Although Ben Bernanke has pledged to ensure a continuity between the Greenspan policies and his own, he differs in several important respects, including his endorsement of “inflation targeting.” Greenspan has always been against it. But Bernanke’s idea of “inflation targeting” is in need of some deconstruction. Bernanke is an advocate of inflation targeting. We should understand this to mean that Bernanke is a deflation-scared inflationist. FULL ARTICLE
Source link: http://archive.mises.org/4259/what-does-inflation-targeting-mean/
What Does Inflation Targeting Mean?
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Ben “Bag Man” Bernanke is a Keynesian policy shill for the administration. He is to replace Alan “Keep the Presses Running” Greenspan as Fed Chairman. Bernanke’s desire to keep the inflationary game running, that is avoid a deflation is simple. The people that put him in this position of power are expecting a payback on their investment. Who are they? The usual suspects: bankers, financiers, and debt peddlers. If a deflation should occur the debt peddlers would be in a serious position of having to take losses, which is why they have gone to such trouble in their cozy relationship with the government to insure that this will never happen! The problem here is that the surplus theory of value says that eventually all chickens come home to roost, ie, in the long term the market always applies the correct valuation. In the short term peddlers of inflated currency gain an advantage by spending the inflating currency in advance of the markets recognition. The inflationary cycle makes this a shorter and shorter term as the market gets wise to what is going on. In the late 70′s Brazilian worker demanded to be paid twice a day because of this. While the US is not a third world country yet, we are traveling down that road! The average American and the U.S. government are on the road to bankruptcy, that is currently have negative net worth and can only run a positive cash flow by borrowing more money. Credit bureaus have algorithms to detect this and cut off such creditors because the risk of bankruptcy is so high once this occurs. It is more difficult to cut off a creditor like the U.S. government. Bankruptcy reform was recently enacted in anticipation of this scenario for consumers by scared lenders. This reform does nothing to address the valuation issue, only to make the Federal Government a collection agency. This provides no guarantee that anything will actualy get collected. The marginal returns from each successive inflation become smaller and smaller, thus requiring larger cash injections to give the desired lift to the econommy as a whole. Bag Man Ben is just the man for the job now that Greenspan has wearied of carrying this load. Greenspan is near the end of his Keynesian “Long Run”, and Ben will take it from here. As Hayek pointed out inflationary economics is a race, even if tortoises are running, to bankruptcy where debtors scalp their creditors. Not a long term strategy on which to found prosperity.
Good comment, Roger, on “Bernanke the Alchemist” inflationist. THE key Public Law—which ‘we’ (myself, Cong. Ron Paul, a few libertarian/Austrian School economists and activists such as Dr. Hans Sennholz) vigorously opposed at the time unsucessfully, sadly—is the Monetary Contol [sic] Act of 1980. Virtually unlimited power to inflate was given the unConstitutional Fed by the clueless, ignorant, and corrupt Congressmen. Greenspan’s minions personally assured me at a Capitol Hill party honoring Von Mises that that Act would “NEVER” be used to “monetize the debt”. I told them to their faces that they would be wrong, and that their asertion was false. Subsequently, 23 years later, at my old club, the National Economists Club, in Nov. of 2002, Bernanke made direct reference to the MCA of 1980, saying that the Fed had the power to create money and credit “out of thin air”—which, sadly, they DO, and have done in the trillions. He has been picked for the very purpose of directing the deliberate 72-year policy of monetizing the governmental and corporate and mortgage and credit card/consumer debt by hyperinflating the paper currency into total worthlessness. Based on the phonied-up CPI, a poor, flawed, but longstanding price inflation measure, the present ‘dollar’, actually an “FRN”, or Federal Reserve Note, is ‘worth’ only a nickel in purchasing power value (PPV). Ie., the general price level has RISEN 20 times in about 70 years. It will do the same in the next 40, IMHO. So the “Fed/Feds” lie deliberately when they famously chant, “There ain’t no inflation”. Their use of the double negative gives them away, as my good friend, the late Bob Bleiberg, former Editor and Publisher of “Barron’s” was wont to often say.
