[UPDATE] - BERNANKE GOES ALL IN. MORAL HAZARD BE DAMNED. AND GET READY FOR THE NEXT BUBBLE.
FLASH: Fed Cuts Target for Key Rate to Record Low, Pledges to Use All Available Tools
Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002 Deflation: Making Sure "It" Doesn't Happen Here
Let me start with some general observations about monetary policy at the zero bound, sweeping under the rug for the moment some technical and operational issues.
As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.
The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.
What has this got to do with monetary policy? 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.
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Alan Greenspan (1967)
"Gold and Economic Freedom"
As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods...In the absence of the gold standard, there is no way to protect savings from confiscation through inflation...Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.
http://www.usagold.com/gildedopinion/greenspan.html
Read it again Keith and then think about how many $'s will be printed to fill the black hole that derivatives have created.
They still can't print gold but they seem to like to have a bunch of it sitting around.
I wonder why.
The speech is Bernanke's way of telling us he's inflating his way out of all that threatens his banks. He doesn't care that what he's doing amounts to theft. He's looting the nation.
But at least now the tables are turning. He's running out of bullets just when things are getting really bad. Fed fund rates to .5%, insanity.
All the lies and inflation from the Fed are finally catching up. Banks aren't lending because they are too afraid to and all Ben's efforts that would work in the past aren't now.
Bernanke speaks, deflation laughs.
What Bernanke has not analyzed though, is the quality of the economy that will emerge out of this.
I have trouble believing that quality can emerge out of this strategy.
Lets see !!! who shall i trust ?
(a) corrupt private banking cartel with a printing press
(b)Gold
This is outrageous ,my heart goes out to anyone who has spent their life working hard and saving for their future ie assuming responsibilty for their lives. Only to have this invisible tax (inflation)oppossed on them.
We see deflation at the moment but due the actions being taken the pendulum will soon swing the other way as the fundamental problems are still being ignored
8:36 AM EST: MSNBC guest yelping about latest stats just released, rambling about deflation and this is bad because 'the value of your SUV and Ipod is falling', then launched into telling everyone housing prices CAN NOT drop any further or 'we'll never have a recovery'.
I'm better off putting on Maury Povitch.
"housing prices CAN NOT drop any further or 'we'll never have a recovery'."
As someone on S&A commented yesterday, the current financial crisis isn't so much a crisis as it is a symptom of our bankrupt financial system. And as Peter Schiff put it, bubble prices never come back. We'll see housing prices down an average 50% once this is done.
And the MSNBC guest rambling about deflation lowering the value of ipods and SUV's? Well he's wrong, deflation increases the value of assets. What the F is so wrong with deflation? If we had a gold backed monetary system, deflation would be the default. Debtors would be worse off and good riddance to them.
2 choices my friends:
1.Throw money at the system
2.Another depression
What do you people really want here?
I have to disagree with Bernanke here. They can print all the money they want but in order for it to have the effect that they desire they need to do these two things:
1) Get it into the general population's hands.
2) Not be so obviously giving away money that they make the stuff worthless. Because, if it appears to be in infinite supply that's exactly the value which the market will assign it.
While they're playing accounting games, they're destroying the trust that the real world needs to function properly. I won't say that he can't succeed at his goal of inflating the debts away, but it's definitely not a given that he'll be successful.
Yeah, I don't see this changing much at this point (though with this he will CUT RATES IN HALF!!!)
I still think the last leg down is in front of us. Fleckenstein the perma-bear capitulated this week (read his article on MSN) - so if you want a contrary indicator, I think they say markets usually kill the last holdouts before they surrender a turnaround (either way). If Fleckenstein is no longer short, who is? One last touch your toes to the floor to wash out everybody next? 6000?
I want:
2.Another depression
I vote for the depression too.
At least the money I have in the bank will be worth something instead of it being inflated away to nothing before I can buy something with it.
Plus, hookers will be cheaper too! I remember when a good prositute cost 25 dollars for the night!
" long dong silver said...
2 choices my friends:
1.Throw money at the system
2.Another depression"
Another Depression. I want to witness the suffering and pain caused by the greed of Joe Six Pack and Jane Cookie Baker. I want to witness hunger, disease, famine and pestilence. I want to see people and their children dead in the gutter.
MAYBE this would remind those that are left to live within their means. Maybe. And destroy the McMansions and plow up the land where they stand for productive purposes.
And while were at it, I want to see GM and Chrysler Go Bankrupt. Happy Motoring and a wishful-thinking economy are OVER and Fuck the UAW and all its workers too. Too much for too long for too little. The UAW retiress have to suffer equally as well. Their generation started the UAW madness.
You're Welcome.
You can throw the money and still get the Depression!
I want to see people stop suffering.The government should give every household 10000.00 so they can afford to go out to walmart once in awhile.I vote for a massive money bomb.Save americans from losing thier homes to the greedy banks.Bailout the big 3 atomakers so I can go buy a chevy after xmas.Stop the suffering for americans.We are the hardest working people in the world.Throw money at it as fast as they can.
I think you are correct to keep pounding on this point Keith. ZIRP is only the beginning.
