The Re-Election Campaign of Ben Bernanke

The Federal Reserve chief fights for his future. Why is he bothering?

Brian Doherty | July 30, 2009

In the past weeks, Federal Reserve chief Ben Bernanke has taken the prior reputation of the high priesthood of history's mightiest central bank—august, oracular, mysterious—and devalued it as surely as his bank has devalued the dollar over the past century.

Bernanke is facing the possible loss of his job come January, when President Obama either reappoints him or chooses a successor (current Obama administration economics czar Larry Summers heads the rumor list). Bernanke, or whoever succeeds him, will enjoy the dubious pleasure of managing the Federal Reserve's confrontation with the inflationary danger posed by a staggering increase in the monetary base (it has more than doubled) since the economic crisis began last year.

In the past couple of weeks, Bernanke has done a highly unusual song and dance defending his record, opining on The Wall Street Journal's op-ed page and touring Congress like a singer desperate to increase his album sales without any record label support.

In the past few months, Bernanke made public appearances unprecedented for a Fed chair, such as yakking it up on 60 Minutes and holding a press conference at the National Press Club. The ultimate humanizing step for this formerly mandarin office came when Bernanke took questions from a squad of supposedly ordinary Midwesterners about their confusions, doubts, and fears at a public forum in Kansas City, as if he were a monetary policy Oprah.

Bernanke's fighting not only for his own future, but for that of his institution. From angry right-populists in the street to standard Keynesians and monetarists in economic academia, from the House of Representatives to Obama's own Treasury Secretary Timothy Geithner, the Fed's probity and wisdom are being seriously questioned, and its responsibility for the current crisis taken almost for granted. In the quickest version of the story, the Fed laid the foundation for our current economic mess through its reckless suppression of interest rates in the early years of this decade, which it did to juice up the economy following the NASDAQ bust. This, the story goes, was a necessary condition of the housing boom and bust.

But of all the anti-Fed hostility, the element that seems to have Bernanke most worked up is H.R. 1207, a proposal by Rep Ron Paul (R-Texas) to "audit the Fed." The bill would eliminate some long-standing restrictions on where the Government Accountability Office (GAO) can look when it examines the Fed. Bernanke said in a July 21 appearance before the House Committee on Financial Services:

Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions. A perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability.

Ah, independence—who doesn't want plenty of it in monetary policy? Despite polls showing only 30 percent of Americans think the Fed is doing an excellent or good job—lower than both the CIA and the IRS—Bernanke blithely assured us that he doesn't "think the American people want Congress running monetary policy, and I think that's very, very critical for people to understand."

Who knows what the American people want when it comes to monetary policy? The vast majority of people know nothing about the subject. Folks trying to save a little cash wind up as suckers, with 60 percent of the value of their savings disappearing over the past 30 years. If they understood the role of the Federal Reserve in this devaluation, perhaps they'd want the power to inflate the money supply taken out of hands of government and disciplined by some sort of commodity standard. But that sort of idea just isn't on the agenda, and as long as the agenda is set by people like Bernanke, it won't be.

Still, I don't doubt for a second that having Congress in charge of a disciplineless paper money system would be a disaster. Given the political cover Congress gets out of the façade of Fed independence, I don't think Congress wants to run monetary policy anyway. It's to camouflage a lack of openness that Bernanke cries about theats to Fed independence.

Even only considering his behavior since the crisis began, and ignoring the Fed's history of collaboration with the goals and desires of presidents and treasury secretaries, Bernanke can't seriously expect Americans to believe that his institution is airily above politics, making decisions only based on advanced and disinterested economic wisdom.

The politics of his situation require him to do something, anything, even if the best thing to do might be to let the mistakes of the past decade—both the Fed's in keeping interest rates too low too long, and those of the thousands of individuals and companies sucked into bad investments to a large degree by the Fed's own policies—work themselves out. Even if that takes a little, or a lot, of temporary economic pain.

But allowing the economy to naturally experience pain—one of the supposed benefits of the independent Fed that Bernanke touts—is exactly what he's been unwilling to do. He tries to scare Congress away from Ron Paul's audit bill with fears of the dire economic effects of lost independence, even as he demonstrates over and over that he is clearly just one more member of the Obama economic team.

