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Source link: http://archive.mises.org/16698/thoughts-on-bernankes-first-press-conference/

The Sphinx Speaks!

April 29, 2011 by

It’s absurd that the entire world is hanging on the words of Ben Bernanke. He has been wrong at literally every major point in the housing bubble and then crisis. FULL ARTICLE by Robert P. Murphy

{ 26 comments }

Stephen Grossman April 29, 2011 at 9:06 am

>the Consumer Price Index steadily fell (albeit much more gently) from late 1925 through 1929

But Mises predicted the Gr. Depress. from stable prices w/tech-driven productivity increases, which lowers prices.

Bogart April 29, 2011 at 9:18 am

Thanks Milton for the 2% thing.

Freedom Fighter April 29, 2011 at 10:02 am

“Every computer shopper knows full well that if he postpones his purchase for a year, he will get a better computer for the same amount of money.”

In fact, he will get a better computer for less money … inflation money on top of that.

So if it was not for inflation, computers would be dirt cheap. In fact you can already buy cheap brand new notebooks for less than $300

Compare that to the Macintosh Lisa at $10,000 in that time’s prices in the 80′s

The computer you pay $300 today would probably sell for $20 if money had never inflated.

In fact, with cloud computing, google, apps store, computing is becoming almost free. On top of the computer hardware, lots of software and features are already free.

In fact, I downloaded Ubuntu Linux for free and put it on a bootable USB key, all for free. No need for the buggy, crappy, virus ridden and DRM annoyances and User Account Management nightmare Windows anymore, all this for free !!!!

I don’t need photoshop, I can download Gimp for free.

It will get even better in the future.

nate-m April 30, 2011 at 10:42 pm

Yes.

It’s obvious that they are wrong when it comes to the computer market.

Computers are cheaper, faster, more reliable, and have far greater capacity and far more features then they had in the past. This is because they are unregulated.

If we regulated computers like we do automobiles we would be stuck with 4 thousand dollar laptops that weigh 10 pounds and have a 45 minute battery life.

Computer processors are the most complex and most advanced human invention of all time. It requires all levels human intelligence and different types of technologies. It requires lithography, metallurgy, electrical engineering, chemical engineering, stamping, assembly line techniques, computer science, and even quantum mathematics to make a processor.

My CPU is a AMD 1090T Phenom II. It features six processors.

It’s ‘process’, the assembly technique… the lithography…(it’s a printed and etched thing), can reliably produce features down to 45nm in size. For comparison sake: a single copper atom is 0.2551 nm in size. The thickness of a _cell_wall_ on the smallest of bacteria is 10nm.

It has over 940,000,000 transistors. The size of the six cores and cache for it is about 346mm2 The size of a penny is 283mm2

It performs up to 3,200,000,000 operations per second.

The cost?

200 dollars.

I just bought a damn Bicycle, a low-end Trek mountain bike, for well over 300 dollars.

I can’t believe that people can look at their computer and argue on the internet the value of capitalism. FFS, people, capitalism is responsible for providing you the ability to use a computer and argue on the internet! The only thing that your government wants is to control it!

Tony Fernandez April 29, 2011 at 10:23 am

There is no inflation! It’s because of droughts! Yeah, that explains why the price of metal is through the roof.

Tony Fernandez April 29, 2011 at 10:46 am

By the way, the emerging-market argument I think is not debunked that easily. They could just as easily say that silver and gold are rising in value due to speculation and will crash.

Jack Norton April 29, 2011 at 12:34 pm

Spot on as always good professor. The example of the computer industry is devastatingly clear and irrefutable. I would love to see someone in congress put just that example to “The Bernank” in his next testimony. “Mr. Chairman, if – as you contend – deflation would unduly lock up consumer demand, please explain the success of the personal computer market despite universal expectations of future price decreases.” Even Fed doublespeak may not offer him a way to answer that one.

J. Murray April 29, 2011 at 12:59 pm

A typical home computer in 1986 ran about $2,500. This translates into $5,000 today as opposed to $600 it would cost to purchase the typical system.

Of course, direct comparisons are next to impossible because even a low powered $200 Netbook has many orders of magnitude more capability and power than the best 1986 had to offer.

In 24 years, computer hardware expanded at a exponential rate and costs 10% as much. There’s a huge recession there according to economists.

Freedom Fighter April 29, 2011 at 8:23 pm

Not only that but you get a much better system today !!

You get more for less.

redshirt April 29, 2011 at 1:18 pm

It looks like we are close to the next big crash. Any thoughts on this? May, June, how soon?

