Ben Bernanke, Out of Control
Today's Wall Street Journal, reporting on the speech in Frankfurt yesterday by Fed chairman Ben Bernanke:
Mr. Bernanke...made his case against domestic critics, arguing that U.S. unemployment could keep rising without action by the Fed and that inflation is too low and could fall further...
"On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for years," Mr. Bernanke warned. "As a society, we should find that outcome unacceptable."
Now, you may make what you will of the arguments for and against the $600 billion "quantitative easing" on which the Fed has now embarked. You may even agree with Mr. Bernanke that inflation is too low. But Bernanke's little peroration about unemployment? Instead of answering his critics dispassionately, Bernanke in effect accuses them of wanting unemployment, which is, of course, absurd.
Really, there are only two possibilities here. Either the Fed chairman has succumbed to the temptation of his office, coming to suppose that he alone can save the American economy. Or he has chosen to resort to the cheapest trick of the politician, wrapping himself in a mantle of righteousness while implying that his opponents are cruel, heartless, et cetera, et cetera. Either way, the other members of the Board of Governors--Kevin Warsh, for one, has sounded sensible lately--need to tell the chairman to knock it off.
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Aug '10
Re: Ben Bernanke, Out of Control
Aug '10
Re: Ben Bernanke, Out of Control
Having read Amity Shlaes history of the depression I get how bad deflation can be, but I don't see anyone printing up "Vallars" much less taking them. Helicopter Ben needs to make a much more compelling case that we need QE2 than to just assert without proof that old man deflation is just around the corner. Isn't it odd that gold and commodity prices are soaring during this alleged deflation? I personally suspect that we are in the midst of a capital strike which is suppressing employment and holding down some prices while simultaneously in an inflationary bubble in commodities thanks to all those new Ben bucks. Printing money is going to help this how?
May '10
Re: Ben Bernanke, Out of Control
It aggravates me when many conservatives rail against socialism under some circumstances, but make excuses for or even support the conduct of the Federal Reserve. Why is this the case? The Fed is a socialist institution. It was created by the Federal Reserve Act and monopolizes the issuance of currency. It tells the Bureau of Printing and Engraving what to do and it manufactures currency electronically and introduces new currency into the economy by buying Treasury debt instruments from private companies, i.e., it engages in monetary inflation. If I remember correctly, socialism is a social system where the non-human factors of production are controlled by the government. Well, money is a productive factor (specifically, it is a capital good). Bernanke should be treated like Lenin. If we hate socialism, we hate the Fed.
Jul '10
Re: Ben Bernanke, Out of Control
Michael, I am no economist but this problem has always interested me and the underlying problem, how to manage a currency, is still a bit sticky. Yes, the Fed is a statist approach, and there has been frequent debate on what would be a better arrangement, from banks issue their own currency tied to whatever commodity they choose to going back to gold as the commodity and let mints run the way they mostly did in the 18th Century, guaranteeing the purity of the specie. Tie a currency to a commodity, and your national economic fate is tied to the perturbations in the supply.
Milton Friedman wrote non-Thomist, but still virtuous, works on the dangers of state-backed fiat money, and its guarantee of run away inflation (think Weimer deutschemarks). In there somewhere is the concept that if changes in the quantity of fiat money were to be tied securely to changes in the GDP, allowing only very low inflation, that the horrors of undisciplined fiat money and commodity based money could be avoided. This is very close to what we have been doing for three decades, but the dollar's role as a reserve currency causes interesting distortions.
Edited on Nov 20, 2010 at 12:28amMay '10
Re: Ben Bernanke, Out of Control
Its interesting that Milton Friedman is charged with being a radical advocate of capitalism when in fact he was an advocate of central banking.
Now monetarism has gone out of fashion but I am loosely familiar with it. I believe that a free market in money, with full reserve or 100% banking and market-chosen money (probably a parallel standard of gold and silver) would literally solve all of our monetary problems and end the business cycle conclusively.