Bernanke has led the Fed in buying up mortgage securities and covering tens of thousands of auto loans and small business loans (both of which he crowed about in Kansas City) and giving direct cash infusions to selected companies. (Selected how? That's why some people think we need to audit the Fed.) The Fed is on board to take an even larger role in regulating financial markets. Bernanke even took time during that Kansas City pow-wow to tout the importance of cost-cutting health care reform. Consider it a hat tip to the boss.

Bernanke isn't blind to the tenuous and, in many ways, meaningless nature of his institution's "independence." As he told the crowd in Kansas City, "Our independence has to be won every day, if you will, in that we have to show that we are producing good results and doing so without intervention or interference from other political bodies." And to whom do you have to "show that [you] are producing good results," Mr. Chairman?

Comments

Flex Nasty B.I.G.|7.30.09 @ 6:13PM|#

Fantastic writing and spot-on analysis. One of the best articles I've read this year.

Some Guy|7.30.09 @ 6:17PM|#

I like the idea of the Fed being independent, but since it obviously ISN'T right now, they might as well get audited.

Douglas Gray|7.30.09 @ 6:19PM|#

Sure he wants the independence to do whatever he wants with the money supply. Who wouldn't?

Bernie Madoff would probably have liked a little less oversight for a bit longer too.

He is afraid if the American people ever do find out how the Fed. works, we'll decide we don't need it any longer.

If Obama is really serious about rising above partisan politics, have him appoint Ron Paul as Chairman of the Federal Reserve, and let him dismantle the whole thing.

|7.30.09 @ 6:25PM|#

The NY Times published opposing editorials on Bernanke from Nouriel Roubini and Anna Jacobson Schwartz last weekend.

http://www.nytimes.com/2009/07/26/opinion/26roubini.html

http://www.nytimes.com/2009/07/26/opinion/26schwartz.html

Some dude|7.30.09 @ 6:47PM|#

Pretty good, as far as mushy articles go. What is reason™'s stand on the Fed? Should it stay or should it go?

Personally, I'm not sure. Yes, I'd like free market money, but I'm not sure it is as Utopian as a truly libertarian "paradise" would be.

Cabeza de Vaca|7.30.09 @ 6:49PM|#

It's laughable that anyone would claim that the Federal Reserve is independent of political influence. The Federal Reserve is controlled by the executive branch & the executive branch doesn't want Congress moving in on it's territory.

ABC|7.30.09 @ 7:07PM|#

"Personally, I'm not sure. Yes, I'd like free market money, but I'm not sure it is as Utopian as a truly libertarian "paradise" would be."

Don't think it's particularly utopian; doubt any supporter of commodity backed money/free market money would say that it would be perfect. Just better than the current system.

|7.30.09 @ 7:13PM|#

I drove on his I-95 interchange in South Carolina last week--the Ben Bernanke Highway. So what else does he need to accomplish?

|7.30.09 @ 7:41PM|#

Bernanke: a dink, or the dink?

|7.30.09 @ 7:49PM|#

"Monetary policy"?

Here's what our country's "monetary policy" has been, since the Fed was created in 1913:
Give the power to create and distribute the currency we all by law must use, to a small group of bankers who, again by law, operate in absolute secrecy. Tell them to use this power wisely and for the public good. Then, hope for the best and turn to other concerns for the next few decades.

Anybody who thinks this was a great idea, is dumber than a bucket of rocks.

No group of human beings, elected (Congress) or not (the Fed), can be trusted with the monopoly power to create the currency we are all forced to use, and hand it out to whomever they think is most deserving.

Here's the sum total of what "monetary policy" should be:

1. The US dollar is defined as 371.25 grains of pure silver
2. Counterfeiting is punishable by law as fraud

Notice it takes absolutely no one to administer or adjust this policy.

We will not begin to climb out of the economic mess we're in, until the average person can use, save and invest real money, instead of counterfeit green tickets representing units of taxpayer indebtedness.

tarran|7.30.09 @ 8:05PM|#

Why define the dollar at all?

Prior to the War of Independence, a dollar was simply a Spanish Pieces of Eight. Having the government define currency is about as ridiculous as having the government dictate to volume of sandwhich bags.

