Pulling a Tiger Out of the Hat

In a recent article, Gary North compares Federal Reserve Chairman, Ben Bernanke to a master illusionist, practicing sleight of hand. Mr. North writes :

"The illusionist relies on his ability to get the audience to look at one thing while he manipulates something else.

The stage illusionist doesn't harm anyone. Any illusionist who harmed people would be written out of the guild. That's why the Federal Reserve has never been able to gain membership, despite its consummate mastery at getting the audience to look somewhere else than where the FED is doing the manipulating."

The illusionist draws away his audience's attention by means of clever distraction. According to Mr. North, this is just what Chairman Bernanke and the Fed have been doing! They have been framing the current economic crisis in terms of liquidity, when the real issue is insolvency! Mr. North continues:

"The FED is not supplying the banking system with liquidity. It is instead providing public band-aids for banks facing insolvency or at least a contraction of their lending ability due to reduced balance sheets. The FED is trying to persuade decision-makers in an illiquid commercial banking system that the FED stands ready to bail out any toppling firm whose bankruptcy threatens the entire payments system with gridlock. This is what Greenspan a decade ago called cascading cross defaults."

This is the very point that Chris Klein was making with his article I posted here, and which can be found in more detail on his blog Wreckonomics.

Mr. North's article can be found in its entirety here.

This current crisis goes beyond the shores of the good 'ol U.S.A., as well. For an international flavor, I encourage you to check out this article. The level of state secrecy shows just how dangerous and fragile the current situation is. There are murmurings being sent out from the halls of power here, amplified by the lackey press, that all is well. The storm has been weathered and safe harbor is in sight. But, don't be fooled! It is just another illusionary sleight of hand!

P.S. As a point of reference when you read the figures in the article from England, where the number given is in pounds double that number to arrive at roughly the dollar equivalent (e.g., 50bn pounds is roughly equal to 100bn dollars, where bn=billion).