Thus said Levi Pearson on Fri, 05 Dec 2008 22:40:52 MST: > http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
Bernanke is anti-prophetic (in 2002). From the article, and I quote: ``A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year [2001], our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape.'' Yeah, he sure hit the ball out of the park there... Here's another good one: ``Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value.'' When the supply of money is deflating generally, the purchasing power of each unit of money goes up. This means that creditors receiving payments are able to buy more with their money now, than the amount that was loaned out. So basically what he proposes to do is punish the creditors with inflation. Inflation is good for the debtor because he gets the money now and can use it immediately, while the creditor has to spend increasingly worthless money. So Bernanke's solution is to sacrifice the creditors and favor the debtors, this is clearly more politically favorable as there are infinitely many more debtors than creditors. As long as inflation doesn't get out of hand, he can attempt to keep both happy. Here is another good one: ``It is true that once the policy rate has been driven down to zero, a central bank can no longer use its traditional means of stimulating aggregate demand and thus will be operating in less familiar territory. The central bank's inability to use its traditional methods may complicate the policymaking process and introduce uncertainty in the size and timing of the economy's response to policy actions.'' And this is particularly interesting: ``Irving Fisher (1933) was perhaps the first economist to emphasize the potential connections between violent financial crises, which lead to "fire sales" of assets and falling asset prices, with general declines in aggregate demand and the price level.'' Irving Fisher is often touted by Federal Reserve economists, yet Irving Fisher lost everything (in the millions non-adjusted) and became a pauper. He claimed in 1929 that the price level had ``reached a permanent plateau'' and proceeded to invest not only his money, but his sister-in-law's money. Of course his economic theories were wrong and he lost everything when it crashed. Here we go, Bernanke admitting he doesn't really know what he would do: ``In the remainder of my talk I will discuss some possible options for stopping a deflation once it has gotten under way. I should emphasize that my comments on this topic are necessarily speculative, as the modern Federal Reserve has never faced this situation nor has it pre-committed itself formally to any specific course of action should deflation arise.'' And this one is a real whopper: ``Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.'' So correct me if I'm wrong, but here he is basically claiming that the FED will manipulate the demand curve for money as one of their ``tools.'' In so doing the FED will ``help people make the decision to spend money now'' because of the expected inflation. He is right that, by simply hinting at printing more money, people will immediately adjust their time preferences and thus cause the demand curve to shift downward. Basically it's ``INFLATE or DIE!'' Don't you just love being an economic guinea pig at the hand of a benevelent money master? The drivel continues... ``Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).'' Do those behaviors include bailing out failing companies and banks? Last I heard the $700 million was being distributed willy-nilly. ``Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly.'' Do the bailouts and takeovers of banks and other businesses reflect changes to current law? ``The claim that deflation can be ended by sufficiently strong action has no doubt led you to wonder, if that is the case, why has Japan not ended its deflation? ... First, as you know, Japan's economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. ... Fortunately, the U.S. economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan.'' And the United States doesn't have these problems? Thank you for that enlightening, look into Helicopter Ben's mind. Seems like he was dead wrong on a number of things eh? > Milton Friedman, as I said in another email, proposed a fixed monetary > rule that would peg the money supply at a fixed, known rate of > inflation. Milton Friedman was no idiot, after all he is quite possibly the most famous modern day economist. I believe he is credited with saying insightful things like ``inflation is always and everywhere a monetary phenomenon.'' He is also indirectly responsible for the witholding tax that comes out of my paycheck every month; and the necessarily bloated government that comes of it. Andy -- [-----------[system uptime]--------------------------------------------] 12:17am up 3:49, 1 user, load average: 1.00, 1.00, 1.00 /* PLUG: http://plug.org, #utah on irc.freenode.net Unsubscribe: http://plug.org/mailman/options/plug Don't fear the penguin. */