Freedom Fighter April 29, 2011 at 8:23 pm

Sell in May and go away. I predict it will happen in May.

Sione April 30, 2011 at 4:37 pm

OK. Let’s wait and see.

There is US failure a-coming, but when and how is presently unknown. It will be most interesting to watch and see.

BTW the reason I do not expect the real big collapse or crisis in May is the expectation the financial/political class will to do all it can to hide dangerous financical problems and paper over them (by doing things like printing more wallpaper- those sly paper hangers!) to delay events until after the next election cycle. After that it’s a matter of how much further things can be kicked just a little further down the road.

If you are retired, or getting ready to retire in the US, you are definitely going to be harmed- likely “allowed” to die early. Stay away from hospitals or clinics or social workers. Else it’s watch out for the triage needle and the nil-water order!

Sione

P T Bull April 29, 2011 at 3:05 pm

I seem to be getting richer every day with my gold investments, but I wryly point out that all that is really happening is my store of value is moving up to higher tax brackets. By definition I am not making any money at all, only preserving it.
To believe the Austrian School is a more accurate model of how the world works is to belong to a small minority. The majority watch bernanke because they believe in his predictive value, and another group watches to predict what the fed will do. My personal belief is that the situation is so out of control it doesn’t really matter what bernanke says, and historical parallels form the best predictor.

Also, gold, at least if held in banks or brokerage firms, is subject to the risk of confiscation or ‘windfall’ taxes, so its not necessarily all that rosy…

Dick Fox April 29, 2011 at 5:12 pm

Okay I confess. I couldn’t wait for Bernanke’s press conference. I knew it would be great theater and I was not disappointed. The day before Tim Geithner set up the punch line about a stable currency being what everyone wants. How could anyone think they would want anything else. Essentially Bernanke simply told joke after joke.

What? You mean there were actually people who thought he was serious?

Sione April 30, 2011 at 4:42 pm

There were people there who thought he was serious. The joke is on them!

Sione

Freedom Fighter April 29, 2011 at 8:25 pm

The computer deflation forces computer makers to accelerate development and further drive down costs in order to meet consumer demands. But, if their products are cheaper, they sell more and more of them because more and more people buy them and niche industries and collateral industries develop along the computer.

This whole hardware deflation is causing a massive increase in wealth and an acceleration of development. Something not seen in traditional industries.

nate-m April 30, 2011 at 10:55 pm

They not only get cheaper to buy, they get cheaper to make.

The reason why we have the current type of computers we have is because that is the most economically viable design then can create. The most important cost features for processors and other integrated circuits is the purity of the silicon wafer they use and the manufacturing process they use.

This is how it goes:
1. The purer the wafer the less you lose during production
2. the larger the wafer the more you can manufacture at each pass
3. The smaller the lithography process the more items you can fit into the wafer.
4. The smaller the lithography the faster you can make the processor.

Fantastic stuff.
As the technology progresses the silicon becomes purer, becomes bigger, the cpus become smaller and faster. Were originally you could only produce dozens of processors of processors on each wafer with large amount of faults, now we produce hundreds of processors with much lower amount of faults.

So not only are modern computer much cheaper for consumers then in 1986… they are much more inexpensive to produce then in 1986. That is the the efficiency of the production facilities has improved exponentially.

The technology is moving at such a pace that there is not even any point in modernizing factories. When Intel and other companies develop new manufacturing processes they just build new factories. It’s cheaper to build all-new factories then it is to re-use old ones. Old ones will go from producing CPUs to producing other types of integrated circuits.

Ohhh Henry April 29, 2011 at 10:55 pm

Look at the article’s chart of oil versus dollars compared to oil versus gold.

The skyrocketing price of oil resembles the exponential leap taken before 1980, but I don’t think that anybody expects the trend to be halted with high interest rates anytime soon.

Dave M April 30, 2011 at 11:00 am

The analogy of computer prices going down over time is even better demonstrated by pocket calculators. When I went to colledge a pocket calculator was around $125 retail [roughly a weeks wages after taxes] They were very large and not very powerfull. $12 will buy you a pocket calculator now that is light years ahead of the old models.

nate-m April 30, 2011 at 11:01 pm

You can buy calculators as promotional items. Like pens or t-shirts.

I tried to link to a example, but I am afraid I fell into a spam trap.

Typically these are priced between a dollar and 10 dollars depending on how fancy you want.

Of course nowadays my phone is far better then any ‘scientific graphing calculator’ from just a few years ago. I just need to download a app.

JL May 1, 2011 at 5:58 am

Inflation – what does it mean? Is it with or without housing cost and oil prices? I think the entire debate is confusing, because people rarely are specific when they say inflation.

