Economics

Ben Bernanke's Made-Up Money

With its new round of quantitative easing, the Fed enters uncharted territory.

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If one were to predict potential policy-driven political squabbles, a dust-up about monetary policy between Federal Reserve Chairman Ben Bernanke and Sarah Palin—conducted partially via Facebook—would likely be pretty far down the list.

Nevertheless, it happened. Last week, Bernanke announced that the Federal Reserve would expand the money supply by $600 billion over the next six months through a policy of "quantitative easing"—essentially creating new money and using it to buy up Treasury bonds—or QE2. President Barack Obama supported the move, which is intended to lower interest rates and, as a result, prod investors to spend more money now, while borrowing is cheap. Palin responded by arguing that the policy wouldn't increase lending, but might lead us into an inflationary spiral by flooding the market with extra dollars, thus devaluing the currency.

Not surprisingly, Palin got crucial details wrong. And no doubt she was motivated as much by political opposition to the president as a conviction about the proper role of the Fed. But Bernanke's new policy is risky and untested—and has already sparked legitimate inflationary fears at home and abroad. 

One simplified way to describe how this round of quantitative easing will work is this: The Fed doles out $600 billion in made-up money to the world's biggest banks, who make a tidy profit on the sale and then split that profit up into bonuses. As Reuters financial blogger Felix Salmon writes, "We're not exactly helping the unemployed here."  

The actual process is slightly more complicated, but not much more appealing. Once the members of the Federal Open Market Committee vote to buy additional bonds, the Fed schedules a series of sales, and notifies the banks on its list of primary dealers—18 very large banks. Those banks then buy up bonds with the intention of selling them at higher rates to the Fed. And then when the scheduled sales come around, they trade their store of bonds for money that the Fed has newly created, as The Washington Post explained, "essentially out of thin air." Interest rates go down. Inflation goes up. Investors, knowing that money is cheap now and might not be worth as much later, start to spend. The economy gets back in gear.

At least that's the idea. It's not the first time the Fed has pursued the QE strategy (hence QE2), and the first go-round wasn't an obvious success. When the financial crisis first landed, the Fed pumped $1.7 trillion into the system, yet failed to lift the economy out of its sluggish state. By the time this round of quantitative easing ends, the Fed will have added almost $3 trillion to the money supply—and that's if it quits with $600 billion. The Fed's first round was originally supposed to total just $1 trillion; the second round could easily expand beyond the initial plan as well.  

One major worry is that all that extra currency will only lead to out of control inflation. That was the gist of Palin's argument against the Fed's decision. She declared that food prices "have risen significantly over the past year or so." As The Wall Street Journal's Sudeep Reddy has pointed out, that's wrong (food price inflation has been extremely tame over the last year), as was Palin's follow-up defense of her statement. But food prices, now growing at around 0.5 percent, are projected to grow more steadily in 2011—somewhere between 2 and 3 percent. That's not an unreasonable level. And so far, inflation has stayed on a manageable trajectory. But inflationary spirals don't tend to announce themselves at the door, and there are some signs that recent inflation in commodity prices is a result of Fed policy. The lone member of the Federal Open Market Committee to dissent from the policy did so in part because of worries about inflation. As economist Joseph Stiglitz recently told The Washington Post, the policy puts the U.S. in "uncharted territory." Long-run, the inflation picture is tough to predict.

In general, the outlook on this round of quantitative easing is anxious uncertainty. International reaction has been negative. China has been particularly peeved, with one Chinese ratings firm actually downgrading U.S. debt. And the usual ideological dividing lines aren't entirely holding up. Tyler Cowen, a George Mason economics professor with a libertarian bent, says that, although he's not sure it will work, it "may do some good." The Wall Street Journal's editorial board has speculated that Milton Friedman might have supported the policy. Meanwhile, economic historian Robert Higgs, a senior fellow at the Independent Institue, blames Bernanke for the "zombification of High Finance," and the Cato Institute's Alan Reynolds argues that Bernanke is "risking higher interest rates and inflated commodity costs in the pursuit of the contradictory objectives." Even some liberal economists of the more-stimulus-now school have suggested that it probably won't have a major stimulative impact. In short, there's no clear consensus on the merits of quantitative easing, but the Fed is moving forward with the policy anyway.

