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Thursday, September 20, 2012

So much for Friedman

Ben Bernanke abandons the economic theory of monetary supremacy:
Bernanke also said then that the Fed could not solve the economy's problems alone. "If the fiscal cliff isn't addressed, as I've said, I don't think our tools are strong enough to offset the effects of a major fiscal shock, so we'd have to think about what to do in that contingency," he said at a news conference last Thursday following a meeting of Fed policymakers. "It's really important for the fiscal policymakers to, you know, work together to try and find a solution for that."
Translation: We've been trying for four years to fix this thing and it isn't working.  QE3 is just another band-aid that can't even staunch the bleeding anymore, forget healing the wound.  We need you guys to step up to the plate and spend, spend, spend in order to buy us more time to pick up hard assets before the final collapse.

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43 Comments:

Anonymous Toby Temple September 20, 2012 9:14 AM  

Is that a confession?

Anonymous jack September 20, 2012 9:16 AM  

Is that a confession?

No, it's a whine....

Anonymous VryeDenker September 20, 2012 9:21 AM  

Mind you, they always seem to be more willing to let bad things happen when it seems like a Republican is going to win the election...

Anonymous Johnycomelately September 20, 2012 9:23 AM  

In other words, "We created the problem but you've got to fix it."

Is war one of their card tricks?

Anonymous Tallen September 20, 2012 9:24 AM  

Blackhawk Ben is going down.

Anonymous VryeDenker September 20, 2012 9:24 AM  

History says yes.

Blogger LP 999/Eliza September 20, 2012 9:25 AM  

The countless examples of failed policies boggle the mind. But we already knew for certain that bank bailouts, op twist and bullsh-t stimuli was going to prove disastrous. Now its just funny!

(Fining Americans for not having HC, unemploying Americans into submission, neoconning 24/7 over cartoons/middle east tensions doesn't work on (voters/patriots) those who know MATH and economics.)

Anonymous Stilicho September 20, 2012 9:30 AM  

Plus the fact that the Fed already owns all but $650 billion of the outstanding long term bonds and Bernanke would love to have more room to make purchases on the long side of the yield curve.

Anonymous DonReynolds September 20, 2012 9:33 AM  

Every Monetarist knows that the ability of the Federal Reserve to stimulate the economy is primarily in reducing the interest rate. Now that the interest rate is near zero, there is little the Federal Reserve can do to stimulate anything. Besides, Monetarism is better at dealing with inflation....which they also cause. The Federal Reserve "magic" has been wasted on the housing bubble, now the national debt is so large that the Fed will be tied to low interest rates indefinitely. Forget the Fed. They are no longer a player.

Anonymous john September 20, 2012 9:42 AM  

I'm just an engineer and think in terms of balanced equations. So I never got how good could flow into a control volume which is our country, and how no goods could made within the control volume either, forever.

Since wealth is money to buy things, shouldn't the Fed worry about making things? That is, finding a way to finance factories that make tv's? then the workers get tv's. then wall street sells stocks to the workers and happiness is restored?

Anonymous Lysander Spooner September 20, 2012 9:43 AM  

Ben needs to hire nineteen more Saudis. with box cutters, then wink wink, nod, and look the other way..........that will FIX it real good.

Blogger Dan Hewitt September 20, 2012 9:43 AM  

At what point do we admit to ourselves that fiscal stimulus has failed?

Economic Stimulus Act of 2008 $167B
Unemployment Compensation Extension Act of 2008 $5.7B
American Recovery and Reinvestment Act of 2009 $819B
Cash for Clunkers Extension $2B
Worker, Homeownership and Business Assistance Act of 2009 $44.7B
Temporary Extension Act of 2010 $8.1B
Hiring Incentives to Restore Employment Act $17.6B
Continuing Extension Act of 2010 $18.1B
Homebuyer Assistance and Improvement Act of 2010 $145B
Unemployment Compensation Extension Act of 2010 $33.9B
United States Manufacturing Enhancement Act of 2010 $3B
Small Business Jobs Act of 2010 $85.4B
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and Temporary Payroll Tax Cut Continuation Act of 2011 $916.8B
Middle Class Tax Relief and Job Creation Act of 2012 $167.6B

Source:
http://www.cato-at-liberty.org/800-billion-stimulus-i-wis/

Anonymous DrTorch September 20, 2012 10:08 AM  

Yesterday, even Yahoo! had an article that individuals are paying off their debts, and have less debt than 4 years ago...despite having less net worth too.