Under a commodity-based, 100% reserve system, it would be illegal for banks to lend deposit notes that give borrowers claims to money (like gold or silver) deposited by other depositors. Such is fractional reserve banking, where banks over-issue deposit notes and thus produce a situation where it becomes impossible to redeem every deposit note issued "in circulation." Not only does fractional reserve banking necessarily violate demand deposit contracts, but it also causes price inflation by facilitating the expansion of the money supply.
Ironically, I think its the perturbations of government control of the production and exchange of money that we should be primarily concerned about. The price of gold is currently behaving as it is because of monetary policy.
Sep '10
Re: Ben Bernanke, Out of Control
The Fed is and has been a political institution and Ben is acting his part. Though I am not impressed with his antics I find them no more distasteful than most politicians. Why is he so adamant about QE2 if his stated reasons are not his actual ones? I am inclined to think the spike in commodities in large measure explain his actions. Why is there greater demand for these commodities? I think Ben is seeing that the speculative tendencies that fueled the housing bubble have not been extinguished, but have now moved into gold, silver, oil, etc. The sharpness of the rise seems to me to indicate speculation and not prudent hedging. I think Ben sees the same thing and his fear of the out come is what is driving his actions. The Fed after all has provided the liquidity for these speculative excesses to once again take center stage. No politicians is going to stand up an say I’m doing this cause I’m scared.
Sep '10
Re: Ben Bernanke, Out of Control
OK, so I read the WSJ piece by Hilsenrath and the piece by Fed governor Warsh. I can find no difference between what Bernanke is quoted as saying and what Warsh says. Except that the latter says more of it.
Jun '10
Re: Ben Bernanke, Out of Control
One can listen to or read economists for hours and/or days at a time and end up exactly where one started, neither knowing nor understanding anything more about economics.It is a profession of circular logic and science based on singular non repeatable circumstances. Therefore I do not trust any single individual or small group of elites to have the great wisdom and vision necessary to manipulate our money supply. I just find this system very scary. But I am a very simple guy so please accept my apologies.
May '10
Re: Ben Bernanke, Out of Control
In Milton Friedman's typical "no free lunch" riff, he regards printing money as, in effect, a tax on all who hold dollars. With so many dollars dispersed world-wide, might all this printing be a disguised tax on planet earth in an effort to ease the U.S.'s fiscal mess, and in lieu of a politically impossible increase in domestic taxes?
May '10
Re: Ben Bernanke, Out of Control
Oct '10
Re: Ben Bernanke, Out of Control
No apologies needed. Keynesian economics is exactly as you describe it. ;-) But let me please refer you to Prices and Production and Other Works; Human Action: The Scholar's Edition; Money, Bank Credit, and Economic Cycles; and The Axiomatic Theory of Economics. Economics need not be a "soft science," and the preceding are the beginnings of some hardening of it. Many thousands of people benefit from promulgating economic cluelessness, however, e.g. Paul Krugman, so it's an uphill battle.
Of course, if you haven't yet seen the brilliant Fear the Boom and Bust, please do!
Aug '10
Re: Ben Bernanke, Out of Control
Here's one more thing we can thank turn-of-the-20th Century 'progressives' for, along with the income tax, Prohibition, and direct election of Senators; Statist ideas all, and designed to erode our individual freedoms.
The Federal Reserve Board has as much direct effect on our lives - or more - than the president does. They always have the power to create depressions or inflation, and never face an election.
Mismanagement of the economy by the Fed in 1929 was the proximate cause of the Great Crash, and their delay in lowering interest rates afterward made the crash much worse.
The Federal Reserve has created five asset bubbles in my lifetime (mid-'60's, early '70's, late '70's, late '90's, and the most recent one) and each had to be tamed by an engineered recession.
Now we have the worst of all worlds, an asset bubble and no will or ability to tame it. Very powerful people are affecting our lives, and not one ever faced the voters.