That lack of consensus may be why arguments in favor of the policy sometimes seem a tad bit self-justifying. When mathematicians—or at least grad student wannabes—put together proofs, they sometimes stick the letters QED at the end. It's an abbreviation for the Latin phrase quod erat demonstrandum, which roughly translates to "which was to be demonstrated." And if they're feeling particularly defiant, having perhaps proved a colleague wrong, they're sometimes known to add the word motherfucker at the end. More broadly, it's become a way for nerds to snidely exclaim, "See! I was right!"

There's a similar sentiment behind arguments for the Fed's new policy, a simplified version of which goes something like this: Quantitative easing is probably a good idea. Why? Because we need to do something to increase economic activity. Fiscal stimulus is off the table for political reasons (at least). Inflation has been running a little low, which makes it an obvious policy lever. Expanding the monetary supply—and thus spurring on inflation— may not do much, but it's what can be done. And that means that, well, quantitative easing is a good idea. QE2, motherfucker!

Peter Suderman is an associate editor at Reason magazine.

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  1. Is that his head or is his neck blowing a bubble?

  2. If the administration is serious about making its economic policies clear to The American People?, it should allow Ron Paul to question Bernanke and Geithner on live television.

    1. Well, OK, but only if it’s pay-per-view.

    2. Its happened. Go to youtube to find it.

      Ron Paul made a fool of himself accusing the Fed of funding Watergate and Saddam Hussein in the 80’s. Bernanke fittingly called his conspiracy theories “bizarre”.

      Geithner was questioned on a different day.

      1. Fun to watch Shrike defend Bernanke. Next he will be extolling the virtues of the great W Bush.

        1. All shriek cares about is his stock portfolio. Liberty be damned.

    3. In fact, Ron Paul just doubled down on his loony theories in a Lew Rockwell column.

      http://www.lewrockwell.com/paul/paul644.html

      1. Well, shriek, then you shouldn’t have a problem with the Fed being audited to disprove those loony theories.

        1. Deloitte conducts an annual audit of the Federal Reserve.

          RP doesn’t want an audit. He wants to drive from the back seat of Congress to scrutinize FOMC decisions.

          Of course that would be a disaster – 535 Congress Idiots telling the FOMC how to manage the banking system.

          Now, truth be told, Greenspan was awful with his “markets always self-correct” nonsense and has admitted such now. His comments were kind of child-like as if he had learned something at 80ish (which he had).

          1. RP doesn’t want an audit. He wants to drive from the back seat of Congress to scrutinize FOMC decisions.

            Scrutinizing FOMC decisions? You mean like auditing them?

            Of course that would be a disaster – 535 Congress Idiots telling the FOMC how to manage the banking system.

            No more of a disaster than the FOMC managing the banking system, shriek.

            Besides, I’m pretty sure Paul wants to get rid of the FOMC, not drive it.

            Now, truth be told, Greenspan was awful with his “markets always self-correct” nonsense and has admitted such now. His comments were kind of child-like as if he had learned something at 80ish (which he had).

            I’m not even going to ask what this has to do with Ron Paul, but Greenspan was a hack who sucked up to free-marketers while intervening in the market.

    4. Not going to happen. We don’t want anyone messing with our cash cow.

      http://youareproperty.blogspot…..ation.html

  3. The QED joke was a bit forced, but I appreciate attempts at math humor anyway.

    1. If you have to explain a joke…

  4. I think I’ll hold off on any analysis of this article until commander has weighed in. Anything else would be premature.

