Oil Erased QE2 In One Day

I came across this rant about Bernanke this morning. It's pretty good. Here's an excerpt below. The full text is here

You were sure QE would support higher bond prices - and lower yields. The exact opposite thing happened.

You were sure QE2 would suppress long end yields. The exact opposite thing happened.

Oh yeah, you made excuses both times, but in fact you publicly said that in both cases the exact opposite thing would happen that did.

Now let's look at what happened just today.

Oil went up almost $7 today for the WTI contract. For each dollar that crude oil rises, we transfer roughly $95 billion (estimates vary from $90-100) outside of the United States.

That's a direct hit to GDP.

In ONE DAY the entire impact of your so-called "QE2" was ERASED.

(As an aside, yes, I can do the math on the direct import numbers; the argument here is on the total economic impact, which is as noted above. Estimates there vary somewhat, but they're centered around $90-100 billion/year/dollar increase.)

Your entire gambit and what you sold to Congress and President Obama was that you could "restart" credit expansion with your policies. Implicit in your policy was a need to do so, because without it you cannot succeed. The World Economic Forum at Davos released a paper saying that we needed, collectively, to add one hundred trillion dollars of new debt to the system to support the paltry growth numbers you and your economists are putting up. Worse, the CBO stuck up numbers in the TBAC report that show another doubling of Federal Debt in the next nine years and a rough quadrupling of debt service costs to $800 billion, implying a paltry 3% blended rate.

We had the collapse starting in 2007 because people couldn't afford the debt they already had and yet your entire scheme, to succeed, requires doubling all systemic debt AGAIN.

So how are you going to do it Ben?

Who's going to take on that debt, and how are they going to service it?

You know damn well it can't work, and won't. You also know damn well you've goaded and prodded the Federal Government into taking on $4.5 trillion in debt we cannot afford, or nearly 30% of GDP.

How are you going to take that back off Bernanke? You keep being asked this, but all you say is that you're confident "you have the tools."

Uh huh.

You don't have jack and you know damn well you can't pull your pump-job back one iota without laying bare on the table the fact that the Federal Government is supporting 12% of GDP with borrowed money. If it disappears we have an instant Depression worse than the 1930s.

The bad news is that if you keep this crap up it will disappear by force of the market, there's not a damn thing you can do to prevent it, and that day is rapidly approaching.

EVERY prediction you've made about the economy over the last five years has been wrong.

All of them.

Two key points:

1) the spike in oil caused the entire impact of QE2 to be erased in one day.

2) if the Fed keeps artificially propping up the market, it will disappear by force of the market. (I like the writer's terminology here)