Repeal the legal tender laws. Spin off the Fed as a for profit company, and let people choose what fiduciary instruments they want to do business with. And if the Fed can't survive in the marketplace, if people decide that it is dumber to hold a dollar than a packet of mackerel, then the Fed will go tits-up.

BakedPenguin|7.30.09 @ 8:06PM|#

Wikipedia has an interesting line:

Largely as a result of the support of monied interests which gave the Republicans an unmatchable campaign war chest, the Democrats failed to win any presidential elections in which the Free Silver issue was paramount, and the next Democratic President to be elected, Woodrow Wilson in 1912, had a very different plan for monetary reform, which resulted in the creation of the Federal Reserve Banking system in 1913.

|7.30.09 @ 8:13PM|#

The independence or non-independence of the central bank isn't the problem. The Federal Reserve is a government mandated cartel, and therein lies the source of much of our monetary woes.

qwerty|7.30.09 @ 8:47PM|#

Sorry guys, but you're all wrong. There is a clear negative correlation between the independence of a central bank and the inflation rate. See this paper and references therein:

http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V84-4HNSG0N-5&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=0eecd03c5d26ad985e081b0180979b1a

The primary job of the Fed is price stability, which it has done a good job of in the past few years especially considering the recent oil shocks and recession. It is not the Fed's job to prevent housing bubbles or appease Congress. The recession was caused by a lot of individuals making dumb decisions (people taking out loans they couldn't afford, and bankers dumb enough to give them the loans), not Fed monetary policy. Does anyone want the current socialized medicine/cap and trade/huge deficit Congress to have more power over the Fed? The Fed is one of the only parts of the government that works pretty well. Let's not screw it up.

|7.30.09 @ 8:50PM|#

I'm re-reading Shirer's Rise and Fall of the Third Reich and just hit the point where he's talking about the German government allowing the mark to inflate to insane levels. While we're not in the mess they were, it's a little disturbing that people in general trust the government to "manage" the economy or the currency. See, their goals may differ slightly from your own.

Rich|7.30.09 @ 9:07PM|#

"Bernanke ... doesn't 'think the American people want Congress running monetary policy, and I think that's very, very critical for people to understand.'

Many American people want neither Congress nor the Fed running monetary policy, and that's critical for Obama to understand. The "outcome" of HR 1207 will be extremely telling. Stay tuned.

Lee Cruz|7.30.09 @ 9:09PM|#

For Economic Perspective, why not read the guys who predicted all this: Mises.org

|7.30.09 @ 9:09PM|#

While we're not in the mess they [Geremany] were [in]...

ProL: I think we are precisely in the mess Germany was in. It just depends on which year you are looking at. No, we are not in the mess Germany was in in 1923. I figure we are about where Germany was in September 1920, when that country went through a short bout of price deflation, just prior to the beginning of the terminal hyperinflation.

qwerty: "The primary job of the Fed is price stability" ..... HAHAHAHAHA....ROTFL...SNORT...CHUCKLE....

SIV|7.30.09 @ 9:14PM|#

The recession was caused by a lot of individuals making dumb decisions

Topping the list: Greenspan,Bernanke....

Those dumb decisions by lenders and borrowers wouldn't have seemed so smart at the time if not for the cheap monetary policy.

The primary job of the Fed is price stability

How did they do on housing "price stability"?
Don't forget the "full employment" mandate.
How's that working out?

|7.30.09 @ 9:19PM|#

Actually, the primary job of the Fed is to line the pockets of its Class A founding shareholders, which not coincidentally, are the giant money center banks like Goldman Sachs and JP Morgan Chase. You know, the institutions getting the trillions in bailouts.

|7.30.09 @ 9:34PM|#

Malto: From what I know of 19th century American economics, you might have a hard time arguing that monetary policies pre-Fed worked better than post-Fed. Weren't there were plenty of booms and busts back in the days of gold-backed currency? Hasn't the overall economy done much better post-1913 than in the century before it? Not that I'm saying the status quo is perfect, but I'm not sure I want to go back to (e.g.) different currencies issued by different banks.

