Theater of the fiscally absurd
By The Mogambo Guru
I think it is true "Theater of the Absurd" that Ben Bernanke, chairman of the
Federal Reserve, paid direct homage to Milton Friedman and one of Friedman's
theories, namely that the Great Depression could have been avoided if the Fed
had plowed enough money into the economy, by thanking Friedman and admitting
that the Federal Reserve had made a mistake in the 1930s, and vowing that the
Fed would never again make that mistake.
Well, now we have the results of that philosophy, as indicated by the essay
Monetary Stalinism in Washington by Hossein Askari and Noureddine
Krichene (Asia Times Online, October 10, 2008). They write, "Monetary policy as
practiced by the US Federal Reserve for the past decade is but a form of
financial Stalinism, forcing ridiculously low or negative real interest rates,
with
catastrophic results that are now plaguing the world", such as "pushing
housing, food, and energy prices to prohibitive levels, and triggering food and
energy riots in vulnerable countries. It has undermined the dollar and made the
US highly dependent on foreign financing."
They note that Friedman's theory, and the one that Bernanke has sworn to cling
to, is "that if the Fed had injected sufficient liquidity during 1929-1932, it
would have prevented thousands of banks failing and taking everything else down
with them. Therefore, Bernanke is determined not to let that mistake happen
again. Consequently, his response to the financial crisis has been a blind and
aggressive monetary policy in [the] form of negative interest rates, massive
liquidity injection, and massive bailouts, but that they won't make that
mistake again."
As to the chances of that succeeding, they write, "It would appear that
Bernanke has read a great deal about the Great Depression of 1929-1933 and
perhaps very little, or nothing, about the German hyperinflation of 1920-1923",
or even, in real time today, how about the horror of Zimbabwe! Hahaha!
Does Bernanke think that monetary inflation produces price inflation everywhere
except here in the US? Hahaha! I don't remember Friedman saying that!
The funny part is that Friedman is also the guy who said that inflation is
"always and everywhere a monetary phenomenon", meaning that higher prices
follow an expansion in the money supply.
However, the careful observer will notice that Bernanke is not mentioning this
inconvenient fact, since he is busily colluding with the Treasury secretary and
other central bankers around the world to generate horrific inflation through
massive expansions of the money supply that will cause untold misery for
billions of people so that they can, in some laughable comedy of low-IQ
desperation, ameliorate their tragic incompetence and ludicrous economic
theories.
The funny thing, say Askari and Krichene, is that with a fiat currency and the
ability to create immense increases in the money supply, "The US economy in
2007 had no resemblance to either the institutional setting of the Great
Depression or to the immense role and expansionary stance of fiscal policy.
Namely, today, there are institutions that can prevent bank runs, such as the
Federal Deposit Insurance Corporation, and the federal and state governments
(both relatively far bigger than 1929) are running large deficits that should
preclude a deep recession, especially if they adopt appropriate policies",
which is to try and buy their way out by printing money and having the
government buy everything in sight, which will fail, and will result in "high
inflation and rising unemployment."
In short, "There is no basis for making sound financial or economic forecasts.
No rational entrepreneur can undertake investment plans under such
uncertainties. Foreign investors are scared of inflation and a depreciating
dollar and are rushing to gold and safer currencies. It is at best a wait and
see attitude."
I am perplexed that I don't see how foreign investors are "rushing to gold"
while maintaining a "wait-and-see" attitude. But then, there are many, many
things I don't understand, mostly about social graces or why children are so
damned clingy, but the one thing I actually DO understand is that this economic
bailout stupidity will end badly for everybody that does not have gold and
silver, because if there were a way for a government to successfully and
painlessly buy its way out of massive indebtedness, then some overly-indebted
government before now would have thought of it, too, as they all did the exact
same damned thing, and they were all ruined by it, although they tried
everything.
Except the one thing that would have fixed everything; immediately adopting a
gold-standard money, which is eternal, which is why people who own gold and
silver will have a sort of financial immortality, too.
Unfortunately, some other things never change, either, in that government
morons and greedy bankers are eternal, too! Hahaha! We're so freaking doomed!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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