Monetary Policy

"Idaho Hillsmen With Colt 45s and Krugerrands Were Right All Along."

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Your hot dogs and beans days have returned.

Say no to the proliferation of adverbs by not clicking on Michael Snyder's DailyMarkets.com column "Is The Fed Completely And Totally Out Of Control?" (also say no to capitalizing articles; even Germans don't capitalize articles), unless you want a fun and clear rant against the bumbling central bankers of these here United States:

Federal Open Market Committee "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."  … Do you see what the Fed is saying there?  The Fed is actually saying that it has a mandate to maintain a certain level of inflation.  Not that this is a secret to anyone that has seriously studied the Federal Reserve…  But for Federal Reserve officials to openly state that a certain amount of inflation is part of their mandate is absolutely stunning.

I wouldn't call it "absolutely" stunning. Simply stunning I might agree with. Federal Reserve Bank Chairhumanoid Ben Bernanke has what I believe is an unmingled record of comments to the effect that he does not believe in and has never employed inflation targeting, that he has never met inflation targeting, and he didn't even like inflation targeting when they didn't meet.

These statements are belied by 100 percent of Bernanke's behavior and by thousands of pages of his published work, the gist of which is that recovery from the 1930s depression came, in turn, to each country that went off the gold standard and began seriously devaluing its currency.

So we're still not at Bank of England levels of candor.

Snyder gears up for the coming of Quantitative Easing 2.0, which he expects will be followed by Quantitative Easing n. The Fed's addiction to devaluing the dollar, he notes, has peeled off former supporters:

Ambrose Evans-Pritchard, perhaps the most respected financial columnist in the U.K., recently penned an article entitled "Shut Down the Fed (Part II)" in which he absolutely lambasted Bernanke and other Federal Reserve officials for considering another round of quantitative easing….

I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.

In fact, Ambrose Evans-Pritchard is now openly accusing the Federal Reserve of being out of control….

So all those hillsmen in Idaho, with their Colt 45s and boxes of krugerrands, who sent furious emails to the Telegraph accusing me of defending a hyperinflating establishment cabal were right all along. The Fed is indeed out of control.

I was a deflationist in 2009, but at some point all those new dollars in circulation will have to boost milk up to $10 a gallon, right? That won't be inflation, of course, because core CPI doesn't count food and energy prices, so it will be like it never happened.

Bureau of Economic Analysis Director Steve Landefeld will smack you around and call you Susan.

But the Fed doesn't use CPI or any of its misleading subdivisions. Rather it uses the BEA's Personal Consumption Expenditures price index—officially because CPE claims to measure substitution (when you give up Chateau Lafitte and your usual table at Spago and go back to Schlitz with hot dogs and beans)—though it's also convenient that PCE lags CPI and thus underestimates the devaluation of the greenback. (Because have I mentioned that Ben Bernanke is absolutely opposed to inflation? Greenspan too!)

Either way, PCE's more attractive spending-power figures make everybody look richer, and rubes love to be told that they're rich.

Here's a study of CPI's substitution bias [pdf] from way back in the pre-Abundance epoch. We wore wooden shoes then.

And even if you're out of Krugerrands, at least Colt 45 works every time:

NEXT: California Establishment: More Paranoid Than Mickey Kaus on Pot Brownies

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  1. …when you give up Chateau Lafitte and your usual table at Spago and go back to Schlitz with hot dogs and beans…

    Are we talking crappy canned Schlitz or the ’60s-formula Schlitz longnecks? Because those are two totally different new realities in my book.

  2. go back to Schlitz with hot dogs and beans

    Is it the frank or the beans?

    I think a little of both …

    1. Since you taught me the word I am going to keep calling it cassoulet.

  3. Billy D is my hero. If I were that age at that time with that ethnicity, I would have copied him fully. Hell, I’m tempted to do it now.