Space Fiend|7.30.09 @ 9:44PM|#

Someone needs to ask Bernanke what exactly a bad job by the Fed would look like. This is the most accomodation the Fed has ever granted, by far, and Bernanke is the first to sing the praises of Volker finally abandoning that horrible policy. So, what exactly would Bernanke point to that a "bad" chairman would've done differently or worse? Outside of intentionally ruining everything, as opposed to unintentionally, I can't think of anything.

Some dude|7.30.09 @ 9:53PM|#

PapayaSF,
From what I know of 19th century American economics, you might have a hard time arguing that monetary policies pre-Fed worked better than post-Fed. Weren't there were plenty of booms and busts back in the days of gold-backed currency?

Psst. If you have any "monetary policy" at all you aren't dealing with free market money.
Even in the pre-Fed years, banks were allowed to have fractional reserves and were bailed out or otherwise protected in their schemes by the government.

This is why I think free market money is an unrealistic utopia. It is too much to ask governments not to get involved with money.

|7.30.09 @ 10:30PM|#

PapayaSF:

"Some Dude" points out the problem with our banking system back in the 19th century: Fractional reserve banking. Fractional reserve banking means that, when you deposit money in the bank, the bank can loan out most of that money to others without your permission or even knowledge. This sets up the bank for failure if more than the expected amount of funds are withdrawn suddenly....this is called a "bank run".

The "solution" we came up with in 1913, the Federal Reserve, was suggested by the big banks, and consisted of letting them, through the agency of the Fed, make and distribute currency, which indeed can stop a bank run. But, this cure came with side effects, which are now manifest: creation and distribution to the favored few, of money as a political favor, and, the so-called moral hazard of removing risk of loss from the banker's decision making. The bankers know that, if their risky bets are losers, the Fed will come in and rescue them with lots of newly created cash, so they go ahead and make risky loans and investments. All at the expense of the taxpayers and the general public, in increased taxes and inflation.

The real solution, is commodity based money (which can't be manufactured and distributed by an elite few), combined with regulations against fractional reserve banking. This actually was tried for a few decades in the 18th century, in Scotland, and worked well (i.e. stable economic growth). But, it was unpopular with the English banking industry, because it cut into their profits, and so the (English) crown supported fractional reserve banking and the centralized Bank of England.

Check out this video of Congressman Alan Grayson grilling Ben Bernanke on where exactly over $500 billion in newly created cash went, and on the corruption at the Fed:

Grayson questions Bernanke

And, just in case you think that at $800 billion, we are done creating new money to bail out banks around the world, know that the Inspector General of the TARP program has said that TARP could require up to $23,000 billion ($23 trillion) in new money to support all future bailouts. Right there, you are into Weimar style hyperinflation, and that does not include stuff the Fed is doing in secret.

So, I think it is utopian, to think that any group could successfully "manage" the money supply, i.e. "make monetary policy". Which leaves commodity money as the only alternative. The key this time, will be to outlaw fractional reserve banking.

Rich|7.30.09 @ 11:12PM|#

Malto, thanks for the Grayson clip. It got me in a great mood to watch Larry Summers on Meet the Press this Sunday ...

|7.30.09 @ 11:49PM|#

Rich, thanks for letting me know about Summers being on Meet the Press. Hopefully, the questioning will be something harder than the marshmallows Jim Lehrer threw at Bernanke on PBS this week.

BTW Larry Summers is the architect of the gold price suppression scheme, with the goal of making the dollar look less weak than it actually is. His paper outlining the reason for the scheme is called "Gibson's Paradox and the Gold Standard" (Journal of Political Economy, Vol. 96, No. 3, pp. 528-550, June 1988).

When the bullion banks (e.g. JP Morgan Chase), working in concert with Treasury, run out of gold to dump on the market, the jig will be up. But hey, that will probably be after the next election. Or maybe not, if the Chinese decide to bolt, and dump their Treasuries.

mark|7.31.09 @ 12:29AM|#

Malto, didn't you hear? The IMF is getting in on the gold-supressin' fun. And where, do you think, will all this gold find its way to?

|7.31.09 @ 12:32AM|#

I like the idea of the Fed being independent, but since it obviously ISN'T right now

Or ever in its history.

I want Bernanke to be the last chairman of the latest unconstitutional central bank.

