[OT] Ameros will clog the tubes - was Re: Network Neutrality

Andy Bradford amb-plugg at bradfords.org
Sat Dec 6 00:18:04 MST 2008


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
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