    1. Do you supposed commander is Joad Cressbeckler?

      1. Joad is too refined to be commander.

    2. Excuse me, but it’s THE COMMANDER.

  5. Weimar Germany tried printing more money, and more, and more. How’d that work out?

    1. Wheelbarrows were selling like hotcakes. But hotcakes cost something like two three four millions marks each.

      1. I think I’m going to make lots and lots of hotcakes in anticipation.

      2. Employers started paying their workers twice a day so that the employees would have a chance to spend their bundles of paper on something- anything- before it devalued further. A wheelbarrow-load of coal or potatoes or axe-handles would at least retain value and could be bartered for other stuff.

  6. “But as Associate Editor Peter Suderman writes, Bernanke’s new policy is risky and untested” and, according to the Wall Street Journal, something that Milton Friedman probably would have approved of (you left out that part).

    1. That was in one article. The wsj then printed numerous letters and columns explaining how it was a pile of bullshit.

  7. My position was simple enough; plain enough. How could it ever be simplified more? However I must try.

    >”Why look here brother Dowley don’t you see? Your wages are merely higher than ours in name not in fact.”

    >>”Hear him! They are the double ye have confessed it yourself!”

    >”Yes yes I don’t deny that at all. But that’s got nothing to do with it – the amount of the wages in mere coins with meaningless names attached to them to know them by – has got nothing to do with it. The thing is how much can you buy with your wages – that’s the idea.”

    1. AMEN, brother. That chapter of Twain should be required reading in every school in the land.

  8. i’m no palin supporter, i just like to look at her, but to say “Not surprisingly, Palin got crucial details wrong.” is horseshit. she said food prices “have risen significantly over the past year or so.” and the rebuttal is to rely on the Labor dept saying 0.6% and the Commerce department saying 1.3%. Well there you have it. One dept is over 100% higher than the other. Shall we get Homeland security to comment? How about Dept of Ag? These are the same fucks who ogle you at the airport. C’mon if Nick wants my $100, you guys need to counter Palin with something other than the Commerce Dept. The Commerce Dept? The Commerce Dept?

    1. A little support on food stuff price increases: http://www.caseyresearch.com/e…..175ED1010A

    2. everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. is a statement of perception. To test the “accuracy” one might poll people who buy groceries and ask: “Would you say food prices over the past year or so have:”
      A.dropped significantly
      B. dropped slightly
      C. remained about the same
      D.risen slightly
      E. risen significantly

      my money is on “E” as the most common answer.

      First, shoppers will notice higher highs much more than a price falling to what it was a few years ago.

      Second, and more to the point about the accuracy of the statement aside from perception is the imprecise “or so”. If one takes that as meaning “the last few years” prices as reflected in BLS data have risen significantly.

      Third, throwing out the upper quintile of earners what have food prices done in relation to % of?
      income?

      Fourth, have you bought bacon lately? or onions last Spring? Holy Shit! Retail prices are through the roof.
      Of course the theoretical BLS shopper just substitutes Soylent Green for the higher priced items.

      1. My grocery bill is substantially higher than it was a year ago.

        The CPI is complete bullshit. Steak prices up 20% well then you switch to hamburger and gee no inflation.

        Yeah right.

      2. In order to be significant, you have to show that repeated trials results in a p value lower than what you set out as your standard of significance.

        As a one-off event, this is not significant.

        1. “As a one-off event, this is not significant”.

          Not signigicant? My one-off event happened on my wedding night and since it was a one-off and she started quoting Poe, like some kind of buzzard turned raven; she ended saying Nevermore.

      3. The problem is that the metrics do not account for quality or other important metrics.
        Why, just last night I was commenting (I live alone, but I have a hot imaginary Asian wife) that our Soylent Green was sure tough and stringy, unlike the rich well marbled Soylent Green of a few years back.
        My imaginary wife replied that my penis was too small…

    3. I?m sure Palin, who probably knows f*ck all about economics, got details wrong, but you don?t need a phd in econ to realize that these magic tricks the fed pulls are desperate gimmicks to create the illusion of wealth and prosperity, just as a layman without a cpa can read company statements and realize accountants are twisting company figures to make them show a profit.

