Ben Bernanke Doesn’t Get the Message

By James Kwak

I was on vacation last week (far from Jackson Hole) when Ben Bernanke gave his widely anticipated speech. The media (see the Times, for example) seemed to focus mainly on his criticisms of the political branches and economic policymaking, which were accurate enough. But in my opinion, Bernanke drew the wrong lessons from those observations.

He was very clear that the problem today is unemployment, not inflation:

“Recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting, and that temporary factors can account for only a portion of the economic weakness that we have observed. Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters. With commodity prices and other import prices moderating and with longer-term inflation expectations remaining stable, we expect inflation to settle, over coming quarters, at levels at or below the rate of 2 percent, or a bit less, that most Committee participants view as being consistent with our dual mandate.”

He even said that we are in a situation where economic would improve the economy’s long-term performance:

“Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view–the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.”

But what is Bernanke going to do about it? He declined to offer any new efforts to reduce unemployment, saying only that the Fed “is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.” And mainly he relied on the political branches to solve the country’s problems, calling not only for “good, proactive housing policies” but also for policies that would improve K–12 education for underprivileged households and lower health care costs.

I don’t think it makes sense to criticize the political system for being dysfunctional and then rely on the political system to rescue the economy. I understand that traditional monetary policy tools don’t work that well in this environment: short-term rates can’t go any lower, and lowering long-term rates won’t make companies invest if they don’t think there is demand for their stuff. But there’s always, you know, dropping cash out of helicopters.

It’s true that, in the speech that gave Bernanke the nickname “helicopter Ben,” he was talking about a tax cut—in other words, fiscal policy. But there’s always the option of increasing the inflation target from 2 percent to 4 percent while simultaneously buying long-term bonds to keep nominal rates from rising too much (so real rates come down). If the Fed can actually generate more inflation, that would function like a transfers from creditors to debtors, which would help solve the household balance sheet problems that are weighing down the economy. And there’s nothing magical about the number two: both Ken Rogoff and Olivier Blanchard have argued for higher inflation, given current economic circumstances. As Blanchard says, “There was no very good reason to use 2% rather than 4%. Two percent doesn’t mean price stability. Between 2% and 4%, there isn’t much cost from inflation.”

I’m not sure it would work; maybe even raising the inflation target wouldn’t actually increase inflation. But doing nothing is be the wrong policy conclusion to draw from Bernanke’s observations, which seem spot-on.

81 thoughts on “Ben Bernanke Doesn’t Get the Message

  1. this is terrible moral hazard James: “If the Fed can actually generate more inflation, that would function like a transfers from creditors to debtors, which would help solve the household balance sheet problems that are weighing down the economy.”

    Screw conservative savers, reward and bailout the profligate.

    I am so sick of reading this kind of tripe.

    You stay true to our current cultural/societal/economic meme. You stay true to the problem as well.

    Time for this nation to grow a sack, make the tough debt deflationary choice, uphold the rule of law/contract law, severely punish fraud at all decision making change. Get venture capital together with .gov and make work creating energy efficiency infrastructure.

    Or just print credit like James suggests as the economic “balm that soothes…………” and prop a system so out of balance that wishes to self immolate on its own capitalist accord.

  2. Is there a historical precedent that a nation with debts as deep as the US prints its way out of its self-inflicted economic sinkhole?

  3. you know James, someone needs to tell Bernanke that he needs to check the prices of food and clothes and tell those hard working middle to lower income people that they are just gonna have to suck it up………have you seen the price of coffee lately? i guess bernanke and the like haven’t had to suck it up in a while…….

  4. @ James, welcome back from vacation. The inflation figures from the punditry always and forever seem understated to me. Are these guys paying for their own electric consumption, heating their homes with gas in the winter, buying food at the market, or supporting teenagers?

    I don’t think they are, perhaps they are living off the grid. :)

    In any event, how do higher costs translate into more healthy balance sheet for a family? If I spend more on durable goods using available credit, as opposed to wanting to deplete my cash balance, wouldn’t I be booking the asset at historic cost, and booking the liability at the same time? Later, reducing my cash balance with subsequent payment of the liability, and seeing the liability diminish over time?

  5. @Worldobserver – yes, as a matter of fact, Rudolf Havenstein gave us an awesomely clear example in the 1920’s.

    @tv – Right on for linking deflation, law, integrity and infrastructure so concisely and well. Then again, for all I know I might have been one of the yahoos cheering Rudy’s printing presses.

  6. James — The real problem for economists and others is “understanding” by the public. Most of the comment writers here do not even understand it. We have become such a stuck-on-ourselves nation and “ _ our neighbor” that a person cannot even use their own name to say what I am saying — right now. When we as a people no longer have trust and compassion, then what do we have as a nation? I blame it on our education system that does not encourage intellectual thought, but sensationalism through the media so people do not learn to question, discuss, and find true solutions.

    We will not get out of this recession with fear and hate.

    We will not get out of this recession with Businesses who will not pay their people more and think of them as extensions of their equipment. It is places like this that fear the future. They have already learned their survival does not depend on paying their people more so the employee can spend more to buy the businesses goods – they can make a profit from those customers they have without new ones.

    As for inflation, we will have all we want from the outside soon enough as lesser economies with more people buy more and compete for resources. But, inflation here will mean nothing as we are a divided nation and people will end up spending less because the inflation will not go to increase wages just cost of goods.

    Thus, from the above observations, few, from the top down in government and academia, can think about doing what is right for the common good of all as it would get labeled as socialism even though it would preserve individual rights and freedoms more in the long run.

  7. The problem is, the Fed hasn’t succeeded in creating “good inflation” — rising wages and job growth. It has only succeeded in generating “bad inflation” — higher commodity prices — with its money printing policies. I don’t even bother reading the empty, ridiculous claims that QE2 had nothing to do with driving up the cost of crude oil, copper, aluminum, sugar, corn, wheat, soybeans, gold, silver, and every other commodity under the sun (except for nat gas! :) any more. The evidence is incontrovertible.

    Why anyone could seriously ask for more QE is beyond me. I think it’s high time we stop doing the same thing over and over again (QE) in the expectation it will generate different results. Wasn’t it Einstein who called that the definition of insanity?

