The New York Times headline reads Dear
Ben: It's Time for Your Volcker Moment.
I expected the article to be about inflation. It starts
out as such, praising Volcker for his commitment to lower inflation. A third
of the way through came an innocuous looking
sentence "Mr. Bernanke needs to steal a page from the Volcker
playbook."
From there it went straight downhill.
Here are a few snips ...
To forcefully tackle the unemployment problem, he needs
to set a new policy framework -- in this case, to begin targeting the path of
nominal gross domestic product.
More specifically, normal output growth for our economy
is about 2 1/2 percent a year, and the Fed believes that 2 percent inflation
is appropriate. So a reasonable target for nominal G.D.P. growth is around 4
1/2 percent.
It would work like this: The Fed would start from some
normal year -- like 2007 -- and say that nominal G.D.P. should have grown at
4 1/2 percent annually since then, and should keep growing at that pace.
Because of the recession and the unusually low inflation in 2009 and 2010, nominal
G.D.P. today is about 10 percent below that path. Adopting nominal G.D.P.
targeting commits the Fed to eliminating this gap.
Who is this Monetarist Fool?
At that point I stopped reading and asked "who is
this monetarist fool?" I went to the bottom of the article to find out
it was none other than Christina D. Romer, an
economics professor at the University of California, and former chairwoman of
President Obama's Council of Economic Advisers.
Dear Christina ...
In case you have not noticed, interest rates are zero
percent. The Fed cannot lower them any further. The Fed can of course print,
but in case you did not notice again, the Fed already tried that and all it
did was increase the price of food, gasoline, gold, and the stock market.
Moreover, and in case you did not notice, here is a
chart of excess reserves sitting at the Fed.
You see Christina, there is 1.6 trillion dollars parked
at the Fed already. Printing money in and of itself does nothing if it just
sits there.
Moreover, and in case you did not notice, Japan over a
20 year period tried both quantitative easing and Keynesian stimulus (fiscal
spending), and that did not stop Japan's deflation. All Japan did was dig
itself a 200% debt-to-GDP hole that will at some point destroy the country.
Bernanke, a Complete Dunce, "Puzzled by Weak Consumer Spending"
On September 8, 2011 Bernanke said he was
"surprised by how cautious consumers remain more than two years since
the recession officially ended."
I responded with Bernanke,
a Complete Dunce, "Puzzled by Weak Consumer Spending"
It does not take a genius to understand why consumer
spending is weak.
1.
Unemployment
rate is 9%
2.
Real wages
are falling
3.
Income
advances go to the wealthy
4.
Middle class
is shrinking
5.
Jobs hard to
find
6.
Approval
ratings of Congress and Obama at record lows
7.
Consumers
have high debt ratios
8.
Home prices
are still falling
9.
Homeowners
are trapped in their homes, unable to refinance
10.
Boomers need
to save for retirement
However, those simple facts are far too complicated for
a PhD like Fed chairman Ben Bernanke to figure out.
Is it any wonder his policies are so counterproductive
when he cannot figure out simple things the average person can see clearly?
Change of Heart in Bernanke?
Christina, in case you did not notice, here are a few
sentences by Chairman Ben S. Bernanke, Before the Joint Economic Committee,
U.S. Congress, Washington, D.C., on October 4, 2011, regarding Economic
Outlook and Recent Monetary Policy Actions ...
Fiscal policymakers face a complex situation. I would
submit that, in setting tax and spending policies for now and the future,
policymakers should consider at least four key objectives. One crucial
objective is to achieve long-run fiscal sustainability. The federal budget is
clearly not on a sustainable path at present. ...
As a nation, we need to think carefully about how
federal spending priorities and the design of the tax code affect the
productivity and vitality of our economy in the longer term. Fourth, there is
evident need to improve the process for making long-term budget decisions, to
create greater predictability and clarity, while avoiding disruptions to the
financial markets and the economy. In sum, the nation faces difficult and
fundamental fiscal choices, which cannot be safely or responsibly postponed.