I hear those arguments about a coming inflation all the time. But money is created from real estate. Real estate prices are falling, so how can that translate into inflation? I just don’t see it in a practical sense.
And inflation in the 70ties – Isn’t it obvious from the gold/oil chart on this very page that it happened because Nixon closed the gold window? Meaning: from then on money was created only from real estate and no longer tied to gold? It was like releasing a spring.

Seems to me that the current commodities bubble is a perfect storm between a falling dollar and uncertainty about real estate. money that used to go into real estate now goes into commodities. And it has become a bubble. The oil price probably should be around $60. The almighty Feds press down one bubble and another one rises. Money has to be somewhere, no? i would love to see a long term chart with oil prices, real estate and stocks.

A falling dollar – doesn’t that increase competitiveness and export? Why are people worried about loss of overseas purchasing power, when the problem for the USA as a country is over consuming and under producing? To me it sounds like the cure. Though I’d prefer it happened naturally and not because of FED intervention.

When the Chinese buy US T-bonds with dollars earned by selling Chinese goods at unnaturally low prices, doesn’t that just mean that they are giving away free money? I mean, when they can’t artificially hold down the currency any longer they’ll lose a good chunk of the bond value, no? What are the consequences, when that happens?

The only semi natural way for the Chinese government to keep down their currency is to buy overseas bonds. So when presidential hopeful Donald Trump tells the Chinese to stop manipulating currency, doesn’t that mean that the US has to stop borrowing in dollars immediately or suffer higher interest rates? How will that work with Trumps vow NOT to cut government spending, hmm?

I hope someone with more insight than me can put me straight here?

Inquisitor May 1, 2011 at 6:28 am

“Real estate prices are falling, so how can that translate into inflation? I just don’t see it in a practical sense.”

Why would money be pouring into an area that just suffered a massive bust? Right now money is pouring into commodities, stock markets, Silicon Valley, and not construction or housing, precisely because of the mess banks got themselves into with respect to those industries. And no, money is not “created” from real estate, whatever that means. Inflation reflects an increase in the money supply in excess of demand (or in Rothbard’s view, of paper money in excess of the commodity it represents.) You’re referring to its consequence, price inflation. Austrians tend to be very specific what they mean by inflation. Monetary inflation is definitely happening and has happened to unprecedented scales. Price inflation is on its way.

And no, a falling dollar is not “good”. It means domestic citizens have less purchasing power and are effectively impoverished. Simply because it benefits some exporters, it does not mean it’s a net gain. Of course, currency should be a free market like any other.

JL May 1, 2011 at 11:02 am

@InquisitorThanks for answering. I’m not satisfied with your answer frankly. And the arrogant tone is uncalled for. Especially since you’re not as bright as you think.You say: “And no, money is not “created” from real estate”
OK. Read carefully now.Q: What is the biggest loan you as a person can and will take out in your life?
A: Your homeQ: Where does the money come from, the banks vault?
A: No it’s created out of thin air.Ask the same questions for commercial real estate. Conclusion the higher the price and the lower the interest rate the bigger the money supply. And yes it is created from Real Estate – All of it.I hope not this is the average level of understanding in here. The next person answering my questions better not have the knowledge of a 1. grader and an arrogance to match. I actually expected more from this site.

JL May 1, 2011 at 11:12 am

Sorry the comment look like a mess. I tried to edit it. But the text got squashed together. here it is again. But don’t bother to answer. I’m not comming back.

@Inquisitor
Thanks for answering. I’m not satisfied with your answer frankly. And the arrogant tone is uncalled for. Especially since you’re not as bright as you think.

You say: “And no, money is not “created” from real estate”
OK. Read carefully now.

Q: What is the biggest loan you as a person can and will take out in your life?
A: Your home

Q: Where does the money come from, the banks vault?
A: No it’s created out of thin air.

Ask the same questions for commercial real estate. Conclusion the higher the price and the lower the interest rate the bigger the money supply. And yes money is created from Real Estate – All of it.

I hope not this is the average level of understanding in here.

Eric May 1, 2011 at 1:59 pm

Bernanke won’t retire too soon.

After all, he did point out that there’s some perks in his position. He did say that his favorite part of the job is that he doesn’t have to go through airport security.

As for being wrong, well, in government that simply means you get a larger budget next go around. Of course since he can print his own money, it makes it even easier.

nate-m May 1, 2011 at 9:37 pm

As long as he never says “No you can’t do that” to the political entity in power at the government then it’s likely he can keep his job indefinitely.

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