      Bernarke?s (new and improved) policies are “risky and untested”? Forget his details, WTF about his track record?

  9. It overwhelms the mind to see the words “just” and “1 trillion dollars” in the same sentence.

    1. I don’t agree. Please give me just $1 trillion. See? That makes perfect sense to me, unless you’re willing to give me $2 trillion.

    2. The brace yourself for just 1 quadrillion dollars, just 1 pentillion dollars, just 1 hexillion dollars, just 1 septillion dollars, just 1 octillion dollars…

      1. ah, that explains The Google’s stock price!

        1. It makes sense, as Google’s very name derives from an insanely friggin’ huge number.

      2. In fact, the Bureau of Standards has announced a new unit for measuring the debt, the Barackillion, defined as 1 times ten to the infinite power.

  10. “Not surprisingly”

    You are so cool! Look at you!

  11. Sorry Pete, but you need to do a little more research in your post here. You got a bunch wrong in your analysis.

    One major worry is that all that extra currency will only lead to out of control inflation. That was the gist of Palin’s argument against the Fed’s decision. She declared that food prices “have risen significantly over the past year or so.” As The Wall Street Journal’s Sudeep Reddy has pointed out, that’s wrong (food price inflation has been extremely tame over the last year), as was Palin’s follow-up defense of her statement.

    The journal reporter was wrong to say that inflation hasn’t gone up therefore this hasn’t affected food prices yet. Palin was right. And the Journal actually released a story earlier that detailed the following-

    “Food Sellers Grit Teeth, Raise Prices: Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.”
    The article noted that “an inflationary tide is beginning to ripple through America’s supermarkets and restaurants?Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months.”

    Pay attention Suderman, you look dumber than Palin right now.

    1. Food prices have risen in the last few months but are well below 2008 highs.

      Kind of like crude oil is $85ish and was over $145 in 2008.

      Commodities fluctuate. Given that, a tick up is not an indicator of inflation.

      The best indicator of inflation is in Treasury prices. 10-yrs say inflation will be around 2% for a decade. Treasury buyers say that Palin is her normal clueless self.

      1. Food prices have risen in the last few months but are well below 2008 highs.

        No, they are not.

        The agriculture department on Tuesday cut estimates of US corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925. ?
        Benchmark Chicago corn futures soared above $6 a bushel for the first time since August 2008, before ending lower. Soyabeans rose 4.3 per cent and New York cotton futures posted a record above $1.51 a pound. The price rises have revived fears of a repeat of the global food crisis of 2007-08.
        In Europe, milling wheat surpassed a peak reached after Russia banned grain exports in August in response to a devastating drought.

        Well below, eh? Now both you and Suderman look stupider than Palin. Congratulations.

        1. Corn hit $7.25 a bushel in 2008 and is affected this year by weather and embargos yet is still below $6.

          Natural gas is 1/3 of 06-07 highs – due in part to increased production ($4 today).

          Fluctuation in demand and production does NOT equate to inflation.

          What are you, some kind of fucking goldbug? Or just a Palin fan?

          1. Corn hit $7.25 a bushel in 2008 and is affected this year by weather and embargos yet is still below $6.

            But still considerably higher than it should be and not “well below” 2008 highs. The average price for the past 20 years is well below $5 a bushel, even with the records set in 2008.

            Fluctuation in demand and production does NOT equate to inflation.

            No, but what DOES equate to inflation is more dollars chasing roughly the same amount of production, which is what Palin and the editorial board of the WSJ have been saying.

          2. my natural gas bill is not 1/3 of what is was in 06-07 you stupid f%$k. neither is my electric bill. neither is my car, health, or homeowners insurance. neither is the grocery bill you numbskull. what do you work for some f*&king; gubmint agency?