Monetary policy can be a powerful tool, but it is not a
panacea for the problems currently faced by the U.S. economy. Fostering
healthy growth and job creation is a shared responsibility of all economic
policymakers, in close cooperation with the private sector. Fiscal policy is
of critical importance, as I have noted today, but a wide range of other
policies--pertaining to labor markets, housing, trade, taxation, and
regulation, for example--also have important roles to play.
Dear Christina, please read those three paragraphs
closely.
What is it you fail to understand about all three of
them, but especially the last one?
Bernanke, like yourself is a
dyed-in-the-wool monetarist, who hopefully (and at long last) may realize
that monetary policy is next to useless at this juncture.
Hello Ben Bernanke, Meet "Stephanie"
Dear Christina, I also invite you to read Hello
Ben Bernanke, Meet "Stephanie".
The article is about an email from
"Stephanie" who wrote about the difficulty of living on fixed
income with rising prices and getting 0% on CDs.
I responded that "Bernanke is a Coward Hiding
Behind Mathematical Formulas", that he did not know what he was doing in
2006 and he does not know now. Here is one key snip ...
Fed's Policy Is Theft
Stephanie, it's a little known
fact that inflation benefits those with first access to money, such as the
banks, the wealthy (via rising asset prices), and the government (think
rising sales taxes and property taxes when prices go up).
Everyone else gets screwed. You are right in the middle
of the pack of those most hurt by the serial bubble blowing policies of the
Fed.
Viewed this way, Bernanke's policies are nothing but
theft, robbing the poor, for the benefit of banks and the wealthy.
This is why I support Congressman Ron Paul's effort to
end the Fed.
Currency Cranks Agree With Themselves
Christina, I read your reference to The
Case for a Nominal GDP Level Target by fellow monetarists Jan Hatzius Sven and Jari Stehn, as well as your reference to Nominal
Income Targeting by Robert E. Hall and N. Gregory Mankiw,
also monetarists.
The opening paragraph of the latter is quite humorous:
There is increasing agreement among economists on two
broad principles of monetary policy. The first principle is that monetary
policy should aim to stabilize some nominal quantity. Monetarists have sought
to make monetary policy stabilize the growth of the nominal money stock. In
some periods of history, policy has been committed to pegging the nominal
price of gold. Some economists have proposed stabilizing a bundle of
commodity prices or even the consumer price index (CPI). The second
principle, which was taken for granted up until the past fifty years, is the
desirability of a credible commitment to a fixed rule for monetary policy. It
is now apparent that there are substantial gains if the central bank commits
in advance to a set policy, rather than leaving itself free to exercise
unconstrained discretion.
Ants and Termites in Increasing Agreement
As with currency cranks agreeing with themselves, there
is increasing agreement by ants and termites that anteaters should go
vegetarian.
In short, put a bunch of monetarist currency cranks in
a room, and the one thing they are sure to propose in an economic decline is
currency expansion.
Is it Different this Time?
Dear Christina, in light of the facts I presented above
in regards to the experiences of Japan, the excess reserves at the Fed, the
increase in inflation with no increase in jobs, and the number of people on
fixed income destroyed by the rise in price level while getting 0% on their
CDs, you have a hell of a lot more explaining why "It's different this
Time".
The ultimate irony of your preposterous proposal, is there is a chance (albeit a small one), that
Bernanke's realization that there are limits to monetary policy constitutes
his Volcker moment.
For the sake of the country, we should all hope so
because history shows that additional monetary and fiscal stimulus will not
help, no matter how many Monetarist currency cranks and Keynesian clowns
think otherwise.
By the way, anyone wondering why the recovery went
nowhere and will go nowhere need only look at who was advising president
Obama and who has his ear now (Christina Romer and
Tim Geithner, respectively).
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