Edited on Nov 20, 2010 at 8:00amJun '10
Re: Ben Bernanke, Out of Control
In my little mind, a healthy economic environment has inflation between 11/2 to 3 percent. The prime rate about 5 per cent. People could invest in 3 yr to 5 yr CD's at about 4%. 30 year mortgages run about 6 to 61/2 percent with 15 to 20 % downpayment. A persons mortgage, including insurance and taxes equals no more than 35% of their net after tax income. Of course, this is just one part of the economy, but residential construction and home ownership is an essential part of the American experience. It effectively undergirds stability throughout our entire economy, as long as there is stability in that industry. Where am I wrong and, if not, how do we get back there? Another thing, as you folks have been saying in more complex ways is the importance of a stable currency. Inflating our currency is worse than raising taxes in its negative effect on every single citizen. One of the Federal government's most important responsibilities is maintaining a stable dollar. The Bernanke needs to explain in very simple language exactly what he is doing and why. He has the power to affect so mny lives.
Re: Ben Bernanke, Out of Control
Exactly.
May '10
Re: Ben Bernanke, Out of Control
Are you advocating a return to the era of 19th-century financial panics that ravaged the American economy and in response to which the Fed was created? Recall the Panics of 1819, 1837, 1873, 1901, and 1907....and compare that record to the century following the Fed's creation. It seems a simple fact that we have grown better at managing the economy, especially since the Great Depression.
Nov '10
Re: Ben Bernanke, Out of Control
Peter Robinson
Exactly.
No matter how eloquently Mr. Bernanke explains QE 2, he cannot disguise the fact that "quantitative easing" (a wonderfully Orwellian euphemism) is simply printing money, which (to quote a recent funny video) "is the last refuge of failed economic empires and banana republics." Printing money devalues the currency and lowers the standard of living, which is (needless to say) always a bad thing.
So why does Mr. Bernanke want to do it? I can offer only two possible explanations:
(1) This is a deliberate attempt to screw the Chinese (who hold a ton of US Treasury bonds) and to accelerate America's decline as a washed-up superpower.
(2) Ben Bernanke is a moron with a Harvard degree.
Edited on Nov 20, 2010 at 12:20pmMay '10
Re: Ben Bernanke, Out of Control
Harlech,
I believe all of the panics you refer to were caused by pre-Fed fractional reserve banking. Banks over issued deposit notes on the premise that only a fraction of their depositors would ever withdraw their deposited money. These expansions of credit reduced interest rates and increased the quantity of credit demanded by firms, fueling false economic booms that made economic contractions inevitable. Depositors rushed to withdraw their money but the federal government would "suspend specie redemption" and allow the banks to hold depositor money hostage. Central banks were created to allow fractional reserve banking to proceed indefinitely.
I second Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto. Its free at mises.org.
Edited on Nov 20, 2010 at 3:20pmOct '10
Re: Ben Bernanke, Out of Control
OK. Here's Murray Rothbard on the Panic of 1819. Does anything about the fiat currency and inflation sound at all familiar?
Forgive me, but the exact opposite seems "a simple fact" to me. Here's Murray Rothbard on The Case Against the Fed. Note that it is copyrighted 1994, before the dot-com boom and bust, the housing boom and bust, and the financials boom and bust in the U.S. Now tell me again how good "we" have gotten at managing the economy?
Aug '10
Re: Ben Bernanke, Out of Control
Spot on, Mr. Snively. A poorly run Fed is much more dangerous than a laissez faire banking system, because the Fed dominates the nations banks and compounds errors. This is the essence of tyranny.The answer to chaos and lawlessness is reasonable and rational laws and regulations, not a one-size-fits-all dictatorship.
Many panics and depressions are the natural result of the 'business cycle'. Example: the railroad building booms and busts of the 19th century. The easy success and prosperity generated by the new trains created euphoria and excitement which led to over-building, which caused bankruptcies.
Nature has its seasons of growth and death, and the business cycle merely reflects nature. It cannot be avoided. Those who try to tame it create worse booms and busts. Mere humans are not wise enough to manage Nature.
http://www.qfinance.com/asset-management-best-practice/booms-busts-and-how-to-navigate-troubled-waters?page=1