      2. Re: shrike,

        The best indicator of inflation is in Treasury prices.

        Which tells me you have a very tenuous grasp of what “inflation” means.

        10-yrs say inflation will be around 2% for a decade.

        Try selling that one to your mommy, maybe she’ll believe it as well.

        1. Apparently shriek doesn’t remember all the talk of “real” interest rates in the late 70s and early 80s.

      3. My Safeway has Treasury Bills on sale in the same aisle as mother’s hugs, hand jobs and accupuncture. Just don’t come on the day they’re short staffed and one person is charged with ‘handling’ the first two services.

        1. or the second two… it was fun for a while, but my dick looks like a shower head when I piss…

        2. There’s nothing worse than a sticky-fingered acupuncturist.

    2. I noticed the same thing while talking to a “steel purchaser” a few weeks ago. I mentioned that commodity prices were up 10 to 20% since January. He stated that the price of steel had been $2/lb. for the entire year. I was surprised, and he explained that the steel producers had tried to raise prices earlier in the year, but everyone sat on their hands and refused to buy. In other words, demand is weak, masking the fact that our currency is also weakening. At some point, the producers won’t be able to eat the increased costs. They’ll be forced to declare bankruptcy or scale back operations.

      That is, I suspect, when all hell breaks loose.

      1. The bigger problem is that the QE2 is essentially the final maxing of the National credit card. It won’t fix the systemic problem of spending vs. income that doesn’t ever seem to get fixed, but it will lower the value of the dollar enough that everything will cost more. And considering the job market and failure of wage increases to match the increase in prices, it’s not a pretty picture.

      2. demand is weak, masking the fact that our currency is also weakening.

        +10

        1. stagflation

      3. margin compression takes time…I think that’s what you are saying…and when you operate in spaces where margins are already thin (say, things like food and energy) when they get compressed to zero then either prices rise or businesses go bankrupt.

    3. Just to pile on here is what huffington post said in april:

      Food prices jumped by 2.4 percent in March, the most since January 1984. Vegetable prices soared by more than 49 percent, the most in 15 years. A cold snap wiped out much of Florida’s tomato and other vegetable crops at the beginning of this year.

      Gasoline prices rose 2.1 percent, the department said, the fifth rise in six months.

      In the past year, wholesale prices are up 6 percent, with much of that increase driven by higher oil and other commodity prices.

      http://www.huffingtonpost.com/…..49401.html

    4. Palin is wrong.

      Increased food prices will put pressure on the general public. There will be short-term inflation, but the general trend will be deflation. The private debt markets still far exceed the public debt – there is a long way to go. As food and fuel prices go up, that puts pressure to pay down debt or to default, both deflationary trends.

      Of course the Krugbot will still claim that he was right all along, even when his policies would have only accelerated the quickening.

      In the very long term, I see government continuing QE in the face of the above described deflation resulting in hyperinflation.

      1. “The private debt markets still far exceed the public debt – there is a long way to go.”
        I am wondering – where does one go to find the amount of debt that the private sector owes?

  12. Interest rates go down. Inflation goes up.

    the only problem with this claim is that the Phillips curve was broken over 30 years ago with stagflation.

    1. They fixed it apparently. Superglue does wonders.

  13. But food prices, now growing at around 0.5 percent, are projected to grow more steadily in 2011

    Now” growing at 0.5%? How much did they grow from 2007 till now?

    Seriously Pete…do not become the new Weigel…plenty of ways to make fun of Palin without making shit up.

    1. But she’s a Republican. All good Reasoners know that Republicans deserve to be punished.

      Get it straight. ObamaCare is far superior to Palin-idiocy.

      1. Scrooge was a Democrat? That doesn’t seem like him, caring about the children and whatnot. Maybe you are reformed Scrooge.

  14. Palin responded [to Bernanke’s announcement] by arguing that the policy wouldn’t increase lending, but might lead us into an inflationary spiral by flooding the market with extra dollars, thus devaluing the currency.