Can someone clarify this point for me. I thought that the Fed was always empowered to purchase U.S. Treasury debt, and it has done so virtually since its inception. My understanding is that the MCA of 1980 gave the Fed authority to purchase any asset, not only Treasury debt. And of course, the Fed would “pay” for its purchases with checks it essentially creates out of thin air.
The Wife and I create approx $3,000 a month out of thin air and pay it off in the next month.
Government policy invariably achieves the opposite of what had originally been intended. Greenspan’s policies gave us the high tech boom as well as the high tech bust. Bernanke wants to avoid deflation at all costs. By enacting monetary policy to achieve such an end, Bernanke will set in motion the series of events that will culminate in a bout of deflation.
Harry Valentine
Well it goes to show that there are worse people than Mr Greenspan about (and typical of President Bush to pick one).
For all his increase of the money supply Mr Greenspan has actually been restrained than the Bank of England or the Euro Central Bank (the stats can be read on the back pages of the “Economist” magazine each week).
Of course, even if a central banking achieved the task of only increasing the money supply (whichever “M” we choose to look at)in line with the “price level”, this would still lead to boom and bust.
There was no open general price rise in the shops (what people are taught to think of as inflation), in the late 1920′s but the credit-money boom was there and the crash had to follow.
Although (again of course) the crash did not have to lead to a Great Depression (after all the crashof 1921 did not lead to one). As has been pointed out for many decades (by Murry Rothbard and many others) the Great Depression was caused by the panic government reaction to the crash – the pressure of business enterprises not to cut wages (such pressure being influenced by false “keep up demand” theories), by the increase in taxes on imports (which led to a trade war) and so on.
“Do nothing Herbert Hoover” – if only he had done nothing (as President Harding had done nothing – bar cut government spending and taxes). If President Hoover had followed President Harding’s example the crash of 1929 would have been followed by a slump lasting about six months (as the economy corrected itself) and then strong growth.
But he had to be the great activist (as was President Roosevelt after him – accept that he added things like Social Security to the mix to create long term problems that would start of tiny and end up dangerious cancers eating away at the Republic).
Well now we are stuck with inflation and the loss of wealth through lower buying power associated with it.
Add in some protectionism and we are ready for depression.
I understand that the price of an item can change because of inflation or/and because of the law of supply and demande applied to its specific market. How would you go to distinguish how much of a price change is due to one or the other cause? Thanks.
Ben will try to set the price of the future, but he cannot predict the future, so he will fail.
I wonder how much gold Mr. Greenspan owns? Or Mr. Bernanke? After all you can’t print gold or silver for that matter. Although you could drop it out of helicopters. (just don’t stand directly underneath one doing so
)
Just because Bernanke is a delusional inflation-whore, that doesn’t mean he’s going to make horrible decisions with all manner of negative consequences that will then be blamed on others.
Oh wait, yes it does. Crap.
Oh well, I guess giving the Keynesians more opportunities to screw up can only help our cause in the long run.
The Fed, as the following suggests, has limited power especially at the end of major economic cycle. The Fed can lower interest rates but it can’t make people borrow nor lenders lend at the end of a major economic cycle . Fractal analysis suggest that that is the exact position of the macroeconomy – at the very end of a very large 147 year cycle…
The fractal decay puzzle which retrospectively will epitomize
maximum mathematical efficiency in the three fractal primary decay process must be solved prior to its evolution in order to validate fractal analysis as a fundamental ‘science’ of macroeconomics.
At its smallest time units, equity valuation growth to trading
saturation points and decay to selling saturation points makes
intuitive sense. At the longest time units, growth to the consumer debt saturation point based both on collective limited wages and overvaluation and overproduction of assets which in turn are based both on low interest rates and creative easy lending practices is followed by a contraction and decay process of asset values that unmasks the surpluses in the system and results in job contraction and lower wages based on those ongoing surpluses and contracting prices.
This longer perspective likewise makes intuitive sense.
Equity valuation fractals quantify, in the most efficient manner, this qualitative intuitively reasonable process. The markets are not – theyare not random walks. The markets are defined by dollars available for investment, current total value of investments and assets, ongoing wages, outstanding debt obligations, and inflationary pressures of day
to day living fueled by low interest rates, imprudent lending
practices, and inappropriate money creation in relation to traditional debt to wage ratios. The numbers 1-10 and fractions and multiples thereof define the ongoing valuations, debt, and money supply that is the market. That the market ‘marches’ and otherwise evolves to a beat of efficient fractal patterns that represents the total integration of these numbers into repetitive maximum efficient patterns is wholly reasonable.
