Recovery for whom? Main Street or Wall Street? As for Bernanke's blog, yes, I read and giggled. Not sure "Lucid" was the word I would use. From ZH Ben Writes: The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. of course the Fed can reduce rates below zero: just look at all of its foundering central bank peers in Europe. NIRP is coming to the US, and Bernanke knows it. Furthermore he is being utterly disingenous: I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent. Oh, ignore QE please. After all it has led only to a tiny $4.5 trillion Fed balance sheet. What's that: like 25% of US GDP? Just ignore it. Not like the Fed can't raise rates and disappear trillions in bank excess reserves in "15 minutes." Of course, the S&P will be trading at 15 as well, but who cares. The farce continues: Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today. It sure does: Oh, and please ignore the following too. And this: Just keep repeating: on way to "full employment." Affter all Ben Bernanke said it. First, as I pointed out as a participant on the IMF panel at which Larry first raised the secular stagnation argument, at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects. As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period. The days of the Rocky Mountains may well be numbered. And then the bubble master himself says something truly profound. I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels. Ironic Bernanke should say that, because what the world will most remember him for are the sayings on the linked page: Federal Reserve Board Chairman Ben Bernanke's Greatest Hits. Everyone should read these to recall what the Fed chairman was really saying. But the punchline, and where Bernanke's true colors once again shine, is in his final paragraph: My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy Clearly that theory has worked so well for all hyperinflating countries who took Bernanke's advice and crushed their currency only to not reap the numerous benefits of monetary collapse and the resultant economic devastation. However, where everything clicks, is Bernanke's insistence that it all goes back to crushing the dollar, i.e., printing so much of it that it is devalued. Which in turn brings us to Bernanke's far more seminal and important speech from November 2002, "Deflation: Making Sure "It" Doesn't Happen Here", in which he laid out very clearly how this entire episode of market, financial and economic idiocy will end. ... the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money. And there you have it: when all else fails, the helicopter will come out. A helicopter that will drown the world in crisp $100 (and soon $100,000,000,000,000) bills, which in turn will hyperinflate everything. The debt included. Is it thus any wonder then why Bernanke used the word "debt" only once in a blog post that was all exclusively about debt?
So you're on record now as predicting hyper inflation in the U.S. economy. Very good. I'll make note of that and not hesitate to remind you later. And thank you for reading.
First, I didn't write that article. Second, it's awesome how you avoided all the other points and went for snark. I understand why, but it's good to see it happen as it means you have nothing to counter with. Third you need to look up the word sarcasm. I've linked to it for your convenience. The article is referencing the famous "drop money from helicopters" quote, which - if it occurred, WOULD bring hyperinflation. That's the point. Good job missing it!
You do agree with the article's conclusion, don't you? Namely, that if the government were to prevent deflation by a tax reduction financed in part by the Fed purchasing government debt as a means of holding down interest rates, and thus, according to Bernanke, creating the equivalent of the Friedman helicopter, that hyperinflation would result. Let me say in no uncertain terms, I disagree with the uninformed writer of your article. (I'm waiting for you to tell me he is a famous guy, and if I've never heard of him I must be a total loser!) What I disagree with is not Bernanke's colorful characterization, but with any suggestion that hyperinflation, under the specific circumstances Bernanke was speaking of, would be the result. What Bernanke is pointing out is that, contrary to popular opinion, the Government is far from out of tools to prevent deflation, even though the discount and fed funds rates are hovering near zero. Let me remind you that we have had debt financed tax cuts numerous times in the past, however deflation was not the issue them. Chief among these would be the Reagan cuts. The chief difference between those cuts and what Bernanke was discussing would be the extent of Fed participation versus the private sector. To the extent that the Fed is the buyer of government debt, the tendency of rates to rise is quashed. Either way, of course, debt is accumulated in direct proportion to the amount of deficit being financed. When the Fed, however, is a substantial buyer, citizens benefit from borrowing at very low net cost, the cost being only the net of Fed operating costs! This was the clever advantage achieved by Bernanke and company during the Recent QE program that so magnificently moved the country from the brink of economic disaster. Sad to say, the writer of your article is just spouting out popular nonsense. Because on the surface it seems to make sense, it sells, even though it is wrong. Something is always left out however, and when that something is included, these common arguments no longer make sense. What would serve you well is to recognize that your personal financial situation is worlds apart from a sovereign government's situation. The government can finance debt at very low cost, can inflate and deflate, with some constraints of course, more or less at will. And yes, the government can actually print money using nothing but paper and ink --thankfully the last times our government printed, if I'm correct, was during the revolutionary and civil wars. Since then new money has been linked to new debt. There are not many parallels between personal finances and government finances, but one of them would be that you and I and our government can all waste money by spending on the wrong things. That's about where the parallels end.
One bit of sarcasm deserves another, wouldn't you agree? Is this: "Good job missing it!" perhaps an example of "sarcasm" that you were so generously attempting to explain to me? If so, I think I may have caught on. Thanks for educating me.
I believe that if the Federal Government gave out some large arbitrary number to each person (let's say $100,000) then yes, inflation would spike. Make that large enough and inflation would spike big time. No, he's not famous. But that doesn't make you an informed poster by any stretch of the imagination. I'm still stunned that a "student of the Fed and interest rates" has not heard of or doesn't know Jim Grant. Blows my mind. Again, that last paragraph in the article was satirical. You seem to have an issue grasping that. But focus on the 1%, ignore the 99% of the article. Hey! You're just like the Fed in that regard! A 1%er. Your shameless shilling at the end aside, I wasn't aware the Fed used QE to finance the Reagan cuts. Hmm...I need to go back and re-read history, I guess. Except you still haven't told me what was nonsense - other than the hyperinflation snark. You've told me that was nonsense like three times now. And you cannot solve a debt problem with more debt.
You're welcome. Though I fear none of it will be able to break through your cheerleading routine. "Go Fed Go! Rah Rah Fed!"
Satire? I hardly think so. The writer of that piece is serious in arguing against QE -- without of course ever mentioning a better alternative. And THAT'S the thesis of 100% of the article. He's wrong, your wrong. Rather than spending time re-reading history, might I suggest that you go back and re-read my post. No where do I write that the Fed used QE to finance the Reagan tax cuts, nor do I imply it. I did say something that both you and the writer of that ZH article would do well to learn about the difference between Fed financed sovereign debt and private sector financed sovereign debt.
It is a serious piece, but the end is satire. Your [sic] wrong. No shit, Sherlock. But what you did do is draw a comparison to how "we've financed tax cuts, etc before". As if, this time, it's the same thing.