What happens next is the question, and I don't think these guys really have a clue.
If there's one thing you can't fault Bernanke for, it's being unprepared. He built a playbook for exactly what is now happening and he is following it step by step. In comparison, it seemed like Greenspan was making it up as he went along. Of course, we don't know if it's a good plan or a bad plan yet. If it's a bad plan, it will probably produce results that are far worse than having no plan at all.
Welcome to Nellyville.
Welcome to your third world banana republic, AmeriKKKa
Thanks Bernanky Panky.
Thanks Little Shrub.
Thanks Penis Shooter.
Thanks Obama-rama.
We don't get inflation unless the government bypasses the banks and starts sending stimulus checks directly to citizens or they nationalize the banks and force them to lend to those that aren't credit worthy.
The Fed is forced to print a huge supply of Obama coins due to increasing demand, thus causing inflation. The Fed is banking on circulating 7.5 Trillion Dollars in Obama coins to create jobs and pay for Healthcare.
The Fed also has a plan in place to pay for Social Security by selling Obama plates.
Our country has been looted. There will be nothing left for the rioters.
During the late 1990's and early 2000, I was buying silver and gold for the future. Now, I am buying guns, bullets, and storable food. This current government does not represent a sustainable future. They will spend till the end. First Wall Street is bailed out with borrowed money. What happens when the USA can not borrow anymore. Caution over the deficit is throuwn to the wind in the name of the economy. What economy? Borrowing more money? The USA is a giant Ponzi Scheme, from head to toe. Bernake term is up in less than two years, and he will go. But by then, we will have 15% plus interest rates, and Obama's approval rating will be around that number as well. Pelosi is like a broke housewife with maxed out charge cards who does not realize that more borrowing is not the answer. Mark this: the USA will borrow until it collapses.
Fed funds rate to .25%.
Grand theft nation
Ok, so here is the Sasher logic:
We want our own country to suffer severe pain
but golly, we don’t want anyone in IRAQ to experience any stress,
after all you’re both on the same page, they too would love to see us dead.
I know, I know, its not that ‘we’ want any suffering, it’s the darn bankers fault.
Oh how Christian.
How do you control the inflation to keep it "positive"? What if China starts selling off it's $2 Trillion in Treasuries?
Keefer,
Since we began 'Reinventing America' I have not seen 1 positive thread here.
So, unlike HP which was ahead of the curve.
Soot and Ashes is at best keeping up with the curve, but for the most part behind the curve.
Everyone knows that things will get worse before they get better,
but this blog has given zero insight on a potential good strategy.
Gold may have a moment of glory, but if we want truth, Gold is for the most part useless.
So let’s hear some thoughts on 'Reinventing America'.
Hey how bout a bloody violent riot that'll make things better. NOT!
Bernanke is "pushin on a string". His attempts to keep the inflation party going at all costs will fail. It is failing now.
From here on out (for the immediate future)we will have a depression with deflation.
The current inflation/debt based system was unsustainable from the get-go. It HAD to end sometime. That time is now.
Goodbye Greenback, my old friend. It was nice knowing you. Wish I could have exploited you a little more in FOREX before the Fed went and turned you out like some two bit trick.
Oh well, let the dollar destruction begin and here's to hyperinflation and pricing oil in Euros . . .
looks like the feds cut rates to essentially zero.How is renting theses days?Too bad you don't have the balls to buy a house.Is mama cooking lasanga tonight?
We are now wittnessing the the
final stages for the end of the US dollar.
The stock market will rally for a bit before the sheeple realize that without goods and services being bought nothing else matters.
"Too bad you don't have the balls to buy a house.Is mama cooking lasanga tonight?"
Pretty funny and partially true. Knowing what we all know now, I'm sure most of us that didn't would have gone out and bought a couple houses.
The Mother of All Bubbles is here.
The Establishment is risking a 1789 style revolution (complete with their very public murders) rather than have an honest economy.
That shows just how irrational they really are.
Can we get some sanity here please?
PS Where the fuck is China?
They deserve to get rolled, damned Commies!
The Chairman is a fool. They will fire up the printing presses for sure. But I am convinced that we will have a deflationary sprial.
Consumers are way too much in debt, the government is way too much in debt and business are way too much in debt. He can create a lot of money.
But in the end, all of the three parties involved can not take up more debt. And those who saved their money will make out like bandits. Sorry Nick, but we "Fucked Savers" are not so fucked and you Fucked Borrowers will really be screwed (because the value of assets decrease while your debt relative to the asset prices is increased). I think that is the scariest thing Bernanke is afraid of; that during a deflation, asset prices fall off a cliff and thus the debt accumulated by individuals, businesses and the government is increased in relation to the decreased asset prices.
Yikes! So investors will soon be paying the U.S. to hold their money (ie. U.S Treasuries)!
Maybe not such a bad idea! Of course how long can this last?
He told us what he was going to do.
HP'ers & S&A'ers knew it for years.
And then he did it.
And everyone acts all surprised?
Why?
He told us what he was going to do.
Invest accordingly.
