DROPPING B.S. FROM HELICOPTERS
Showing yet again that he's unable to approach Alan "The Green Genie" Greenspan's mastery of saying absolutely nothing while waxing prophetic, Federal Reserve Chairman, Ben Bernanke, dropped the Bullshit Ball again.Whereas his predecessor would have described the U.S. Economy as "heating through a cooling cycle," and "giving rise to frothy exuberance while rewarding prudence through a bullish, bear cycle," Bernanke unwittingly revealed the disastrous straits we're sailing into when he said, all too straightforwardly, "It is reasonably clear that the U.S. economy is entering a period of transition. The anticipated moderation of economic growth seems now to be under way."
Translation, for those of you non-fluent in Central Bankese: The economy is screaching to a halt. The recession we feared is coming.
But, as those who've followed this looming nightmare know, it's never been as simple as a straightforward recession, an event the Fed simply prevents by flooding the markets with liquidity. No, the danger of runaway inflation, resulting from the irresponsible increase in the supply of money + credit, hangs over our economy like a blackening storm cloud.
Indeed, Bernanke added, "with the economy now evidently in a period of transition, monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook as implied by incoming information. Given recent developments, the medium-term outlook for inflation will receive particular scrutiny."
Hmmm, let's break that down, one piece at a time. I'll first re-print the relevant portions of Bernanke's words, then allow my Central Bankese Translator, Mucho Dinero, to put it into simple English:
Bernanke: With the economy now evidently in a period of transition . . . ,
Dinero: Since we're totally fucked . . . ,
Bernanke: . . . monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook as implied by incoming information . . .
Dinero: . . . if we don't print tons of money, the economy's gonna fall into a deeper recession . . .
Bernanke: . . . . given recent developments, the medium-term outlook for inflation will receive particular scrutiny.
Dinero: . . . but having added all this money, inflation can't help but skyrocket. I have no idea what to do, other than talk about this in the passive voice, as if it just happened without my influence.
posted by Mike at 3:21 PM
4 Comments:
Thought you'd catch that.
"Fan on high, shit on sloppy"
Indeed it is.
It's a long way down, to meet the fundamentals of what an economy is supposed to be founded on.
When world energy production in 2000 went flat, the wise thing to do would have been to raise interest rates in order to spur investment in physical production and employment.
Instead Greenspan chose to drop rates to nearly Zero, in a vain attempt to preserve wealth for the purely financial sector. This had the predictable effect of ballooning the financial sector by draining the industrial sector of funds. This resulted in inflation, unemployment, bankruptcies, foreclosures, creating bubbles in credit and devaluing the dollar.
You can't have an economy based entirely on ephemeral fantasies. You have to base your economy and currency on real world goods and services. Otherwise in a fiat system, your currency devalues when it outpaces the growth in real world industries.
The gold standard worked well, because it provided limits to currency creation. The experiment in fiat currency appeared to work for a while, because the quantity of money outpaced industrial growth by a small margin.
Once industrial growth ended in 2000, Greespan increased currency growth, so that an increaing quantity of dollars had to chase a fixed quantity of goods and services.
Our economy became a house of cards, made up of mostly financial transactions, trading against financial transactions. New money had to keep chasing investments in money. Ephemeral finance outpaced real world enterprises. The money for industry dried up, while it chased speculative financial instruments that had no corresponding real world assets to back them.
The boundary for all of this was discovered by chemist Frederick Soddy, who was the first to discover that all human endeavors and thus all economies are bounded by available energy.
Available energy, and thus industrial activity is seeing zero growth. Thus the economy's real world value has ceased to grow and has been stuck for years. Our money supply growth should have been frozen with the energy growth freeze.
Now we've built a huge financial risk that requires tremendous industrial growth to pay off. And it's not going to happen. Finance will have to take a hit, in order to correct this, but I expect Bernanke to inflate to keep them afloat instead.
Appointing Paulson to the Fed might give us a clue as to the next bubble they may try to build. Watch for the market to start getting pumped. Rather than produce money for credit at high rates, the Fed may start chumming the stock market. We may see new financial instruments developed, specifically to offload risk into the the stock market.
Then when enough of the common folk have moved their money from safer havens, into the volatile market, the folks in the know will sell out and leave it to collapse.
Nice post at CFN, Mike - things are lookin' pretty shaky on the economic end . . . with almost no industrial output, a shitload of debt (mostly foreign), and a market characterized by more and more 'financial instruments,' all we need is some more of the same . . . running the presses or not, pushing the interest rates higher is sure gonna' hurt a lot of workin' people. But, y'know, the rich gotta' get richer . . . and the poor . . . well, they're the poor.
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