  4. Colt 45 is indulgent. Haffenreffer is the value choice. They don’t have to pay for ads with Lando Calrissian.

    1. Ah, yes. I partook of that in my underage consumption years, when money was no issue, because I didn’t have any.

      1. I used to get my friends older brother to pick me up gin that shared it’s name with the liquor store where he would get it. It was $6 and I would get drunk for a long time. Beer never made fiscal sense to me at that age.

      2. Back in my day, you could buy Olde English 40s for 80 cents. That day was in 1990 and my liver still hurts.

        1. Tenafly Viper!

          Ah, Roy. A good guy who got me into many screenings at HBO Studios.

          1. Does anyone recall little bottles of pre-mixed liquor drinks? They came with a little top/cup on top. I remember the pi?a colada one mostly.

          2. I wasn’t old enough for a liquor store. I had to hit up the gas station with the half-blind old guy that would sell anything to anybody. At least it was within walking distance of the apartment.

            Now if my friends at the time didn’t insist on turning on that damn strobe light every time we got wrecked. I often thought about faking a seizure to get them to stop.

            1. My old underage drinking pals would have interpreted the seizure as a sign to turn up the strobe frequency, or possibly, to turn on the other strobe light.

              1. My friends liked the one strobe light, one multi-colored, multi-lens projector, TV tuned to static and Front 242 at ear-splitting volume. It was like being in the world’s most depressing German techno club circa 1983.

                Can’t a man just drink himself to death in peace and quiet?

                1. No, you must be tempted to stick your drunken fingers in between the blades of the ceiling fan. Obviously it IS moving slower and it’s not just because of the strobe light.

  5. Meanwhile, all those greenbacks are quietly piling up in banks. At some point, the dam will break and all those dollars will flood into the market. 5 years, 10 years, does it matter?

    Of course, this is all the businessman’s fault because he won’t go out there and borrow more money, even though the total debt figure of the US is still as bad or worse than it was 2 years ago.

    What a tremendous load of sheeeeeeit.

  6. It is like we are running a science experiment on the economy. For decades the gold bugs have been running around predicting anything and everything would lead to hyper inflation. Now the Fed has decided “okay Goldbugs, we are going to do everything possible to try and prove you guys right for once, lets see what happens”. If we don’t get hyper inflation after all of this, we will never get it.

    1. It’s the same experiment Von Havenstein ran. It didn’t end well last time.

      1. And you know who was chancellor of the Weimar Republic.

        1. I just read that Germany finally paid off the war reparations.

          1. Which war – one or two?

            1. Strangely, we didn’t bill them for World War II. Maybe the Allies at Versailles were prescient enough to include the Second World War on the tab.

      2. The very best part of the Evans-Pritchard article was the picture and its caption. Check it out:

        http://solutionproblem.wordpre…..blishment/

        Honestly, the missive about Idahoans with guns was pretty good too…

    2. I consider myself a gold bug, and I’ve never considered hyperinflation to be a serious problem. The US dollars has a value based in no part on reality thanks to its status as the world reserve currency. Only the Euro has ever provided a realistic alternative. No other currency already exists in large numbers and is based on a large, consistently growing nation that has chief importer status thus encouraging all of the exporter nations to overvalue the dollar lest they lose their export jobs. Real hyperinflation in the US is kind of a far off fantasy. My problem is that when new money is injected into the economy, regardless of CPI numbers, it tends to alter the economy in all sorts of ways. Maybe the extra money flows into assets creating an asset bubble. Maybe the money will flow overseas and then back into US assets. You also have to acknowledge who gets the money first, and therefore benefits from the money the most.

      Even though I don’t see hyperinflation as a real possibility, there is still reason to fear inflationary effects. People see a flat CPI or a CPI that is actually slightly negative and believe that there is no inflation going on, but how do they know that we shouldn’t be experiencing more deflation? Sure, a CPI change of 0 or +1% looks stable, but it isn’t if the CPI is SUPPOSED to be -4%. I’m not sure what the CPI is “supposed” to be, but as technology becomes more efficient, you would expect it to be largely negative as prices fell, and throughout the 1800’s, prices did fall precipitously over time, the only exception being the years of the civil war.