  8. Inflation is already here and it hurts.

    The kind of inflation that’s an economist’s cream dream right now, inflation in wages and the price of housing, is not here because there’s too much of both labor and housing stock.

    So, Bernanke and Blanchard and Rogoff and Krugman and every other overpaid economist/arm chair president can promote the theory of “inflation heals” all day long. But it won’t help. It will keep hurting.

    Inflation won’t inflate the right things. Instead, everyone pays more for food, gas, bypass surgery and college sociology classes.

    Great job, Princeton! Great job, Harvard!

    What a load of garbage.

  9. @Woop: As you probably know already, the Fed looks at core inflation, stripping out food and energy. The point is that core inflation roughly tracks the CPI, but with less volatility; see So you end up at the same place, but with fewer policy swings.

    Inflation helps debtor households, not households that are going to go into debt in the future (because presumably by then higher inflation is priced into interest rates). Higher inflation means that your mortgage, which stays the same in nominal terms, is now worth less. To help a family, this does assume that higher inflation will increase wage levels; otherwise, it means that your real wage will go down at the same rate as your real indebtedness. But in aggregate, it’s likely that higher inflation will cause wages to go up faster than otherwise.

  10. I’d like to link to this post on our blog. Just one question. What’s the missing word in this sentence?

    He even said that we are in a situation where economic would improve the economy’s long-term performance:

    It seems like there’s a word missing between “economic” and “would.” If I had to guess I’d say you meant to write “a situation where economic stimulus would improve…” But then again, I might guess incorrectly.

  11. Agree with James. I don’t understand these commenters who obsess about non-existent inflation.

    Inflation is supposedly a problem and yet years of high unemployment and the output gap are not a problem? Maybe some have just internalized the creditor/rentier worldview because of a psychological need to identify with society’s winners.

    As Bernanke said, core inflation is at 2 percent or slightly under that. As he correctly predicted in the spring, the rise in commodity prices was temporary.

  12. @peterk: You really think that The Bernank “correctly predicted”…”rise in comodity prices was temporary”? Every major commodity catergory is higer right now than last year (oil prices are flat from a year ago, and only lower from the recent high). On what basis are you saying that The Bernank was/is correct?

  13. If we transfer wealth from creditors to debtors, we are rewarding what and punishing what, exactly?

    Does this question even enter your mind, Dr. Kwak?

  14. I can see the logic of inflating away debt. I don’t think that wages would increase though which might be the fly in the ointment. Companies pretty much have the screws put to employees at this point. The only way wages will meaningfully increase is if unemployment drops dramatically which doesn’t seem in the cards in any realistic scenario.

  15. @ Retiredat, that’s much my take on wages, as well. Not only are wages not increasing, many workers are being paid less and expected to do more, with reductions in pension contributions, if not cessation of same, increases in health care coverage costs, and other forms of freezes = less in the way of total compensation.

    Capital has always gone in the direction of slave labor, ante-bellum USA, now *globalization” = *slave labor colonies*.

    As in Annie’s Maxim: “more MISERY for others, more Money $$$ for ME ME ME.”

    See what *Verizon*is doing to collective bargaining, USA workers, just one of many crying poor mouth, while the executive suite lavishes in riches, literally.

  16. James, I’ve no support for the notion advanced by you, Krugman and others that inflation is an acceptable tactic to ameliorate the debt crisis and thus boost the economy.

    Moderate inflation might seem like a doable macro-economic solution, one that has the additional advantage of not requiring cooperation of the bankster corrupted political system. The Fed could
    accomplish this by fiat.

    My problem is inflation would be just another way to make tens of millions of Americans pay for the sins
    of Wall Street. Consider this. I’m a retiree. My wife and I played the game, saved up for our retirement
    and were all set for our golden years.

    Enter the Great Recession. The banksters crashed the economy and the politicos bail them out, but
    do nothing to re-structure the too big to fail casino to protect us from another meltdown. Government
    bailout, the casino remains and hundreds of milllions for bonuses all round Wall Street.

    But for retirees, interest rates on our nest eggs crumble. The wacky casino stock market has put an
    end of to conservative buy and hold investing. So what’s left for retirees not super-sophisticated in
    financial engineering? Nothing but .20 percent return short term and 2 percent out 5 to 10 years.

    Now let’s engineer some inflation into this disaster. We’ve already got oil and food inflation (probably
    amplified by the Wall Street speculators). Now let’s ramp this up.

    Sorry, but this is not a decent alternative unless its ok to push retirees even further under the bus
    our failed financial and economic systems have become.

    IMO, the necessary solutions aren’t and never will be on the table:

    1. Strict restructuring of our financial system to normalize and stabilize it.
    2. Abandonment of massive job outsourcing, so we can create manufacturing jobs here
    (across the board, not just green energy and public infrastructure) so we can create
    the 20 million jobs our economy needs and so we can reverse our chronic trade deficit.

    Most Americans don’t know our cumulative trade deficit approaches $10 trillion and
    that we need to borrow $1 to $2 billion everyday to keep ourselves in shoes, toasters,
    tvs and just about everything we buy at retail.

    We must force businesses who want to sell goods in America to produce them in the
    50 states. We need to protect US manufactured goods from $2 an hour foreign labor
    by tariffs. We need to force the US government into a buy American policy as quickly
    as possible.

    Global corporations have long ago decided to minimize investment and production in the US
    because market growth opportunities and production costs are lower abroad. My company
    decided this in the 1980s. Since year 2000, we’ve shut down over 42,000 production facilities
    in the US (see Andrew Liveris’ “Make It In America”).

    The jobs aren’t coming back at anywhere near the rate needed to keep up with growth in
    working age Americans. Job creation has lagged labor force growth since about 2000. Vs
    year ago, non-farm payrolls are up .97 percent (see Barrons Market Lab).

    Our economic problems are structural. Our economy simply cannot produce the jobs we
    need to keep up with growth in the labor force, it cannot produce enough income for tens
    of millions of Americans to pay down their debt and it cannot produce enough consumer goods
    to reverse our chronic (since 1983) trade deficit.