The probability that the retrospectively identified recurrent fractals patterns occur by chance alone approaches zero. The challenge remains to decipher the non complex puzzle and to delineate the decay process prior its real time evolution. If it can be done, it will be the first time that quantification of the valuation decay process has been accomplished before the event. Ludwig Von Mises and Joe Kennedy by
different methodologies in 1928 and 1929 intuitively sensed in a qualitative way the lurking decay process and collapse and acted accordingly.
Just as in 1929 and 1720, consumer saturation and/or asset
overvaluation relative to ongoing wages and debt load will be the precipitating cause of the mechanistic deterministic non stochastic fractal decay process. By lowering the fed fund rates to extreme low levels and not controlling lending practices, the Federal Reserve and government caused excess borrowing, excess valuation, and excess production – with expected excess pain in the subsequent natural and mechanistic devolution process. By its ongoing raising of fed fund rates the Fed has placed boron rods into the uncontrolled reactor and
decreased the highs of overvaluation with an expected lessening of pain in the devolution. Hence the Euro- Nikkei markets with relatively less tightening by their central banks have had higher recent terminal valuations. Regardless of the degree of overvaluation, devolution will inevitably occur and will inevitably occur on time according to the most efficient fractal decay progression Just as the Federal governmen and the Federal Reserve with its large check book and rapid lowering of interest rates, respectively, could not change the couse of the devolution in 1929-1932 and 2000-2003, so will they be powerless to change the course of the present devolution.
The perfect often stated fractal growth pattern is x/2.5x/2x followed by an idealized decay of 1.5x. This last 1.5x can be subdivided into an idealized decay fractal pattern of y/2.5y/2.5y.
TNX, the ten year note, had an exhaustion gap on Wednesday 26 October, day 38 of a 19/48/38 of 38 perfect growth sequence. What is possibility that this perfect x/2.5x/2x growth fractal with an exhaustion gap on the last day of the third growth fractal evolved via this perfect fractal growth evolution by chance? Had there been a key reversal today, it would have been a completely perfect pattern in concert with a
possible major reversal point for the Wilshire. 27 October 2005 will be a most interesting trading in this context.
An intriguing possibility exists that the second fractal for the
equity composite Wilshire has already been completed. A 19/48/ 10 of 45-48 fractal decay pattern is now evident to this myopic fractalist. In this fractal solution 35-38 more trading days exist to a primary bottom with nonlinear devalutions of potentially massive proportions contained within those 35-38 days.
A slope taken from the first day of the second fractal to the last day of the second contains all of the lowest values for the intermediate days – except 2-3 days. And even those days touch the underlying slope line at the bottom most areas of their daily valuations.
By repetitive inductive and retrospective fractal analysis,
macroeconomics appears to be a recurrent cyclical process of natural growth, saturation , and inevitable natural decay flowing in recurrent, nearly quantum, maximally efficient fractals of incremental time proportionalities. Growth and saturation represents the bulk of the cycle. The terminal devolutions are a very small part of the total economic life cycles; they are nonlinear; and the declines are proportional to the antecedent excesses in growth, debt, and overvaluations at the summit saturation levels.
Gary Lammert http://www.economicfractalist.com/
“…the mechanistic deterministic non stochastic fractal decay process.”
Holy adjective overload, Batman!
As I wrote in an earlier comment on another thread, Mr. Lammert has made a bold prediction that we can all follow. He will either be wrong, or he will be correct.
It says in the news that Secretary of Treasury John Snow sez that a strong dollar is in America’s best interest.
This is unbelievable!!!! This person has the gaul to say this when this administrations has done everying in its power to reduce the value of the dollar.
Gary Lammert,
Have you ever heard of Ludwig von Mises?
Please let me know if you’re looking for a writer for your site. You have some really good articles and I believe I would be a good asset. If you ever want to take some of the load off, I’d absolutely love to write some material for your blog in exchange for a link back to mine. Please send me an email if interested. Thanks!
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