      1. Not to mention that an inflation rate of 2% forever (that’s the monetarist target rate) means that every dollar saved by a 20 year old for when she’s 80 is worth 30 cents. That exponential expansion of the money supply doesn’t jibe with a finite state machine like the earth.

    3. The coal is in the engine but there is no fire in it to give the train any push.

  7. I would respectfully suggest something with more “reach out and touch someone” range. ARs in almost any caliber (except for those 22 conversions) would be better than a 45. Having said that, I have both, and then some. Plus a fair amount of gold. Not in Idaho though. Wherever you are, G&Gs; makes sense.

    1. I would take an M14. Nice caliber and great range, semi automatic. But even a good bolt action 8 mm Mauser would work well. Yeah, they are bolt action. But man can they reach out and touch something.

      1. I got a slingshot, some copper guttering, and enough ingredients to brew about 20 gallons of beer and a 10 gallons of wine.

    2. Re: rac,

      ARs in almost any caliber (except for those 22 conversions) would be better than a 45.

      How about airsoft AR-15s??? Can they kick ass?

      I am partial to having a good 9mm (Parabellum) and a .30-06 bolt action hunting rifle for 4-legged (and 2-legged, olivedrab-clad) predators, plus a .22LR for small game – just in case.

      Don’t forget silver for small purchases/barters.

    3. The dude’s a Brit. He probably assumes every gun in America is chambered in .45 and produced by Colt… including shotguns

  8. First of all, a small and steady rate of inflation is generally considered a benign thing – worth striving for.

    Second, creating money (which goes on daily) is not necessarily inflationary. Even creating very large amounts of money – if the economy is not at full capacity – is not necessarily inflationary.

    Third, we haven’t been on the gold standard since 1971. It’s time to get over that. Our money has ultimate value only as a credit against Federal tax obligations. That means that different rules apply than would apply in a commodity currency regime.

    http://moslereconomics.com/mandatory-readings/

    1. Re: Draco,

      First of all, a small and steady rate of inflation is generally considered a benign thing – worth striving for.

      Oh, man, I just love these question-begging assertions!

      Like, how small a rate is good, Draco???

      Second, creating money (which goes on daily) is not necessarily inflationary.

      No, of course not. It is placing it in circulation at a steady rate which makes the action inflationary.

      Even creating very large amounts of money – if the economy is not at full capacity – is not necessarily inflationary.

      Another question-begging argument; what does it mean “if the economy is not at full capacity”? The economy is just a phenomenon, not some factory.

      Third, we haven’t been on the gold standard since 1971. It’s time to get over that.

      Actually, the currency has not been on a “gold standard” since the Great Gold Expropriation of 1933. For some reason, you don’t seem to believe gold is money when the very government went to all that trouble to steal everybody’s.

      Our money has ultimate value only as a credit against Federal tax obligations.

      Something like a dog chasing his own tail.

      That means that different rules apply than would apply in a commodity currency regime.

      Just like different rules would have to apply when wishing to fly… no?

      I didn’t think so.

      1. “For some reason, you don’t seem to believe gold is money when the very government went to all that trouble to steal everybody’s.”

        +1000

        I love how everybody looks at the gold standard as some sort of arcane relic, when it is obvious to any student of history that fiat monies exist purely by the force of government violence. Governments have confiscated gold (their money’s competition), threatened violence against people who refused to accept their money as payment, and demanded that all taxes, fines, and fees be paid to them in their money. Without guns, fiat money pretty much falls apart.

      2. +1000 to you generally, sir.

      3. Old Mexican,

        First off, you are the man. Always enjoy and usually agree with your posts.

        But to you and tkwelge: Nixon removed the last vestige of gold convertibility in 1971, so that’s why I used that as the last date of any form of gold standard. So your point about FDR making gold illegal for the private sector to hold is irrelevant at this point, although fascinating history. BTW, Nixon didn’t like the idea of the Saudis trading in their petro dollars for gold in the 1970s – whatever you say about Tricky Dick, you can’t say he was stupid.