-jcr

mark|7.31.09 @ 12:35AM|#

The "solution" we came up with in 1913, the Federal Reserve, was suggested by the big banks, and consisted of letting them, through the agency of the Fed, make and distribute currency,

Seriously, why can't I get money from the discount window? Oh I see, you need a billion dollars just to make an appointment. Darn, back to work...

|7.31.09 @ 12:35AM|#

The primary job of the Fed is price stability

No, that's the bullshit propaganda lie that the Fed hands out. The ONLY job of the Fed is to fraudulently transfer wealth to its owners by inflating the currency.

-jcr

|7.31.09 @ 12:38AM|#

Weren't there were plenty of booms and busts back in the days of gold-backed currency?

Yes, and they happened for the same reason as the first and second great depressions: banks were creating notes with no backing, and people were conned into believing that those notes were as good as money.

The Fed just established a monopoly on the issuance of fraudulent banknotes. The upshot is that we have a much longer period and greater magnitude to the disruptions that they cause.

-jcr

|7.31.09 @ 1:20AM|#

Malto, didn't you hear? The IMF is getting in on the gold-supressin' fun. And where, do you think, will all this gold find its way to?

It would be nice to know where it was going. Heck, it would be nice to know if there is any gold in Ft Knox. There is obviously some, or the gold price suppression game would be over already. I wonder how close to zero the reserve has to get, before they decide to take the rest and run? Hmmmm......maybe we need...uhhh ..... an audit!

Once nice thing, though: We all still have the chance to lay in a stock of real money at these artificially low prices. Get it while you can. Accept no substitutes!

Banks were creating notes with no backing, and people were conned into believing that those notes were as good as money. The Fed just established a monopoly on the issuance of fraudulent banknotes.

Yep. Good ol' fashioned fraud. Dressed up as 'fractional reserve banking'.

Guess who the Fed hired as their new PR flack?
A woman who used to work PR at Enron.
I couldn't make this stuff up.

We really, literally, have been sold a bill of goods.

Paper. What's it good for? AB-so-LUTE-ly NUTH-in'! (Unless you're a banker.)

flix|7.31.09 @ 1:33AM|#

best book on fractional reserve & central banking:

Huerta de Soto's "MOney, Bank credit and economic cycles"

flix|7.31.09 @ 1:38AM|#

Prior to the War of Independence, a dollar was simply a Spanish Pieces of Eight. Having the government define currency is about as ridiculous as having the government dictate to volume of sandwhich bags.

could not agree more.
Central Banking is the last standing segment of the Berlin wall... until it is torn down centrally planned economics will live...

&|7.31.09 @ 6:47AM|#

tarran | July 30, 2009, 8:05pm | #

Why define the dollar at all?

Prior to the War of Independence, a dollar was simply a Spanish Pieces of Eight.

Which was defined.

<strike>Strike through</strike|7.31.09 @ 7:20AM|#

Some of you non-anti-Randians (Anyone out there? Raise a hand.) might consider (re)reading the brilliant Gold And Economic Freedom (The Objectivist, July 1966), authored by none other than Alan Greenspan himself. A genuine gold-bug became the most famous Federal Reserve Chairman ever. Makes you think. Doesn't it?

d|7.31.09 @ 8:18AM|#

Doherty, lay off the "'whom' and 'I' are better because they make me sound smart"-style rules.

Bernanke, or whomever succeeds him,...

correction: Bernanke, or whoever succeeds him,...

DJF|7.31.09 @ 8:22AM|#

Why settle for second raters like Bernanke?

Getting the bubble economy bubbling again is obviously Washington and Wall Streets plan so lets bring in an expert on creating bubbles.

We need Al, "bubble man" Greenspan back, he's rested, he's ready, its time for the A Team.

hmm|7.31.09 @ 8:23AM|#

The Fed scares me.

Larry "Suckling the Teet" Summers in charge of anything short of a little league team scares me.

Congressional oversight of the Fed, while I get the idea, scares me and will follow the law of unintended consequences.

Larry, along with Congress, in charge of the Fed is a nightmare scenario.


It's a perfect storm of politics, incompetence, bad ideas, and power. All riding the back of a banking beast that is racing around like a drunk crack addict.