    Not surprisingly, Palin got crucial details wrong.

    Yes, for instance, it is not an inflationary spiral we’re being led to, it is a whirpool – that’s a big difference, very crucial.

    She [Pailn] declared that food prices “have risen significantly over the past year or so.” As The Wall Street Journal’s Sudeep Reddy has pointed out, that’s wrong (food price inflation has been extremely tame over the last year), as was Palin’s follow-up defense of her statement.

    “Tame” having a totally different meaning from what one finds in Webster’s. Shadowstats.com places inflation at 8.27%

    But food prices, now growing at around 0.5 percent, are projected to grow more steadily in 2011?somewhere between 2 and 3 percent[…]

    “… somewhere else except the USA, of course.”

    1. I think the entire point of Suderman’s article was to try and make him look good, and Palin bad.

      FAIL.

  15. So, right now, banks, businesses and individuals are sitting on stocks of cash as a hedge against uncertainty. Right? Liquidity is a hedge against uncertainty, and the economic (and regulatory) environment is very uncertain. So right now, the money getting pumped into the economy is sitting idle, because people are afraid to spend, lend, and invest.

    So what happens when uncertainty eases? When all this money starts getting spent, won’t we have many, many more dollars chasing roughly the same amount of production? Doesn’t that equal inflation?

    1. I’ll have you know that I don’t sit on my money. I put in in boxes and drive it around all day in a skid loader from one side of the warehouse to the other. Sitting is just not productive.

  16. Inflation has been running a little low, which makes it an obvious policy lever.

    so while the democrats jump up and down on the car that Bush (Fannie and Freddy should not have been allowed in the front seat so close to the steering wheel) drove into a ditch the Fed walks over the H-bomb in the trunk and pushes the first button he sees thinking to himself “haven’t tried this yet.”

  17. Two thoughts:

    The actual amount of QE that the Fed is committed to is more like $900BB.

    Inflation is here, now, all across the commodity sector. Overseas demand isn’t particularly weak, and the CCI is on a nice steady increase. Those increased input costs will have two affects in this country:

    (1) Higher prices, especially for food and fuel (oil has broken out of its trading range in the $70s and now sits comfortably above $85.

    (2) Margin compression. The input costs for US companies are going up, but they can’t raise prices enough to cover these costs due to our weak economy. Result: their profit margins will go down, and you can expect the stock market to react accordingly.

    What is going on here is straight-out debt monetization. Bernanke is buying debt with freshly printed dollars, from the very same people we are selling debt to. Its crude money laundering. Most of this year’s deficit will be monetized.

    Think about that, and what it means for our future.

  18. Even leaving aside the unintended consequencies, the rationales Bernanke offers in his WP article don’t hold up.

    Fending off a Liquidity Trap – Useless if it works as expected, since it generates inflationary pressure by increasing the money supply but at the same time drives down the real interest rate – and since both factors contribute equallly to the nominal interest rate, which needs to be kept above zero, it’s a wash. People will just sit on cash because the default risk is higher than the interest rate than because deflation makes it more valuable than investment.

    Increasing Lending – Unlikely to work. Interest rates are very low by historical standards, even in light of low inflation. Lending at this point is much more likely to be constrained by default risk rather than a scarcity of liquidity, especially in light of the persistent low growth and how much cash has been pumped into the banking system over the last 2 years.

    Increased spending via a wealth effect generated from driving up stock prices – Yes, because the last asset bubble facilitated by loose monetary policy unravelled itself so gracefully in the end. I’m not saying that suffering an inability to form new memories like the guy in Momento should disqualify you from running the Fed, Ben, but you’ve really got to work on keeping those tattoos up to date.

    1. “Increased spending via a wealth effect generated from driving up stock prices – Yes, because the last asset bubble facilitated by loose monetary policy unravelled itself so gracefully in the end. I’m not saying that suffering an inability to form new memories like the guy in Momento should disqualify you from running the Fed, Ben, but you’ve really got to work on keeping those tattoos up to date.”