        A small and steady inflation is benign, and it is in fact targeted by the Fed, whether Ben admits it or not. This is the view of most economists. It’s far better than a steady deflation , and you’re never going to hit zero in any case. If your money is slowly evaporating if it’s not put to use, you have reason to put it to work. Hence a small and steady inflation being a blessing rather than a curse.

        The important thing is: growing the economy. Without that, all is lost. And that’s what the Democrats never seem to understand.

        1. “If your money is slowly evaporating if it’s not put to use, you have reason to put it to work.”

          I’m not an economist, but aren’t there possibly times when not putting your discretionary funds “to work” is the prudent course of action?

          Or is the argument that saving money is never a good idea? That seems far fetched to me, particularly since a whole bunch of people in 2006 would have been far better off doing that than what they actually did.

          Furthermore doesn’t a steady rate of inflation encourage you to spend money you _don’t_ have as well?

          1. Of course that is correct, Voros. Keynesian are not economist, they are third rate mathematicians, at best, whose formulas count savings as spillage instead of operationally efficient (as opposed to borrowing) capital formation.

        2. Re: Draco,

          Nixon removed the last vestige of gold convertibility in 1971, so that’s why I used that as the last date of any form of gold standard.

          That may be so but once the FDR administration made it illegal for people to do commerce and contracting in gold, the “gold standard” was dead.

          BTW, Nixon didn’t like the idea of the Saudis trading in their petro dollars for gold in the 1970s – whatever you say about Tricky Dick, you can’t say he was stupid.

          It wasn’t the Saudis – the US Gov was simply going back in their promise to pay in gold what they had borrowed from everybody else. Nixon was not stupid, but that does not mean he was not a liar and a cheat.

          A small and steady inflation is benign, and it is in fact targeted by the Fed, whether Ben admits it or not. This is the view of most economists.

          I don’t back up assertions like that by arguing from authority. Saying such things as “a small and steady inflation rate is benign” makes no more objective sense than saying “a spoonfull of sugar helps the medicine go down.”

          It’s far better than a steady deflation[…]

          Why? What’s the reason? Why is deflation a bad thing? In terms of gold, computers have been going down in cost allowing more people to own one. This “deflationary” process is the result of higher productive output through higher division of labor, and competition. Why is this bad, and why would making things more costly (by making the currency less valuable) be good?

          If your money is slowly evaporating if it’s not put to use, you have reason to put it to work. Hence a small and steady inflation being a blessing rather than a curse.

          But that can only be your opinion, Draco. Why would you think it is better to COMPEL people, by force, to invest their money? What makes a Fed chairman more clever than the people holding their own money?

          The problem with these assertions is that you end up giving ammunition to interventionists – give them an inch, and they will take a mile.

          1. Why would you think it is better to COMPEL people, by force, to invest their money?

            That’s so people can be paid back with dollars that have less purchasing power.

        3. “Nixon removed the last vestige of gold convertibility in 1971, so that’s why I used that as the last date of any form of gold standard. So your point about FDR making gold illegal for the private sector to hold is irrelevant at this point, although fascinating history.”

          The Gold standard has been dead since WW1. Even before then, it was being stretched and “tweaked” in all sorts of negative ways. The bretton woods sham had to die sooner or later. It was only a matter of time before other nations realized that there was no way that the US could meet large numbers of requests to convert dollars to gold. The expansion of dollars made that an unrealizable fantasy.

          “A small and steady inflation is benign,”

          Define “small and steady.” If inflation is pegged at 0%, that seems too high to me considering that the natural rate should be negative much of the time.

          “It’s far better than a steady deflation ,”

          How so? The US experienced steady deflation throughout the 1800’s with the exception of the inflation of the civil war. The economy and quality of life expanded nicely during that time period.

