several things. He started out by explaining that he was 100 percent sure that there’s not going to be hyperinflation. And not that I think that there’s going to be hyperinflation, but it’s like how do you get to 100 percent certainty of anything? Like why can’t you be 99 percent certain and like how do you manage that risk in the last 1 percent? And he says, well, hyperinflations generally occur after wars and that’s not here. And there’s no sign of inflation now and Japan’s done a lot more quantitative easing than we’ve done, and they don’t have it. So if there is a big inflation, the Fed will know what to do. That was kind of the answer.

RUHLE: What did you say?

EINHORN: That was it. Then it went to the next question. So then a few minutes later it came back and I got to ask him about the jelly donuts. And my thesis is that it’s like too much of a good thing. Like lowering rates and quantitative easing and these stimulative things, they help but with a diminishing return. And eventually you go too far and it’s like eating the 35th jelly donut. It just doesn’t help you. It actually slows you down and makes you feel bad. And my feeling has been that by having rates at zero for a very, very long time the harm that we’re doing to savers outweighs the benefits that might be seen elsewhere in the economy. So I got to ask him about this.

SCHATZKER: Okay, and what did he say?

EINHORN: Well first of all he says, you’re wrong. That was good. And then he said the reason is if you raise interest rates for savers, somebody has to pay that interest. So you don’t create any value in the economy because for every saver there has to be a borrower.

And what I came back to him was I said, but wait a minute. You said for a long time we haven’t had enough fiscal stimulus, and who’s on the other side of the low interest trade? It’s the government. And so if the government — if we raise the rates, the government would have to pay more money to savers. You’d have the bigger deficits. You’d create the stimulus, the fiscal stimulus that you’ve been complaining that Congress wouldn’t give to you, right? And savers would benefit from the higher rates and because savings is spent at a very high rate in terms of interest — interest income on savings is spent at a high percentage, you’d get a real flow through into the economy.

SCHATZKER: One of the questions you’ve raised about quantitative easing in one of your letters to investors was about inequality. Did you get any satisfaction from Ben Bernanke on the question of whether quantitative easing exacerbates inequality?

EINHORN: Yeah, that did come up and I don’t remember exactly what he said. So I don’t want to —

SCHATZKER: It wasn’t memorable.

EINHORN: No.

SCHATZKER: How about this notion that Warren Buffett has propagated that the Fed has become with its $4 trillion balance sheet the greatest hedge fund in history?

EINHORN: Yeah. I’m not sure that’s meant as a compliment.

SCHATZKER: But did that issue come up?

EINHORN: Yeah. There were people who were asking, yes, and he says the Fed can manage their way out of it when the time comes.

SCHATZKER: But in a persuasive way? Did he convince anyone?

RUHLE: Or did he say Janet’s problem now, not mine? I’ll have another drink.

EINHORN: He was very supportive of Janet.

SCHATZKER: No doubt.

RUHLE: Are you?

EINHORN: I want to keep an open mind here. I saw her speak at the Economics Club a couple weeks ago and I was impressed by her speech. I thought — she said, look, we have a base expectation, but things change. And when things change, we’re going to change our policy. I thought that was good. She’s — I don’t look at one economic factor to drive things. I’m going to look at all of the factors. I thought that was good. I think the way she’s approaching problems at least conceptually is very good. I’d love to see if she has a better reason why rates should remain at zero at this stage in the economy, but you take these things and see where she goes. She’s just gotten started.

* * *

Yes. She “just” has. And yes, Bernanke’s problems are now her problems.

1 thought on “David Einhorn ‘I Asked Bernanke Questions, And The Answers Were Frightening’

  1. This is typical, we have fools running things, and they have taken this once great, stable economy and nation over a cliff. It is too late, investing here is done only by skim and sell creeps, with a few individuals handling hundreds of millions (at least on paper) who buy and sell enormous amounts of securities in less time than it takes to blink an eye. They continue to drain the economy, and nothing is done to charge them for these transactions.
    If I go to buy stock, I have to pay fees to buy and to sell…..why not these clowns? The market is so twisted and unfair, nobody with any sense will play.
    The few investors (about 10-15% of the market) play by the rules, but we don’t know how many of them are playing on margin. They consolidated the American Stock Exchange, to gain more much needed cash, with the NYSE.
    For many years, I was in the market. In the days when we had a stable market, we had the NASDEQ for new startups, and young stocks yet to prove themselves. Then, we had the American Stock Exchange for stocks that had proved themselves, but we still waited to see them continue, the NYSE was for the cream of the crop. Now, they put startups like Twitter up on the NYSE…..it is insane.
    We have fools in power, and they have destroyed everything of value. As a world power, we are finished. All that is left is the fall.
    Over half the world no longer uses the dollar any longer in international trade. I heard David Cohen lying about it on Fareed Zakaria’s GPS show………he said every nation HAD to use the dollar to complete transactions…….what a lie, what a stinking, putrid lie!
    US TV is now a rotten propaganda machine, nothing more. Not one bit of truth in a word of their news that isn’t.
    Americans, especially the wannabe greedy guts, eat up their lies and obfuscations.
    The wannabe greedy guts are those whose balance sheets show a few million dollars, but they are buried in debt. They have multiple properties, hocked to the hilt, they have used their credit cards to keep their Ponzi schemes going in order to hit it big when housing comes back.
    They don’t believe the market is empty, the banks but shells of their former wealth, the stock market totally rigged. They desperately believe real estate will come back, they will flip their properties, and make a killing. The killing will be of them as interest rates are already soaring.
    It was easy when their ARM mortgages were at 1-2%, more difficult when they hit 4%, and very painful as they go past 5%.
    If one goes to financial websites, the interest rates still show the high 3% to 4% levels, except the jumbo loans are at 5.9%. These are for people who have never had a late payment in their lives. The way it is set up, if one is late on a Macy’s payment (some folks still use the real post office to have records), the Visa and Mortgage loans will ding you for it, too. It has become very unfriendly towards consumers, the system looks for ways to hit people and raise their rates. If one is late on a different loan, all lenders raise their rates…..when they go to buy a property, they don’t get the low rates listed, they are hit with higher rates.
    On any payment schedule, for every point raised, the monthly payment goes up 13%. Do the math, it is staggering, and it makes it difficult to carry any credit.
    The safest way to go is to only use cash, but if you do, you cannot get a loan anywhere…….consumers are totally trapped. Damned if you do, damned if you don’t.
    We get fools like Bernanke in charge of the FED. If anyone doesn’t realize it, the FED chairman is the most powerful man in the west, he alone sets interest rates and money decisions…..how much is made available, and so on.
    The FED has done nothing for the small business owner or homeowner, all monies have gone to the greedy guts so they can go on stealing us blind.
    So, with this new one, it won’t get any better, she will simply follow Bernanke’s model, serve the greedy guts and screw the people.
    Businesses are collapsing all over, the only ones allowed to survive are greedy guts. Look around, every store, every mall is full of corporate chain outlets, no independents. Even though independents provided 80% of all new growth in the economy and jobs, they have been systematically strangled.
    Now, 96% of all new jobs are low wage and part time.
    It has killed the consumer spending, and the greedy corporations are now eating each other. After that…..they are down to eating their own, as some are already doing.
    Greed kills.
    Stupid kills.
    Mindless rules.
    We are screwed.

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