      Nice

    2. Sad to say, the business sector is in bunker mode due to regime uncertainty- a term in the past used to apply to investment in places like Venezuela and Zimbabwe, but never before really applicable to the USA (OK, maybe California).

      And it isn’t going to get any better: the advent of EPA CO2 regulation in January, by EPA’s own admission, will result in *zero* permitting for two years as they get the system in place. Basdically a 2-year construction moratorium on the entire manufacturing and energy sectors.

      This is neither a recession nor a depression: it’s a repression.

  19. I’m not convinced that food inflation has stayed low.

    couple issues … I think that food prices at fast food places have risen significantly, though that is probably attributable to the increase in the minimum wage.

    Supermarkets, it’s also hard to say. I shop the discount prices usually (the shoppers card prices), and I think that the marked down price has been rising significantly. This is against more for processed foods. Milk and veggies have been fairly constant. But canned goods and packed foods are going up.

  20. My God, Suderman is an idiot.

  21. Zimbabwe printed off money to finance it’s own debt and deficit spending too. Fat lot of good it did them.

    1. But you forget. Everyone in Zimbabwe is now Quadruplezillionaires.

  22. I don’t get why the banks get the benefit of all this newly printed money. Am I wrong in thinking that if the cash was given to tax payers, or rather given to the government in lieu of taxes allowing tax payers to keep their own money, wouldn’t that stimulate the economy more better?

    1. If you’re a net debtor you’re better off. If you’re a net creditor, you’re not.

    2. Because our banking system is top-down. Banks are given access to new money; the rest of us have to work (basically for the banks) to get any of it.

  23. I don’t get why the banks get the benefit of all this newly printed money.

    The newly printed money is being used by the Fed to buy up T-bills and notes that currently bear low interest rates. Not sure how the bank capitalization rules work (calling domo arrigato), but the banks may be happy to lay off their low interest investments in t-bills and notes in exchange for cash, which they can use for higher-interest loans/investments.

  24. I wonder how the folks at Cunard feel about Ben tarnishing their great ocean liner by calling this farce QE2.

    On another note, I wonder if anyone will even notice if I just start printing my own money.

    I think the federal government should create a law that requires every citizen to have a color copier so that we can decentralize the stimulus effort by empowering everyday people to help the fed print money.

  25. The details exist entirely for obfuscation. Even repeating them only furthers the obscurantist rhetoric. You need to slam the big picture in their face and not give them one single inch to cloud what is going on. The Fed is printing money. Period.

  26. Is it just me, or does everyone else hear the theme music from Pee Wee’s Big Adventure when anyone talks about the fed these days???

    http://music.aol.com/song/breakfast-machine/4264034

  27. Expand the money supply? Didn’t Germany do that one time and inflation got so bad they were paying a billion Reichmarks for a loaf of bread over there?

  28. I keep hearing how food prices are tame. I don’t buy it and it leads one to question how the inflation numbers are arrived at. I know personally that foods I normally buy whether dairy or meat have gone up noticeable in price since last year.

    My price gauge is what I call the Dannon Yogurt index. I have to buy tons of the stuff for our restaurant and we often run out which means a trip to walmart for more. Over the last three years the price held steady at about $1.98 – 2.02. It spiked briefly to $2.08 when gas was well over $100 but quickly settled back down. Over the last six months, the price has steadily risen to where it is now at $2.15.

    I know, sounds silly to base perception on one product, however, I am seeing this price rise on many staples that we purchase – flour, meat and dairy (not so much in veggies). When Palin says that prices have been increasing, she may simply be tapping into something the average joe is seeing that is not being caught by the bean counters.

    Or maybe I am just shopping in the wrong places.

    1. I think some other commenters hit on this upthread, but the Consumer Price Index is being gamed by substituting items which have gone up in price with cheaper items.