Economic contraction, and the gov't can't stave it off w/ any of its tricks. (Ok, Fed Res isn't technically gov't)

Anonymous Anonymous September 20, 2012 10:11 AM  

Dan Hewitt
At what point do we admit to ourselves that fiscal stimulus has failed?

Never. Just as the Progressives whine that "true Socialism has never really been tried", all the various central bankers will insist that "true fiscal stimulus has not yet been tried". No matter how many times adding liquidity fails to cure the solvency problem, central bankers will not admit failure.

Look at Japan. That is the future, for Europe and the US.

Anonymous Stilicho September 20, 2012 10:14 AM  

Yesterday, even Yahoo! had an article that individuals are paying off their debts, and have less debt than 4 years ago...despite having less net worth too.

On the macro scale, this just isn't happening. Any household debt being paid down has been replaced.

Blogger James Dixon September 20, 2012 10:15 AM  

> Economic contraction, and the gov't can't stave it off w/ any of its tricks.

Sure it can. It can take the authority to print money back in house and print enough money to pay off the debt. It can also just give money to people, like George Bush did with his tax refunds. Those two combined should be more than enough to stave off the contraction. The fact that it will result in massive inflation is at best a minor consideration to them.

However, their banker masters won't get rich off such actions, so it won't happen.

Blogger The Aardvark September 20, 2012 10:36 AM  

Solid assets? They would need a solid gold asteroid!

Blogger RobertT September 20, 2012 10:38 AM  

John
"I'm just an engineer and think in terms of balanced equations."

Interesting take. I'm an accountant by trade and I also think in terms of balanced equations, and everything can be balanced in accounting terms. But balanced equation or not, for the last few decades, we didn't generate as much wealth as we spent. We are like my clients who run their credit cards up to $100,000 because they just can't make it on a million $ a year. Watch what comes next. There was never any intention of paying any of it back.

Anonymous III September 20, 2012 11:02 AM  

Ben needs to hire nineteen more Saudis. with box cutters, then wink wink, nod, and look the other way..........that will FIX it real good.

Yeah. We need something spectacular, rather than...

Intelligence sources tell Fox News they are convinced the deadly attack on the U.S. consulate in Benghazi, Libya, was directly tied to Al Qaeda — with a former Guantanamo detainee involved.

Yawn...

Oh look!

Officials Warn of Threat to America by Iranian Quds Force...

Soon. The horror...

Anonymous Shazbot September 20, 2012 11:13 AM  

Vox, I know you follow Robert Prechter's works on Socionomics and the like. One of his key predictions was and has been that gold and similar assets will collapse along with everything else when the crash finally comes.

Notwithstanding his complete inability to give the approximate timing of THE crash (for those unfamiliar, he has been calling for a sub-1,000 DOW since 1997), what do you think of his prediction that gold will be part of the sell off and will drive it under $300? What is your personal prediction as far as timing of THE crash, and how far the Dow and other indexes will fall? Do you agree or disagree with the depth of the crash, and his corresponding predictions?

I just started RGD and I place a high value on your opinion. I do actually respect Prechter, and think that your analysis on his work (here or in a blog post) would be extremely enlightening.

Blogger Wagnerian September 20, 2012 11:17 AM  

In re your title:

Did you see Friedman on Jeopardy last week? One of the most uneducated people I've ever seen. It is hard to imagine an economist who cannot identify Eli Whitney as the inventor of the machine that made cotton the "king" in the antebellum South.