    James, its time to look outside the toolbox of our failed macroeconomic theories. We need to
    start asking ourselves, how do we restore our economy so it can employ not only the current
    generation, but the next and the next.

    The current conventional wisdom won’t even acknowledge this question needs to be asked
    and asked again and again until we generate the resolve to answer it. And the current economic
    and political leaders will fight tooth and nail to keep it off the table.

    My short term remedy is to urge all of us to let the politicos know that if they don’t start a
    full scale jobs restoration policy, including one that rebuilds and protects our manufacturing base,
    we’ll all start voting our incumbents to inflict as much pain as possible on the politicos we elect
    to act in the best interests of all of us, not just their campaign contributors.

  17. I concur with the following comment by ‘tv’

    Me too tired of trying to save, rent and invest in a manipulated system.

    Believe me there are (a few maybe) responsible savers who chose to remain renters AND are also negatively impacted by this economic malaise caused by the financially irresponsible. (institutions & individuals alike).

    What are the fiscal and monetary policies going to do for them for being responsible?

  18. we are well into the third year of declining living standards for most Americans.The unintended consequences of Bernacke’s policies is for retirees to slash discretionary spending.So now ther will be two groups who have cut back radically on spending.The unemployed and underemployed and the vast majority of retiees.the first group is estimated to be around 15%of workers ,while the second is also around 15%.between them both we have 30% of the population avoiding any discretionary spending

  19. Maybe a little more wage flexibility, a few pigovian taxes (a 10% VAT, like in Australia (replacing state sales taxes as well) and $2 p gallon gas tax (still far below European levels) would come a long way. If the Fed keeps extending its balance sheet with declining credibility (either way) that is not good. I would be all for some form of level targeting of nominal GDP (woory about inflation later) as quite a few people are advocating now, but I do not see how that can be accomplished in an election year.

  20. Didn’t Ben say he’s out of “bullets”? So where is the relevancy of this focus on him?

    Meanwhile, we COULD rehabilitate all those nasty paper pushers at for-profit health insurance companies to start *making* the active ingredients in life-saving medications locally instead of having 80% have to be imported from oversees…? How, with the uncertainty in weather and areas of *unrest* globally, not to mention the *REAL* price of oil and it’s FINITE availability, how can it possibly be *cheaper* to import 80%?!

    For edification:

    No comment, this time, on how our tax $$$ FUNDED the NIH who then *sold* the information to pharma to *market* it…and – poof! – how is it all being made oversees….?

    And no comment on quality control-ing the stuff coming in…

    NONE of this global scheming is remotely SANE….

  21. Sorry, obviously (in case that was not clear) should have added that of course there should be changes in the mix of revenue and expenditure without getting into an unsustainable fiscal position that could be contributing to aggregate uncertainty (imo the main problem at present). Incidentally, it is easier to transfer weatlh from debtors to creditors than vice versa these days…Robbing the rich simply does not work.

  22. @Rien,

    It’s terribly ironic that you would suggest a $ 2/gal tax on American commuters in order to “save” our U.S. economy. Do you know what American commuters spend on gas? Here’s a clue:

    Gas is about $ 4/ gal +/- $ .5. On the *low* end, an American commuter spends about $ 1356. But you suggest raising this to about 50% more or $ 678. Keep in mind that most Americans *can’t* come up with $ 1,000 in an emergency. Also keep in mind that these commuters are usually the working stiffs that make up the totally screwed American middle and lower classes. BTW, this gas tax could *never* pass the survival instincts of our politicians.

    This contrasts with the gasoline and utility subsidy by the Chinese government.

    You suggest a VAT of 10%. That hits the middle and lower classes even harder. These are hardly the “pigovians.”

    All the while you suggest that these rates are lower than Europe’s. Remind me again how well EU economies are doing.

    Yes, there aren’t enough “rich” to tax these days, as you accurately state. So agreed a little light inflation might indeed be useful given that most Americans are debtors not quite in possession.

  23. Long AUD/USD trade nearing target. trade issued on 29 Aug 2011. Premium acess subscribers ending AUgust with 1250 pips of profit with 77% succes ratio.
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  24. @ James

    Why stop at 4% inflation? If a little bit of inflation would be good, wouldn’t a lot of inflation be better—and faster? I anxiously await a post wherein you put the case for 20% inflation. I’m sure Krugman (who’s on record as advocating it) would be willing to provide some intellectual cover.

  25. What a disappointing, though expected, post from someone who is just an ivory-tower economist.

    Instead of cleansing the debt problem naturally via defaults, James prefer to make the risky lenders whole and screw fiscally responsible people (and prudent lenders) by transferring wealth via the stealth tax of inflation.

    I find it rather appalling that this kind of impersonal and morally devoid approach to economics is what is considered normal these days. It is quite telling about the culture that has taken hold. I find little difference between the sociopaths that head up the TBTFs and these ivory tower academics who spew solutions laden with moral hazards all to keep the sociopaths happy.

  26. You all are a day late complaining about Ben. He said years ago he had every intention of inflating our way out of a pumped up jam. And he kept the promise.

  27. Why not just give a massive tax cut to the middle class? We all know they are the people drowning in debt. Here’s my jobs plan:

    1. Make the Bush tax cuts permanent for the middle class.
    2. Permanently lower the Social Security eligibility age to 60.
    3. Begin a federal income tax holiday for the middle class.
    4. Exempt first $20K of income from payroll taxes.
    5. Extend unemployment insurance.

    Measures 3, 4, and 5 should be timed to expire when the unemployment rate falls under one percent.

    middle class: individuals or households with an income greater than $40,000 and less than $100,000

    “He even said that we are in a situation where economic would improve the economy’s long-term performance: ”
    I believe it should read instead of .

    Further easing will encounter the already evident “pushing a string” problem, leaving few options. Creating inflation is a double edge sword and in the condition the US finds itself after decades of political caving and capitulation to the oligarchs, I’m doubtful whether the US has a tenable recourse to its problems.

    USD’s acceptance as international currency, unbalanced trade deals favoring capital over workers at the expense of the environment, particularly in the developing world have created a system that bleeds remedial stimulus out into the greater world. China’s inflation perhaps related to our easy money, certainly some TARP found its way to European banks, stimulus spending such as plans for high speed rail, send some work to foreign train manufacturers.