    2. Plus there have been substantial advancements in the quality of Yogurt. I know because Jamie Lee Curtis told me. So even though it has the same mass as the yougurt you used to buy, it is 5% better. So if the price just stays the same, we are actually already in a deflationary liquidity spiral of doom.

  29. The problem with inflation is that it is fiercely difficult (and painful) to derail once it gets going. If inflation balloons up in the next two or three years, are we going to have the will to jack interests rate up to battle it? During a presidential campaign? This is like using fire to mow your lawn.

  30. I’m not a Palin apologist and I haven’t read all the Facebook posts. But the one I did read surprised me in its apt analogy. While a lot of people even intelligent academic folks are saying the Fed is printing dollars they are not in fact. They are creating MB with electronic transfers to PDs. In time the increase in MB may lead to an increase in M1/M2 but only if demand increases.

    Palin said that the Fed is “priming the pump” which I noted was a good analogy as opposed to saying “their printing dollars!”

  31. I love stuff like, “Not surprisingly, Palin got crucial details wrong.” Yeah she’s just so dim, we are all unsurprised.

    But the implication is that the other people in the story are somehow more reliably intelligent or something. I mean this dude’s printing $600 billion dollars to take out of the productive people’s pockets and pass along to the worst performing section of the economy. And Palin’s the dim bulb here. These people aren’t just dumb, they’re repeating demonstrably failing actions.

    The asides like ‘not surprisingly’ are tiresome. Bernanke is completely off his rocker but yeah her criticism of his disastrous policy choice was embarrassing or lowbrow or something. He’s all educated up or something, obviously, can’t you tell by how successful his policies are.

    1. here here!
      Bernanke is a guy who completely missed the housing bubble, when it was irrefutably in front of him said that is was “contained.”
      Bernanke is reliable – he is 100% wrong 100% of the time.
      Really, read anything that he has said more than a year ago, and it is embarsassing

  32. I’ll enjoy seeing her not renominate Bernake when his term is over.

  33. No, this hyper inflation won’t be good for debtors.

    What makes you fools think that wages will keep up with the inflation? Back in the “good-old-days” we had a production economy, and the workers employed here making, mining, and growing things could pressure their employers to somewhat keep their wages consistent with inflation.

    But now… we have shipped most of that off to other countries…

    We outsourced our wage inflation. You will get all of the fun that is the $11.00 loaf of bread, with NONE of the perks like paying off your house with a day’s wages, because while inflation will go through the roof, your wages will stay static.

    Enjoy.

  34. I wouldn’t worry too much about outsourcing in that scenario. As the dollar loses its value it becomes moot. That isn’t good news, whatever the protectionists think. People aren’t going to buy 30$ t-shirts from wal-mart when they used to be 8$. A large part of our consumption culture is based on the premise that our consumables are very cheap relative to income. Most of what is bought and sold out there simply can’t have its nominal price raised and demand hold up- people will just do without. Nobody ‘needs’ playstations or the newest cell phones or Taylor Swift t-shirts. If they become too expensive they just aren’t bought… certainly not in the numbers necessary to keep them cheep via economy of scale. This makes products even more expensive yet, further weakening our economy in a vicious cycle. THAT is what happened when the protectionists got their way in the depression.

  35. This works out to over $2,000 per person. Wouldn’t it stimulate the economy more if you just gave every person in the US (or every citizen, or every taxpayer) a $2,000 gift card that could only be used on new purchases?

    Think about it…people could use it to buy a new Ford or GM car…go to the movies….eat out….all things that pump money back into the economy, and directly create jobs.

    1. Don’t worry. That’ll be next.
      Ben Bernanke has access to helicopters and he’s not afraid to drop money out of them.

      1. I’m willing to split the money 4 ways if anyone wants to go in on a giant tarp (the kind you use to cover things, not the government action that results in the theft of billions of dollars etc…)

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