But I saw it with my own eyes. No wonder we're in trouble if "economists" are all like this.

Anonymous Stilicho September 20, 2012 11:38 AM  

Did you see Friedman on Jeopardy last week?

That would be quite a feat considering that Milton Friedman is dead. Did you think the reference was to NY Times columnist Tom "I heart the ChiComs" Friedman?

Anonymous Stilicho September 20, 2012 11:42 AM  

Shazbot, in Prechter's book "Conquering the Crash" (2009 edition)he actually recommends gold. I think his concerns now are that it would be sold off with other assets to pay bills as it was circa 2008.

Anonymous Shazbot September 20, 2012 11:57 AM  

"Shazbot, in Prechter's book "Conquering the Crash" (2009 edition)he actually recommends gold. I think his concerns now are that it would be sold off with other assets to pay bills as it was circa 2008."

On page 207-208 of CTC he states that gold and silver will likely fall to their final dollar price lows at the bottom of the deflation. Also, he notes that hard asset prices followed paper assets and commodities down in the Great Depression.

He believes ultimately that this will be the strongest asset class, but that it will crash will all other assets when THE crash occurs. Look at what happened in 2008 with gold and silver prices. They have been largely trending with most other asset classes.

Blogger Joshua_D September 20, 2012 11:59 AM  

Anonymous September 20, 2012 10:11 AM

Look at Japan. That is the future, for Europe and the US.


Negative. Japan had the US, the EU and China to fund their lost decade. Who does the US, EU and China have to fund theirs?

Blogger Dan Hewitt September 20, 2012 12:13 PM  

Tom "I heart the ChiComs" Friedman

I thought it was Tom "Suck On This" Friedman?

The title could have been referring to David Friedman; he is both an economist and a living person.

Anonymous Stilicho September 20, 2012 12:18 PM  

The title could have been referring to David Friedman; he is both an economist and a living person.

Not unless this David Friedman is also responsible for the "economic theory of monetary supremacy."

Anonymous Roundtine September 20, 2012 12:25 PM  

I expect I will not be able to buy physical gold during a crash of that magnitude. The spot price of gold will be very low, the premium on physical will be high, but also very few transactions. Stocks will be one of the best buys because your bid will be against tons of sellers.

Anonymous Stilicho September 20, 2012 12:28 PM  

He believes ultimately that this will be the strongest asset class, but that it will crash will all other assets when THE crash occurs. Look at what happened in 2008 with gold and silver prices. They have been largely trending with most other asset classes.

Except for the fact that gold is starting to resume it's monetary role as a store of value which is recognized by CB purchases as well as various financial institutions accepting it as collateral, including, IIRC, a push to treat it as a Tier 1 asset under Basel III. It makes for an interesting case study, or it will after the dust settles. I personally hold the view that gold will decline initially along with other non-currency assets (Buy, Mortimer, Buy!)when the next major downturn in the ongoing depression occurs, but its downturn will not be as deep or as lengthy as other assets (e.g. stocks, commodities, etc.). From there, the race to debase will likely spawn Rickard's feared currency wars where the sky's the limit (for gold) and legal restraints on printing be damned (i.e. Bernanke starts monetizing ketchup as he once recommended the Japanese do).

Anonymous Stilicho September 20, 2012 12:37 PM  

The spot price of gold will be very low, the premium on physical will be high, but also very few transactions.

Now we're getting into FOFOA territory. If that happens lot of players will be demanding vault audits and moving towards fully allocated accounts, but all they may be able to get is currency at a discounted value. Which, in turn, means that it will be too late to acquire physical gold, but, like you state, you can go bargain hunting among stocks before your currency becomes worth far less. We're talking a bout a pretty narrow window of opportunity here.

Anonymous David Of One September 20, 2012 12:38 PM  

You might want to view this with your "Beer Glasses" or buy some if you don't already have them ...

usdebtclock.org

Cheers!