    Growth, the favored antidote to recession, may also be anachronistic in a time of peak oil, resource shortage and a compromised environment. Creating money and inflation to accelerate a stagnant economy and solve local (national) recession may not work with a global dollar and economy.

    Any wild notions regarding ‘local currency theory’ as a possible avenue of escape from our economic Gordian knot?
    The most straightforward but politically impossible solution is to institute a robust GIM here in the US.

  29. @ Tyler, good, one more…

    6. Fed “prints” more *funny money*, distributes an amount equal to the outstanding principal balance for people paying mortgages, and for people paying credit card debt, and for students who studied well and hard for four years in college, and are back at home living with good old mom and dad…..this should free up consumer spending patterns, and increase demand…

    Hey, the banks got trillions, why not the rest of us? These *institutions* caused the problem, not us.

  30. As mentioned by early posters, there is already very significant real inflation. It probably exceeds 4%. As the gap widens between core inflation and headline inflation, there will be increasing popular pressure on the Fed to pay more attention to headline inflation. They should. The Fed’s stated policy of focusing on core inflation numbers, which ignore energy and gas was arrived on at a time when the Fed mad small moves in policy aimed at subtly guiding the economy. They didn’t want to over react to a price spike i a volatile commodity class like energy. They don’t want to be influenced by a big and fast move that is an outlier from the mean trend. But the Fed has been doing crazy things of late. QE1 and 2, and the program to buy mortgage backed bonds from the banks were executed very quickly, and added massive capital to the system. It is likely that this action in part caused the most recent price spikes in worldwide food cost. So the Fed’s policy is to ignore the effects of their fast and big moves, because those effects are also fast and big. “Volatile.”

    The leading cause of airplane crashes is “controlled flight into terrain” where pilots with low or no visibility ignore or refuse to believe their instruments, and crash into the side of a mountain because they cannot see and feel the effects of their control inputs, and make bigger and bigger control moves.

  31. Sorry, James, but you blew it on this one.

    The problem BB faces is that this liquidity enhancement effect of QE is destroying the middle class. The business world doesn’t care about inflation, because they only care about their core existence (e.g. if oil goes below $75/barrel, the oil sands and shale oil guys are in jeopardy), and it sadly seems that our government and the Fed only care about propping up a bunch of questionable industries.

    The MIT billion prices project is evidence that the core inflation is a poor indicator of the effect on the average household. QE will only continue to bail out the credit-pushers who belong in jail, and continue to wreak havoc on the already suffering middle class.

    Sorry, but more inflation is a solution that only benefits the over-indulgent elite class. It won’t trickle down to higher middle class wages, no matter how many drinks you put down. Guaranteed continuation of the division of wealth that is destroying the fabric of this country. And it’s guaranteed to prevent true growth and an end to the stagnant economy that will continue without a true debt washout.

    Screw the bondholders!!!

    Look, the deadbeat low-credit folks who got $600,000 houses they couldn’t afford are not going to pay that mortgage off, no matter what inflation you think we can create. The gov’t can give them a new 40-year with “hopes” that they will eventually get a job that will pay them a salary that will allow them to actually AFFORD the house. Problem is: THEY WILL NEVER GET THAT JOB!!! FANTASY!!!!!

    Force the goddamn banks to admit their criminal losses and get on with it. If they all fail, good riddance!!!

    Oh, yeah, and don’t forget to screw the bondholders!!!

    “He even said that we are in a situation where economic would improve the economy’s long-term performance: ”
    I believe it should read inflation instead of economic.

  33. @btraven – “I find it rather appalling that this kind of impersonal and morally devoid approach to economics is what is considered normal these days. It is quite telling about the culture that has taken hold. I find little difference between the sociopaths that head up the TBTFs and these ivory tower academics who spew solutions laden with moral hazards all to keep the sociopaths happy.”

    I totally agree and perceive it the same way – plus, scientifically, their *ideas* are retarded (low IQ)

    In the final analysis, based on the physics of inertia and exponential systems, these meandering attempts at rationalizing CRIMINAL activity (OBVIOUS THEFT LIES AND MURDER) are irrelevant to the needs of REALITY.

    Guns vs Butter 2011 – it is going to get SO ugly….

    DICK Perry wants to talk Ponzi schemes? Patriot Act GOONS pick and choose who to steal from – they have NO HOLDS BARRED access to everyone’s financial files….

    Every human being on this planet has the RIGHT to make their lives LESS MISERABLE through


    Too SANE and SIMPLE of a truth to morph into a political and economic “ism”….?

  34. First and foremost, I hope you and your family enjoyed a well deserved vacation :-)) Secondly, this is a fantastic post!
    “Ben Bernanke Doesn’t get the Message ?”
    It seems Bernanke would have made a better, “Social Engineer” than a nepotistic (?) virtual-economist controlling the ” Liquid Spillway’s of the central banks monetary/ fiscal policy? From the Fed’s very inception, as it is mirrored in all annals from the past, woven unto the uncertainty, seemingly an all encompassing “yesteryear-todays’-morrow” ever-ending crises,… that they weren’t prepared or concerned about the future, but just for the day, as is their fly-by-night policies (1913 -?) practiced unto today. There was ample, and critical structural time for “Global Economic Warming/ Warning” or stormy, predictable wayward weather – just by throwing a $20 bill out with a $100 bill in the market-place tempest where both undoubtedly would hit the ground without the help of gravity-feed vacuum? Such is a dismal, and draconian forecast for a archaic entity we once called the Federal Reserve! If only? If they had been just a wee-bit cautionary,… they would have had built-in release valves requiring little more than a “oil (tangible assets such as gold/ silver?) can” to prevent the shut-off release valve from seizing up daily! But, instead, they had chosen to build an impregnable Fed’ fortress where regulatory oversight was a no-no, and now the “Bernanke/ Greenspan Dam Wall’s” are cracking under immense liquidation pressure, that no rusted-out tool box can fix! Ironically, in that rusted liquid-logged-out toolbox, at the bottom of the “Bernanke/ Greenspan Dam”, is an instructional manual called “Glass-Steagall”, and “Limit’s Down”,… how ironic?