    2. 1) It’s generally held that 2-3 percent in a Keynesian model will boost the labor market if nominal wages are downwardly sticky by lowering real wages. (note the assumptions in that sentence, they are kind of important)

      2) Since your first statement is predicated on the Simple Keynesian Model I’m going to assume you don’t agree with the Quantitative Theory of Money, even though it’s held true more times than not.

      3) Indeed different rule apply, that may be what is at issue here.

      1. I agree with Modern Monetary Theory (MMT) if that isn’t blindingly obvious by now. Warren Mosler’s site is a pretty good place to learn more about it. Wikipedia has it listed under Chartalism.

        I am a convert from Milton Friedman’s monetarism.

        1. MMT ignores the same thing Keynes likes to ignore. Government sucks ass at doing anything efficiently, or more appropriately anywhere nearly as efficiently as a market. Because humans, especially those with asymmetric information and power, have motivations and are assholes.

          1. I’m not 100% positive, but wasn’t Mosler one of the people who started mortgage swaps. No wonder he likes the government spending money, he profits from it.

            Right back to the whole human motivation thing.

        2. I think you misspelled “Charlatanism”.

          Wink.

        3. So you’re in favor of exponential money gowth. Like so many humans before you, you have failed to understand the dangers of compounding.

          Hell. At a 2% growth rate, a dollar that a poor sap 20 year old saves in the bank is worth 50 odd cents by the time she’s a retiree. So, why save? That then creates the social motivation for ponzi schemes like social security and medicare.

    3. First of all, a small and steady rate of inflation is generally considered a benign thing – worth striving for.

      You left off “by statists” at the end of that sentence.

      The best economic policy is as stable a currency as you can achieve — 0%.

      1. Why? Deflation is the natural consequence of technological improvement. And the mechanism of inflation is to expropriate money from the poor and siphon it to the rich. So what you are doing by creating correctional inflation is your are robbing society of the fruits of innovation and rewarding politically and economically-connected rent seekers.

    4. Second, creating money (which goes on daily) is not necessarily inflationary. Even creating very large amounts of money – if the economy is not at full capacity – is not necessarily inflationary.

      Sort of true. Creating money is M0, while inflation is a measure of change in M2 (or etc, your choice, M2 makes most sense). Howevere, a giant increase in M0 will eventually lead to a giant increase in M2 once the economy recovers, it is unavoidable, unless the Fed pulls a bunch of money out of the system, which they arent going to do.

      We WILL have massive inflation.

      1. Here is M2.

        To keep M2 from crashing, it took a more than doubling of M0. But, that leads to only two possible results:

        1. The economy recovers, business thrives, velocity of money reverts and we get massive inflation as all that extra M0 gets multiplied.

        2. The Fed keeps inflation down, dropping us back into recession every time we come close to getting out and we have a decade of suck as we slowly bleed M0 into M2. A dodeca-dipped recession.

        ONLY TWO FUCKING CHOICES.

        Well, I guess the Fed could pull some of that M0 back out, but that isnt going to happen.

    5. First of all, a small and steady rate of inflation is generally considered a benign thing – worth striving for.

      not by me motherfucker. I’ll take small and steady deflation. If we are getting more productive, shit should get cheaper, not more expensive.

  9. One T in Chateau Lafite-Rothschild (almost certainly the meaning here)
    Two Ts in Chateau Smith-Haut-Lafitte

    Carry on.

  10. These statements are belied by 100 percent of Bernanke’s behavior and by thousands of pages of his published work, the gist of which is that recovery from the 1930s depression came, in turn, to each country that went off the gold standard and began seriously devaluing its currency.

    Yeah . . . that explains how Zimbawbe is such a fabulously wealthy nation . . .

    Only a crackpot like Bernanke would seriously argue that policies which destroy people’s savings actually create prosperity or recovery.