DJF|7.31.09 @ 8:41AM|#

On the side of politicians being in charge of money, we can look at history

When the FED came into being it had two main jobs, reducing inflation and reducing down turns in the economy

Since the FED took charge the dollar has lost 95% of its value, compared to prior century when the dollar stayed the same in value overall though it did have its ups and downs.

As to downturn in the economy, the FED has done slightly better then previously but only by destroying much of the value of the dollar and both by prolonging some downturns and producing with its policies.

So overall the politicians did better then the supposedly professional and independent FED. Though I must admit that today's politicians seem not even as good as the ones from the first half of the US existence

Space Fiend|7.31.09 @ 9:11AM|#

DJF: that's not exactly true. Today, those are the goals of the Fed. When the Fed was formed in 1913, its explicit purpose was to act as a backstop where banks could get free [essentially] money to cover their bad bets. When the role of this action regarding inflation became obvious, Congress changed the goals on paper, but no one has ever seen any evidence they have changed in reality. The Fed has been quite effective at its real objective: enriching the largest banks by allowing them to loan out an infinite amount of money at no cost.

kilroy|7.31.09 @ 9:23AM|#

Honestly, I think the similarities between Madoff and Bernanke are striking. I believe the real reason Bernanke is scared shitless of an audit is that it will prove that the Fed has been one giant Ponzi scheme for years.

"Pay no attention to the man behind the curtain." -Bernanke

|7.31.09 @ 9:45AM|#

When the bullion banks (e.g. JP Morgan Chase), working in concert with Treasury, run out of gold to dump on the market, the jig will be up.

They don't need gold, at least for now. That they are suppressing the price through market manipulation, there can be no doubt (look at a chart of gold prices over the last several months).

They are doing it by naked shorting. All that it would take to end this would be for the futures market to stand for delivery. DeutscheBank got caught out earlier this year when an unheard of number of contracts took delivery, and had to acquire an enormous amount of gold on the fly.

Malto, didn't you hear? The IMF is getting in on the gold-supressin' fun. And where, do you think, will all this gold find its way to?

The IMF can only sell its gold to its members. That gold will never see the open market.

Heck, it would be nice to know if there is any gold in Ft Knox.

Yes, it would. The gold depositaries are having all kinds of inventory problems. I doubt any of them could stand an audit.

ready|7.31.09 @ 10:20AM|#

Gold And Economic Freedom ... Alan Greenspan. A genuine gold-bug became the most famous Federal Reserve Chairman ever. Makes you think. Doesn't it?

well... Gandalf did say "better not let me touch the ring"... guess in the real world it's harder for people to turn down power.

Gandalf|7.31.09 @ 10:24AM|#

Understand Frodo, I would use this Ring from a desire to do good. But through me, it would wield a power too great and terrible to imagine.

...hence the 2008 economic crisis.. largest since WWII

roy|7.31.09 @ 10:36AM|#

DeutscheBank got caught out earlier this year when an unheard of number of contracts took delivery, and had to acquire an enormous amount of gold on the fly.
--------

yes, the ECB bailed them out by lending them the stuff. It's on the books, nothing secret about it. Broad daylight manipulation

ready|7.31.09 @ 10:38AM|#

Gold And Economic Freedom ... Alan Greenspan. A genuine gold-bug became the most famous Federal Reserve Chairman ever. Makes you think. Doesn't it?

of course there's all king of conspiracy theories about Greenspan doing it on purpose a la John Galt.
Google "The Road to Roota"

qwerty|7.31.09 @ 11:58AM|#

Compare the boom and bust cycles of the 19th century to the far more stable dollar of the past 50 years. Do you really want to go back to that? "But we have inflation!" Well, boo hoo. Actually, a bit of inflation (2-3% annually) is good for the economy because it reduces the stickiness of prices and wages. It is a lot easier to give someone a 1% raise with 3% inflation than it is to cut their wages 2% with no inflation. Also, a small inflation rate reduces the chances of deflation, which can really devastate an economy. Unless you bury your money under a mattress for 30 years, the rates of inflation we've been having will not hurt you. Buy stocks or bonds. They'll adjust to inflation. Trust me.