    Ref: “How Dam’s (?) Work” & “From the New Deal to the New Century’ (Tenne$$ee Valley Authority – TVA)

    Lastly, over @ Zerohegde,… Tyler Durbin has a read submitted by Joel Salatin (8-31-11)____”How to Prepare for a Future Increasingly Defined by Localized Food and Energy.

    PS. “The Feds’ spillway’s have eroded with time and abuse, never to grasp the Roman’s simplistic, and ageless gravity feed that water,… be it liquid or flowing sewage as I coin it today – always reaches its own level”

    Thankyou James and Simon (and welcome back James)

    God Bless You, Julian Assange :-))

  35. cutting and pasting from Protocols and comments from a reader:

    “…..39. We shall so hedge about our system of accounting that neither the ruler nor the most insignificant public servant will be in a position to divert even the smallest sum from its destination without detection or to direct it in another direction except that which will be once fixed in a definite plan of action. (Is this why a “private corporation,” known as the “Internal Revenue Service,” is in charge of collecting the “payments” of the “Income Taxes” and the IRS always deposits those “payments” to the Federal Reserve bank and never to the Treasury of the United States??)…”

    Burn the Patriot Act

    That was pretty much the final straw for me, ended my respect for *public servants* and I intend to maintain a focused dissent until it is overturned. Paying a penalty fee to the IRS for NOT purchasing a for-profit health insurance policy…how DARE such sociopaths have ANY say or access into my LIFE.

    I did not and never will give them permission to SPY on me because they LIVE with this sole belief:

    More misery for others = More $$$$ for ME ME ME

    100,000,000 people all CAN and WILL steal one penny a day for the next 5 years from the worst of the scum bags…

    our *friends* in the ME got 60 BILLION that way from the tax payers ala the Pentagon’s “contractors”….

  36. @Oh, yeah, and don’t forget to screw the bondholders!!!

    You are barking on deaf ears here, we just lost that battle with the raising of the debt limit. it should come around again after the election, or seating of the next congress, or about 6 months after they seat, where by the ceiling will be raised again. Did you say you liked reruns?

  37. Unless consumers do not eat nor do they require energy, such as pet rocks with cash, I do not understand why the CPI disregards food and energy prices; they are commodities consumers have to consider when it comes to their spending choices — and the inconvenience of just staying alive.

    Reducing the CPI volatility appears to be an intellectually and morally lame justification at best. (And if it’s really important to make nice smooth, pretty curves, is there a law that prohibits using moving averages?)

    If core inflation and CPI track each other then it appears to me they are redundant metrics.

    Now, there’s lies, damn lies, and CPIs.

  38. So…what do all you inflationistas want to do about unemployment? Liquidate the banks, liquidate the farms, liquidate the businesses, liquidate the homes?

    All commodities went up in tandem because China’s demand went up in tandem. If the world revolves around Fed policy, why did these same commodities go up in Euros, with the ECB’s tighter policy? Is Bernanke really that powerful, where by printing dollars he makes Euros worth less? Or Yen, or Yuan?

    I’m sorry, but inflationistas have their mind caught up in a zero-sum, us vs. them argument. Yes, inflation can partly be zero-sum, with debtholders losing some small real value. But inflation is also positive-sum, where demand goes up as people start spending the money the Fed is printing. Higher demand means lower unemployment and more real economic growth. It also means a tighter employment market for those currently employed.

    4% inflation was the typical inflation rate in the 80’s and 90’s. If inflation merely takes away from creditors, then things must have really sucked for creditors in the 80’s and 90’s. Yeah, those creditors were sent out begging on the streets in the 80’s and 90’s due to all the money Greenspan printed.

  39. James, consider moving to an NGDP target. It’s finally starting to move mainstream.

    even a price level target would help (instead of an inflation _rate_ target) – if Bernanke would say that we intend to target 2% and make up for historic under/overshooting, and that we would restore price levels to 2008 + compound 2% growth for 3 years (we’re currently 5% UNDER trend), that would help a lot just by itself, without increasing long term inflation. Roosevelt essentially moved to a level target and that helped massively in the great depression.

    Level targets offer advantages over rate targets, and an NGDP target is advantageous over a price level target.

  40. @ Everyone else –

    It’s quite simply a myth that QE is inherently causing the inflation that is killing the middle class. Consider oil, for just a moment. The primary price driver of Oil is increasing demand and inelastic supply, due to an increase in demand by developing countries. US money is actually TIGHTENING to artificially preserve US dollar strength (which is consumption power) in the face of strengthening economies outside the US. If you want to know what we should be asking, it’s what level would the dollar need to be at for US consumption of imports (in the long term) to balance with exports.

    Sorry folks, IT’S NOT ABOUT US. However, the Tea Party and Ron Paul groupies are convinced it’s about us, and have many willing believers. They want to ensure a “strong dollar”, which will obliterate the US middle class by killing jobs and exports. We’ll have cheap gas (for a short time, as we did in 2008), but no money to buy it with.

    This is what it feels like when the rest of the world catches up to the US, which until a few years ago was consuming 25% of the world’s oil. We’ve sustained relative consumption in excess of our relative productivity by borrowing. A strong dollar, in combination with excess government spending, is the last ploy to keep consumption going (remember, most spending is FIXED and nondiscretionary – do you really think President Perry is going to cut Medicare? Social Security? Look at the Tea Party demographics, folks).

    We can either devalue the dollar over the next several years to match our productivity, or suck up nominal wage cuts and massive bankruptcies and overwhelming unemployment. Certainly there are structural/supply issues, but consider (for a moment) the financial interests of the folks who demand a strong dollar. The reason oil and commodities are going up in price is because we _import_ them, they are tradeable, and we have a massive trade deficit.

  41. @StatsGuy:

    President Perry? That does it. I’m leaving for a more causal universe. Like Canada.

    Good to hear your comments again after a long hiatus.

  42. Uh, so military adventures and installations around the globe is not a major *export*? Perpetual war till the oil runs out?