    1. Straw man. Ben doesn’t want to destroy people’s savings. He wants to put enough money into people’s hands to bring the nation back to full capacity and productivity. You can disagree with him about whether or not that will work, and how it should best be implemented (I think a payroll tax holiday is best), but please don’t accuse him of wanting to create hyperinflation or destroy our savings.

      And please don’t compare the US Fed to the Zimbabwean central bank.

      1. So inflation rate > savings interest rate != less real money in your world?

      2. Re: Draco,

        Ben doesn’t want to destroy people’s savings. He wants to put enough money into people’s hands to bring the nation back to full capacity and productivity.

        Several things, Draco:

        a) Bernanke is not giving money to anybody.
        b) FRNs are not the same as resources or assets.
        c) The “nation” is not a factory. This “aggregate” talk is nonsense.
        d) The result of increasing the money supply is the lowering of its purchasing power. This LOWERS the value of savings, there’s NO WAY around that.

        This is something you said above:

        “If your money is slowly evaporating if it’s not put to use, you have reason to put it to work. Hence a small and steady inflation being a blessing rather than a curse.”

        You’re accepting that inflation erodes the value of savings and thus compels people to invest (or do something.) So I don’t understand why would you object when I point out this very process when talking about Bernanker’s actions – he IS destroying our savings by printing more money, IF our savings are in FRNs.

        And please don’t compare the US Fed to the Zimbabwean central bank.

        Why not? They’re acting on the same theory.

  11. but at some point all those new dollars in circulation will have to boost milk up to $10 a gallon, right? That won’t be inflation, of course, because core CPI doesn’t count food and energy prices, so it will be like it never happened.

    Dammit Cavanaugh. You almost made me destroy my keyboard again.

    Also, let me reiterate that if you try to show me Rowan Atkinson’s junk one more time, I will have to end you.

  12. Inflation is a subtle tax. So that’s why a statist who works for the feds is upset that they haven’t been able to capture much of that tax lately.

  13. Quantitative Easing: The government-sector equivalent of counterfeiting.

  14. At least you don’t have a picture of Bernanke eating hot dogs alongside that picture of Krugman drinking beer.

  15. Real hyperinflation in the US is kind of a far off fantasy.

    Hyperinflation occurs when there is a loss of confidence in currency. I think the US currency is much closer to a crisis than you do.

    We are already devaluing the dollar by policy. We are issuing massive debt and have enormous rollover risk, meaning that much of our debt will be (a) monetized and (b) rolled over at higher interest rates. IOW, the Treasury market will collapse.

    A collapsing Treasury market, a devaluing dollar, huge new issuances of dollars – all that adds up to a currency collapse, and hyperinflation.

    1. The US has a way to go until seigniorage and inflation tax are the only way for it raise money.

    2. Though hyperinflation is a remote to slightly improbable possibility, I expect the immediate future (4-10 years down the road) to be several degrees worse than what we experienced in the 1970s which was quite shitty.

    3. Though, as a technical matter, you described it perfectly. You don’t need Weimar Republic levels of inflation to get to the hyper, do you? Since there is no immediate term between inflation and hyperinflation, you are most likely using it as it is correctly denoted, instead of the connotations implied with hyperinflation (wheel barrels full of money to buy groceries). My mistake then, not yours.

  16. Wait. Back up. Someone respects Ambrose Evans-Pritchard?

  17. Wait. Back up. Someone respects Ambrose Evans-Pritchard?

    Its that Strange New Respect that people get when they switch sides.

  18. Well, the federal government thinks it has a mandate to prevent people’s stock market investments from losing value, so this is hardly surprising.

  19. I kept reading Krugerrands as Kruggernuts.

    I think I might be on to something, selling gold coins called Kruggernuts.

  20. I want to buy Krugerrands gold coin.But i have not any storage solution for this.I am searching a bank.Can FNB give me solution of this problem.

  21. Thanks for sharing this post! The Krugerrand ? my favorite currency.Folks can save from many threats like bank failure,terror attacks by buying and selling gold coin.Gold coin has liquidity.

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