Yes, the dollar fluctuates, but in case you haven't noticed, so does the price of gold. In fact, gold prices have been far more volatile in the past decades than inflation. This is the utopia that you want to go back to?

|7.31.09 @ 12:03PM|#

qwerty:

Every single one of your statements in the last post is a lie.

<strike>Strike through</strike|7.31.09 @ 12:07PM|#

Ayn Rand herself wasn't certain at first that she could trust Greenspan. But his essays from the 60s are brilliantly reasoned. Especially worthwhile is Antitrust (1962). It begins:

The world of antitrust is reminiscent of Alice's Wonderland: everything seemingly is, yet apparently isn't, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet "too much" competition is condemned as "cutthroat." It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as "enlightened" when initiated by government.

|7.31.09 @ 12:12PM|#

RC:

Yes, I know they are doing it by naked shorting. But in the case of commodities (unlike for stocks), they do have to make delivery of the physical stuff occasionally; it's not completely a paper market. The naked shorting just magnifies their firepower.

But they will run low on ammo at some point. Probably in the silver market before gold, since there is much less silver now than gold (the ratio is 1 billion ounces of silver to 5 billion ounces of gold), and silver is a commodity that is consumed. Gold is mainly hoarded.

So industry will need to take delivery of silver, and when we run out, the price must rise to induce more production.

johnl|7.31.09 @ 1:06PM|#

qwert you can't make too many direct comparisons between the 19th century and the 20th. A lot of the stickyness of the 19th century world is lubricated with telephony. Now a specialist can find a new job on the other side of the country via email. Still we have unemployment spiking like pre-telephone days. So *something* has changed for the owrse.

qwerty|7.31.09 @ 1:08PM|#

Malto, you are a complete tool.

Shalom P. Hamou|8.2.09 @ 3:02AM|#

In my Tract The Age of Turbulence: Plea for a New World Economic Order, I explain the nature and causes of economic depressions.

A new, bigger Crash will come causing a real depression.

Preparing for the Crash, The Age of Turbulence. Proposes a way to profit from The Crash.

Using the yield curve as a predictor that strategy covers Treasuries, Corporate Bonds, Minerals (Oil, Precious Metals and Base Metals.) and Stocks.

Its aim is to profit from both the Asset Price Bubble and Irrational Exuberance and The Crash and Economic Depression that will ensue.

A turbulence in fluid dynamic is a chaotic state of a liquid or a gas. It Owns Most of the Proprieties of The Liquidity Trap, Origin of The Crash.


It tries to accomplish Alan Greenspan Mission Impossible:


"That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer.

Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.

Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away."

....

The clear evidence of underpricing of risk did not prod private sector risk management to tighten the reins.

In retrospect, it appears that the most market-savvy managers, although conscious that they were taking extraordinary risks, succumbed to the concern that unless they continued to "get up and dance", as ex-Citigroup CEO Chuck Prince memorably put it, they would irretrievably lose market share.

Instead, they gambled that they could keep adding to their risky positions and still sell them out before the deluge. Most were wrong."

Alan Greenspan
The Age of Turbulence: Adventures in a New World [Economic Order?].


I propose a plausible alternative solution to the depression: I designed a System to get out of Credit Based Free Market Economy and transfer to Credit Free, Free Market Economy:

¥€$ Enter Your €5 in The Cra$h R€gi$t€r.


I.10.82
"People of the same trade seldom meet together, even for merriment and diversion,
but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

It is impossible indeed to prevent such meetings, by any law which either could be executed,
or would be consistent with liberty and justice.

But though the law cannot hinder people of the same trade from sometimes assembling together,
it ought to do nothing to facilitate such assemblies; much less to render them necessary.

I.10.83
A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register, facilitates such assemblies. It connects individuals who might never otherwise be known to one another, and gives every man of the trade a direction where to find every other man of it.

I.10.84
A regulation which enables those of the same trade to tax themselves in order to provide for their poor,
their sick, their widows and orphans, by giving them a common interest to manage,
renders such assemblies necessary."

Adam Smith
June 5th, 1723 - July 17tn, 1790
An Inquiry Into the Nature and Causes of the Wealth of Nations.
Inequalities Occasioned by the Policy of Europe.
March 9th, 1776


Buy Now The Tract That Will Be Published September 17th, 2009.