    People have figured out that every penny put into circulation in TODAY’S economic nightmare will NEVER come back to them in entitlements, infrastructure, or a living wage…

    so, of course Kwak is promoting inflation for the cost of the BARE necessities….

    he agrees with Rien that robbing the poor works better than robbing the rich….

  43. @ Stats Guy — With only 9 percent of the U.S. workforce in manufacturing, it is a stretch to argue a strong dollar is the at the crux of the employment problem or a weak dollar is the solution. In the beggar-thy-neighbor game, the working stiffs lose, while the execs and their political allies (exempt from insider trading, among other benefits from their connections) rake in the bucks.

    It is time to view the bigger picture, and voluntarily move in the direction of a completely different economic model – with less consumption, a local and regional focus, worker co-ops, shorter work weeks, the end of publicly held corporations, the end of the debt-as-money paradigm, the end of bailouts overt and covert, and the end of the TBTFs.

  44. @ stats guy who wrote: “The reason oil and commodities are going up in price is because we _import_ them, they are tradeable, and we have a massive trade deficit.”

    Complete and utter balderdash!

    Don’t think we import wheat, corn, soybeans, nat gas, copper or iron ore and yet they’re going up. Yes we import oil, but fundamental supply and demand are only *part* of price formation drivers.

    If it were so simple to base prices on simply supply constriction, then trading would be even easy for a dumb academic like you.

  45. JAMES KWAK Get the Dirt Check for Email Address
    187 SUBURBAN Record Created: 08/2003
    BRIDGEPORT, CT 06604 (203) 334-8092

  46. From Chris Hedges latest:


    All conventional forms of dissent, from electoral politics to open debates, have been denied us. We cannot rely on the institutions that once made piecemeal and incremental reform possible. The only route left is to disconnect as thoroughly as possible from the consumer society and engage in acts of civil disobedience and obstruction. The more we sever ourselves from the addictions of fossil fuel and the consumer society, the more we begin to create a new paradigm for community. The more we engage in physical acts of defiance—as Bill McKibben and others did recently in front of the White House to protest the building of the Keystone XL pipeline, which would increase the flow of “dirty” tar sands oil from Alberta, Canada, to refineries on the Gulf of Mexico—the more we can keep alive a new, better way of relating to each other and the ecosystem.

    Most important, we must stop being afraid. We have to turn our backs for good on the Democrats, no matter what ghoulish candidate the Republicans offer up for president. We have to defy all formal systems of power. We have to listen closely to the moral voices in our society, from McKibben to Noam Chomsky to Wendell Berry to Ralph Nader, and ignore feckless liberals who have been one of the most effective tools of our disempowerment. We have to create monastic enclaves where we can retain and nurture the values being rapidly destroyed by the wider corporate culture and build the mechanisms of self-sufficiency that will allow us to survive. The corporate coup is over. We have lost. The trolls have won. We have to face our banishment.


  47. I have no idea who Chris Hedges, McKibben, Noam Chomsky, or Wendell Berry are….?

    USA is NOT a “Mouse that Roared” country so PRETENDING that USA fate is existentially linked to delusional cults in Middle East is ridiculous.

    We the Stupid live in a *marginalized* world, thanks to the internet. I can use gadgets to live in my own monkey brain bubble called Planet Annie where my interaction with the rest of the human species is at will and only to steal something I want that someone else has…..THIS PROGRESS – the monkey brain created *virtual* reality – is cultural retrogression. Not everyone is participating in it, that is true.

    But what makes you all think that *virtual* reality is REAL? Because Chris, Noam or Wendell said so?

    Self-appointed “elites” – 1% of the world’s population – not a problem, are they?

    Read your history books…

    Seems like ReThugs are ready to throw a bloody coup to make sure they get it ALL from the rigged slot machine that is D.C. – fed by poor people’s *taxpayer* $$$$

    Considering that everyone who gets to play the role of the Big Giant Head is ordained in secret at the FRB before being released as a “candidate” – how pathetic to present a knuckle dragging cretin from TX – good lord, that’s dementia setting in at the Moussad, er, CIA!!!

  48. “Keynesian’s and Libertarian’s on a Tightrope without a,… ?”
    The easy money guys hate “Gold”, and the foolish, “Liberty for all Crowd” would poison our environment with mercury, and cyanide – both parties leaching off each other, not knowing which end of the muzzle -barrel was for loading, while the country gets swallowed up by a giant sink hole!
    “Nothing can protect us from inflation or a vice-versus deflation,… except a good dose of stagflation?”

    Ref: “Stagflation”____”Why the Dollar is Falling” (Antony P. Mueller 3/8/05)____”Nixon’s Shock”

    PS. Trials: Big John Connolly Acquitted @ Time Archive (4/28/75)
    Note: Secretary of Treasury (SOT) John Connolly was Nixon’s right hand man, and was quoted telling the foreign correspondence at the (notification announcement) press conference that the United States was officially off the Gold Standard – and when queried by the delegation representatives, blatantly said, “It’s your problem now”!
    If you look chronologically from 1971 to present,… you’ll understand that a “Gold Standard” isn’t such a foolish ideal after all. It keeps inflation/ deflation well within “Nominal GDP” parameters, and frees up the Fed’s dual mandate for concentrating on employment. JMHO / (an irenic solution?)

  49. I wonder about the cause of the disconnect of measured inflation and people’s perception of inflation.

    How are housing prices impacting measured inflation? If you have a mortgage, the price of real estate may be going down, but that does not change your monthly payment.

    Does the CPI accurately reflect this disconnect between real estate prices and household costs?

  50. @Annie – Not sure what you are responding to — your post seems disjointed. In any case Re Thugs and De Thugs are just about the same from an economic perspective (Obama is all ears to the banksters and financial terrorists and really IS their front-man; as a charismatic deceiver and skilled orator, he is perfectly suited for the role), though socially one is more hateful and one is more heartful.

  51. @ Diogenes

    “Don’t think we import wheat, corn, soybeans, nat gas, copper or iron ore and yet they’re going up”

    They are tradeable… The markets for commodities are global, prices are therefore global.

    By contrast, consider the price of natural gas, yet even that is likely to increase as other energy prices increase because of substitution effects (multi-fuel power plants, new plant construction, home heat conversion, etc.).