Wow, look at that fool's rally go. Dow up almost 400pts. How shortsighted can everyone be at this point? I'm amazed.
Hey everyone, the Fed's killing the dollar, lets go buy some stocks!
> Gold may have a moment of glory, but if we want truth, Gold is for the most part useless.
Moreover, taking part in the gold rally that seems to be unfolding right now could make you a pawn in the hedge-fund game. A pump-n-dump game in precious metals set against a deflationary background is exactly what the surviving suckers need. For one I don't believe in any sustained rallies or V-shaped bottoms at this point, and no ZIRP will make me abandon my 92% cash allocation right now. But it's set to decrease gradually over time. :)
Keith:
Define "accordingly."
Jersey Girl
Sorry - when I say what stocks to buy, I get hourly updates on their movements by daytraders
Just read the Bernanke statement, the whole thing. He tells you what to do at this point...
Does this really suprise anyone anymore????????
It's the very same thing the kosher criminals did to Germany during the Weimar Era, the same thing they did to Russia after the fall of Kosher communism, and the same thing they've done to countless other Nations all throughout History.
C'mon folks, admit it......... Honica's been right about whose responsible for a LONG time now. Not that Keith hasn't, I just think I've been a little more SPECIFIC.
Read this folks, this guy's been preaching the word much longer than I, it's his latest rant, and it's dead nuts on about what we should be doing.
http://tinyurl.com/5wqogo
In 20 years that graph is going to look like a cross section of the Grand Canyon and we're at the bottom. Is it possible for the Fed to take rates nominally negative?
Process from deflation to hyperinflation:
http://tinyurl.com/6r8sec
Is the cash flood on it's way? If so, what can we do to safeguard against this?
"Just read the Bernanke statement, the whole thing. He tells you what to do at this point..."
Bercracky's statement tells me to run as fast as possible from stocks. Is this wrong?
Does anybody here realize how close we may be to a mad stampede away from the dollar?
This may happen as soon as tomorrow, when the Asian markets open up!
Too little too late? Thus far, Bernanke and the other idiots at the helm were in denial for a very long time. They didn't even recognize that we were in a recession until a few weeks ago.
For price inflation to occur, money must get into the hands of consumers and business and bidding wars must ensue for a finite basket of goods and services.
Thus far, the FED has created money and it's all gone to reserves at banks. The banks have not been lending it out. Hence, the deflation we're seeing.
The FED can't force banks to lend and can't force people to borrow.
The federal government can borrow on people's behalf and spend money in the economy on make work projects or do stimulus checks. Thus far, they've tried this but again, too little too late.
Remember, a dollar does not come into existence until someone borrows it. So until people or the government starts doing this again, on a much more massive scale, deflation is here to stay.
At this point, the only way to reverse this deflation is a massive money bomb from the govt. via stimulus checks. Don't pussyfoot around with $700 checks. That's like pissing into the ocean. How about $70,000 or $700,000 checks?
Also, the rest of the world would have to hyperinflate as well, or inflation here will cause a humanitarian catastrophe.
If we hyperfinflate, then the dollar becomes worthless. That means that we can't import any more oil. Say goodbye to 70% of our oil consumption in the short term. We won't have enough money to grow crops, get to work, or transport goods. We'll have a Zimbabwe economy.
Which would we rather have:
1. Great Depression Part Deux
2. Massive famine, Mad Max Anarchy?
I pick #1
SeattleMoose said...
'Bernanke is "pushin on a string". His attempts to keep the inflation party going at all costs will fail. It is failing now.'
I agree. At this stage of advanced economic decay, the Fed has no leverage left to change the course of the economy. They might as well send Bernanke home and shut down the Fed. Depression is inevitable, no matter hotw much money is thrown at the crisis. 2 major reasons for this:
1. Nervous consumers are not budging in the face of mounting unemployment and the financial scare they are still going through.
2. The global economy is in distress and the US has no wind left to pull itself and the rest of the world out of the slump.
3. Banks are still struggling to stay afloat and are in no position to resume lending at a scale large enough to spur the required spending and job creation.
4. Any old wealth left (savings) and any new wealth resulting from the current Fed moves (like through a Wall Street rally or a spike in the value of assets) will be of no real impact on the overall economy, due to inflation.
5. The Fed's moves come while the US economy has entered a frost state. The Fed has just spent its last shot to insuflate some warmth into the freezing economy. But this ice period will likely last much longer than in the 1st big depression.
"Thus far, Bernanke and the other idiots at the helm were in denial for a very long time. They didn't even recognize that we were in a recession until a few weeks ago."
I've thought about this. Bercracky and Paulson are smart guys. But even your average person could see the financial train wreck approaching.
Maybe they were playing dumb all along. Maybe they knew the financial system was so bad that they just had to keep going, like the Madoff circus hedge fund.
They knew the only was to save themselves was to keep the whole thing going along until it crashed. They would then declare an emergency and at that moment assure themselves a financial future.
"...Maybe they were playing dumb all along..."
You do not say.
.
"Pledge to use all available tools"
that means everyone at the Fed will have a job!
.
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