Anonymous David Of One September 20, 2012 12:41 PM  

When you go to usdebtclock.org ... take note of the other tabs at the bottom of the dashboard.

Blogger IM2L844 September 20, 2012 1:04 PM  

At what point do we admit to ourselves that fiscal stimulus has failed?

OBSTRUCTIONIST!

Anonymous JCclimber September 20, 2012 1:06 PM  

You guys crack me up who debate if Gold is going to fall to $300 or some other level.
Long term, gold has a relative value that is stable, when compared to things like buying a decent men's suit, buying a house, and so on.
So if it falls to $300, and stays there, that means that house prices will be rock bottom, and so on.
If it skyrockets to $3000 and stays there, that means other hard assets will also be more expensive.
If gold falls to $300, I'm backing up the truck. And my wife's SUV.

Anonymous Stilicho September 20, 2012 1:55 PM  

We have an interesting dynamic at play here: deflation of credit with concurrent decreases in the prices of assets typically purchased with credit money (e.g. housing)(N.B. I do not know where businesses' capital improvement/equipment costs are in this mix) alongside the inflation of the base money supply and observable increases in products that are typically purchased with M2 money. Given that credit far exceeds even the inflated base money or M2 money, I expect it to win the race (at first anyway), but it makes for some strange effects along the way.

Anonymous 11B September 20, 2012 2:59 PM  

Sorry to be off topic, but does anyone know if Chik-Fil-A actually caved in to get a store in Chicago? It is being reported here that they are going to stop funding groups that oppose same-sex marriage. If true, it is par for the course for a conservative organization to throw its base under the bus. This only a month after their base lined up for blocks to buy their sandwiches to show their support.

Anonymous Stilicho September 20, 2012 3:00 PM  

New Z1 out today. I note that the financial sector is still deleveraging (aside from any off the books derivatives risks mind you). The rest of us suckers, mostly treading water.

Anonymous Tom O September 20, 2012 3:38 PM  

If true, it is par for the course for a conservative organization to throw its base under the bus. This only a month after their base lined up for blocks to buy their sandwiches to show their support.

You don't know the whole story. Fags are vicious; so they may have the higher ups by the balls.

Blogger shazbot September 20, 2012 5:07 PM  

"I personally hold the view that gold will decline initially along with other non-currency assets (Buy, Mortimer, Buy!)when the next major downturn in the ongoing depression occurs, but its downturn will not be as deep or as lengthy as other assets (e.g. stocks, commodities, etc.). From there, the race to debase will likely spawn Rickard's feared currency wars where the sky's the limit (for gold) and legal restraints on printing be damned."

I agree completely. The question is when will it happen, how low will it go, and how long will the window be open? I regret not investing anything in 2008, mostly based on Prechter's recommendations to hold cash. I never dreamed we would have this huge rebound in asset prices. It simply defies logic.

Anonymous JI September 20, 2012 10:13 PM  

Yeah, and Greenspan also had given warnings about excessive government debt and "irrational exuberance" in the stock market. Yet they both continue(d) to print. We should watch what they do, not listen to what they say.

Anonymous Sexual Chocolate Imperion September 20, 2012 11:03 PM  

The worrisome number is not $16 trillion. That number would be $222 trillion...

Imagine this. The World Trade Center buildings 1 and 2 had 110 floors each. Stack WTC1 on top of WTC2 and you would have a 220 floor building. Add two more floors, for 222 floors. Fill that building with $100 bills. Stacked one on top of the other. Stacked rows from corner to corner. Stacked from the floor of floor one, to the ceiling of floor 222. 1 trillion per floor....

That is what $222 trillion.......

$222,000,000,000,000

Would look like.............

Blogger Wagnerian September 20, 2012 11:55 PM  

Stilicho

I wasn't replying to you. I specifically referred to the title. I hadn't (and still haven't) read your post.

Blogger Wagnerian September 20, 2012 11:57 PM  

Dan Hewitt

I thought the title was about "Chi Com"

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