    We export too little, import too much, and the US consumer has gotten away with this largely because the reserve currency (dollar) has artificially supported over consumption for 30 years. Sorry – the world is rebalancing. Unless we massively increase productivity (how?) vs. the rest of the world, our share of resource consumption will decline. It should – again, it’s not about us. If we were Argentina, we’d already know this. Our infrastructure, however, is not built to support lower consumption (esp. housing, commercial real estate, suburban commuting, etc.)

    The question is whether to fight this re-balancing by increasing the value of the dollar in order to preserve fixed income consumption (retirees) at the cost of even worse unemployment (and slow, painful deflation and nominal wage cuts), or permit inflation. Even a 2% inflation rate is probably too slow to accommodate the rebalancing. In the short to medium term anything might happen – the developing world (which is just coming off of an investment boom driven by developed world capital flight) could spark a flight-to-the-dollar. It is the reserve currency…

    If you think it’s all speculators and not supply, consider food again – developing countries have used their wealth (provided by export surpluses due to US dollar overvaluation) to increase protein consumption. The grain/protein conversion rates are 9to1 and higher (depending on animal source). That, and ethanol. The world has suffered major droughts for the last 2 years, and world grain supplies are tight. This bids up prices for US grain, which is a major export.

    The strong dollar advocates are in the business of reality denial.

  52. Also, Trichet (and the ECB) is in the business of waging war on the periphery. As Krugman (love him or hate him) rightly noted a while back, prior to 2008 NOMINAL GDP collapse, only Greece had excessive structural deficits. Ireland was the poster child of the IMF. Post 2008, it’s Italy, Spain, Portugal, Ireland, soon France, and eventually Germany. So was it structural, or is the structural failure largely driven by the nominal collapse? And now the ECB is forcing periphery states to collateralize debt with gold – in a bid to ultimately reestablish the gold standard? In the 1800s US farmers rioted against the “cross of gold”, now they cast idols of the substance.

    BTW, I’m not an academic.

  53. “How to get the FRB to focus,… rather than putrefy in its stagnant, self-inflicted, myopic malaise.”
    Yes – I’m talking inflation/ deflation, and those jobs floating , or better said, flowing out, by way of the “Yellow Seas, and Beyond Trade-Winds”?
    The Worlds’ Central Banks are coming into a “Golden Alignment” that is long overdue as the precious metal appreciates to $2k /oz +/+, and spiraling into the stratosphere exponentially, beyond, perhaps touching $15k/oz.! WoW!!! (JMHO)
    Quietly listening to the monetary theorist whispers with a deaf ear has left the world’s central banks, and governments speechless? But it seems some have garnered some sanity with the writing now on the walls!

    Ref: ECB Doesn’t Rule Out “PIIGS” {9/2/11- Tyler Durden [one smart guy, T.D. :-))]} @ ZeroHedge & ”
    Hugo Chavez Announces He Will Nationalize Venezuela’s Entire Gold Industry” @ ZeroHedge (8/17/11 by T.D.)___Lastly: (8/19/11 by Micheal Piromgraipakd @ Mikepiro)* (Improvised some of the title [sic])** ___ The Perfect Storm – A Short Squeeze compounded by Up-The-Ante “Margin Call’s (CME,etc,.etc,….?) and “Havoc” Concern’s by Hurricane “Hugo” via Venezuela’s South America? {Note: How will all this portend with the U.S. Free Trade Agreements with Columbia, and Panama on the docket?}'t-rule-out-“piigs”-gold-collateral-gold-backed-eurobonds-sends-gold-soaring

    Thankyou James, and Simon

    God Bless You, Julian Assange (glad to hear from you?) :-))

  54. @BTraven

    If the US wants an open trade environment, the dollar is too high, particularly if the US does not tax imports to compensate for environmental/labor reg disparities. Likewise, the US is too generous with social support (medicare, etc.), compared for example to India and China and the tax system is inefficient.

    In a globablized environment, the least common denominators will usually win. The notion that inconsistent paradigms could coexist peacefully is falling apart. I am not defending globalization, btw.

  55. @btraven – yeah, I saw that.

    Obambi never held an HONEST LABOR, wealth-producing, life-maintenance job before being Prez, did he?

    While they’re asking for the algorithms Wall Street is using to suck up ALL RETIREMENT SAVINGS (private and SS) and generational, *FAMILY* home equity through ENFORCED massive and rapid unemployment to fund oil wars (USA’s biggest *export*) until the oil runs out

    they should also investigate the algorithms programmed into the voting booths….

  56. “To Lease Deflation, or Swap Inflation – That is the question?” *{Market Manipulation Grandiose}
    The Bank of International Settlements is the Central Bank’s,.. Central Bank, and processes every transaction of precious metals (Gold/ Silver/ Platinum) in the known universe.

    Ref: “Secret Gold Swap has spooked the Markets” by Rowena Mason (7/11/10) **Note the Date, and Time-Line? (***The Bank of Nova Scotia is a member of the Bank of England, where “Gold” is priced twice daily (24/7)?)

    PS. The only reason for mentioning this,… is for the very fact that it is has been going on for years, but has reached a freaky, feverish entropy crescendo, capable of imploding or exploding in a total meltdown of America’s Monetary Policy?

    Thankyou James and Simon

  57. His speech is a distraction from the real issues: Screw Bernanke: Are “we” getting the message yet?
    Published on Thursday, September 1, 2011 by Agence France Presse
    Obama Bows to Republicans in Test of Wills on Jobs
    by Stephen Collinson
    Published on Thursday, September 1, 2011 by
    Obama’s Jobs Plan: Will He Offer Policy Miniatures or Give ‘em Hell?
    by Robert Reich
    Obama Goes All Out For Dirty Banker Deal
    POSTED: August 24, 11:17 AM ET
    Santa Claus and the S&P Market Crash
    September 2, 2011
    from Dean Baker
    The Pursuit of Happiness – Will Economic Objectives Stand in the Way? : Jeffrey D. Sachs

    31 August 2011 Jesse’s Café Américain
    Time For a Review: Economic Power, Authoritarian Capitalism, and the Failure of Governance :
    “Fraud is, after all, a confidence game. But when confidence fails, all the con men have left is fear and greed, and the darker emotions that come with them. So let’s talk about anything and everything except what really happened, and make that discussion as complex as possible. Let’s not fix what is broken, in small manageable bites. Let’s attempt to reinvent and reorganize the entire system. As in corporations, when management fails, time to reorganize and redivide the power amongst the power brokers, rather than actually fix anything.”

  58. Follow the Right-Wing Money Funding the Attacks on Working People and a Living Wage:
    Economic Justice Home Page:
    The Well-Funded Anti-Labor Arsenal

    It is not simply about low taxes for corporate elites, but about tax breaks for supporting the think tanks that push public policy into bankruptcy. The Koch brothers could not influence the way they do if they were not fueling and feeding these think tanks for profit. It is high time that the think tanks are placed directly in the high beams of scrutiny from the public sector.

    Check the link above and see the money trail !!!!!

  59. Definitely worth reading; it constitutes the foundation of the current directives and initiatives. Conservative think tanks and foundations evade tax accountability and establish monumental bias towards political support for stupid monetary policies that only serve the most entrenched aggressive interests of the most debased and rabid elements of our wealthiest 1%.

    $1 Billion for Ideas: Conservative Think Tanks in the 1990s
    “The rising influence of numerous smaller conservative think tanks has been a notable development during the 1990s. Together, these and other conservative policy groups have been able to define policy issues and approaches for public attention, skillfully using mainstream and alternative media outlets to create a powerful echo effect in and beyond the nation’s capital.”
    “In terms of resources, there is every indication that the funding stream that currently supports the conservative policy infrastructure will continue to grow. For the core group of foundations that have been heavily funding conservative think tanks in the past two decades, recent political developments have represented a major payoff of their long-term strategic investments. These funders can be expected to move with as much vigor in the future as they have in the past to assure the continuing transformation of America’s public policy agenda.”

  60. @Woych – check into how much of the *stimulus* taxpayer $$$ that was supposed to go to shovel ready work went to *tanks* instead – I want to say that was *illegal* but we already know there is no rule of LAW anymore…

    So much time, $$$ and effort to dominate electronic channels of communication to get people to BELIEVE lies, hatred and revenge is *intellectual*, and We the Stupid really are just too *stupid* to believe.

    Go figure :-)

    Every human being on the planet has the RIGHT to make their life LESS MISERABLE through HONEST LABOR. Honest labor does not calculate its value based on THEIR math formula:

    More misery for others = More $$$$ for ME ME ME

  61. @ StatsGuy – Thanks for your response. I couldn’t agree more with the sentiment re “if the US does not tax imports to compensate for environmental/labor reg.” That certainly creates an uneven playing field and hurts U.S. companies and workers. ** I am still an avid proponent of “small is beautiful,” which would likely mean a lower standard-of-living (material wealth), but a higher level-of-living (quality of life).

  62. btraven: “I am still an avid proponent of “small is beautiful,” which would likely mean a lower standard-of-living (material wealth), but a higher level-of-living (quality of life).”

    And particularly after that remark, I am still waiting to hear that you read the position statement at and signed it!

    Please join the movement for sanity and a steady state economy! — Carla

  63. @btraven and @ StatsGuy – “Thanks for your response. I couldn’t agree more with the sentiment re “if the US does not tax imports to compensate for environmental/labor reg.” That certainly creates an uneven playing field and hurts U.S. companies and workers.”

    And this goes back to the BAD SCIENCE data (Lies, damn lies, and then there’s statistics :-)) that unless USA starts polluting the air again, our *economy* will not get better….

    Checks and balances – the executive branch has to get checked when s/he makes decisions that cannot be made soundly because the Prez does not have the particular expertise – no one person has the RIGHT to foul up the air for millions for generations to come without examining the SCIENCE of energy supply that presents THOUSANDS of other options to achieve the same goal – a better *economy*

    puerile ego games

  64. The $19 to $90 billion costs estimated for complying to the just retracted rules are certainly a drag on one set of companies, but that money is a boost to the companies that receive it for pollution control design, manufacture, and installation.

    If the companies that have to pay out use some of their idle cash reserves, then there could very well be a net increase in jobs just from the cost of compliance.

    There are myriad indirect economic cost savings from cleaning up the air we breathe.

    When the President does a cost/benefit analysis, one would have hoped that he wouldn’t forget the benefit column. Apparently he only has heard about the costs. Perhaps he thinks the $19 to $90 billion expense will come from using the dollar bills to plug up smoke stacks and no jobs will be created except for those that climb the ladders and dump in the money.

  65. “Tell me it ain’t so, Mr. Murphy?” *(keep gold prices low, and you keep interest rates down!)

    “Bill Murphy’s [Murphys’ Law,… a foreboding Cassandra ?] false dichotomy revelations, has an answer, if we had, could have, would’ve, should have,… had listened?”

    Ref: “”WikiLeaks discloses reasons behind China’s shadow gold buying spree” (Tyler Durden 9/3/11 17:22 @ ZeroHedge)

    Note: Manipulating interest rates should be raised to the ground,…

  66. Like it or not, the United States is enshrined in a “Stagflation Void” for the foreseeable future, and I’m not talking two, three, or four years out – perhaps a decade is more realistic,… unless we get into a “1941 Moment”?
    We have rampant undercurrent inflation rearing its ugly head amongst the weeds. The GDP growth is a facade of double-entry bookkeeping, and off balance leverage about to fracture from the self induced amnesia that gravity and momentum does depend upon mass being respected?
    The Dollar v. the Yuan, should wake those who’ve been asleep in Washington – I hope!

    Ref: “Report Portents Changes to Forex Reserve Currencies” (4/9/11 – 2nd story down) *per usual Google if link fails :-(

    Note: Thinking about rouge trader at UBS with $1.5tn in assets, which by the way in simple math equals $1.0bn X 1,500,… and how a guy could hide $2.0bn just blows my mind, and how long the good trades have been going on without being noticed. Remember,… a successful Doctor never here’s back from his dead patients, he just buries them quietly?

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