Tuesday, August 29, 2006

DON'T BELIEVE THE HYPE

Last month, when Federal Reserve Chairman Ben Bernanke appeared before Congress, he was questioned rather pointedly by Congressman Ron Paul. Remember, the Fed is supposed to be politically neutral, although it seems clear to many that Bernanke, like his predecessor Greenspan, works rather closely with the Administration to speed up and slow down the economy as they see fit.

Anyhow, Paul questioned Bernanke on the so-called, "Working Group on Financial Markets," or as the rest of us call it, the "Plunge Protection Team." Paul also asked him about inflation, economic growth, and monetary & fiscal policy. The transcript is very short and worth checking out. A few highlights (H/T: Daily Reckoning):

On the Plunge Protection Team:

MR. PAUL: . . . but back to the issue of the meeting. You tell me it meets irregularly, but there are minutes kept, or are there reports made on this group?

MR. BERNANKE: I believe there are records kept by the staff. These are staff mostly from Treasury, but also from the other agencies.

MR. PAUL: And they would be available to us in the committee?

MR. BERNANKE: I don’t know. I am sorry, I don’t know.

(Emphasis added). On inflation, economic growth, and real wages:

MR. PAUL: [A member of the Federal Reserve Board] expressed a relief that the economy was weakening, mainly – inferring that the weakening economy would help contain inflation . . . If this assumption is correct – would you agree that this assumption – that a weaker economy is helpful when you are worried about inflation?

MR. BERNANKE: . . . we need to go to a sustainable pace. We need to have a pace which matches the underlying productive capacity; that will probably be a bit less robust than the last few years, because over the last few years we were also reemploying underutilized resources, and going forward we don’t have that slack to put to work.

MR. PAUL: But if you accept the principle, as it seemed to be in this quote, that if you are worried about inflation, you slow up the economy, and then inflation is brought down, it is lessened, it infers that inflation is caused by economic growth, and I don’t happen to accept that, because most people accept the fact that inflation is really a monetary phenomenon. And it also introduces the notion that growth is bad, and yet I see growth as good. Whether it is 3 or 4 or 5 or 6, if you don’t have monetary inflation, we don’t need to worry, because if you have good growth in the marketplace rather than artificial growth, that it is this growth that causes your productivity to increase. You have an increase in productivity, and it does help bring prices down, but it doesn’t deal with inflation . . . There is a lot of concern about real wages versus nominal wages, but I think it is a characteristic of an economy that is based on fiat currency that is just losing its value that it is inevitable that the real labor goes down. As a matter of fact, Keynes . . . believed that you could get real wages down by inflation, that the nominal wage doesn’t come on and keep the nominal wage up, have the real wage come down and sort of deceive the working man.

MR. BERNANKE: Congressman, I agree with you. Growth doesn’t cause inflation; what causes inflation is monetary conditions or financial conditions that stimulate spending which grows more quickly that the underlying capacity of the economy to produce. Anything that increases the economy to produce, be it greater productivity, greater workforce, other factors that are productive, is only positive. It reduces inflation.

(Emphasis added). The import of this? Bernanke knows inflation is caused by an increase in the supply of money & credit. Yet the government churns out a constant flow of bullshit numbers -- PPI, CPI, Core CPI -- that mean nothing, that are fudged from the get-go. Bernanke knows the so-called Plunge Protection Team manipulates markets, thereby causing inflation, but pretends he's not sure what they do, nor knows if the meeting minutes are available.

And finally, Bernanke knows more than anyone that these manipulations, these short-term tweaks of the economy, can have an enormous influence on folks' sense of their own well-being coming November.

When you hear, in October, that "inflation's down," or that "growth is up," or that "real wages have gone up," not to mention any number of reports on housing, on employment: Do Not Believe Them.

Believe what you know to be true. Ask yourself about your wages, your expenses, your savings, your debt, your housing costs, your fuel costs.

And then vote accordingly.

13 Comments:

Blogger Alan P. said...

Ron Paul knows as well as anyone the issues facing this country. I hate to see him play that congressional inquiry game w/ BB.

10:11 AM  
Anonymous Mike said...

You think Paul's just playing along with the game here? I didn't see it that way.

Not enough folks following it to classify as "embarrassing" Bernanke, but I don't think Paul did anything but tell it like it is.

10:31 AM  
Blogger Weaseldog said...

He hasn't mastered Greenscams ability to string together big words into nonsense sentences and go on at length, saying nothing.

But he's getting better.

11:10 AM  
Blogger DED said...

It's odd that this administration is all chummy with the Fed yet when Bush Sr. was in office, there were complaints from the Right that Greenspan wasn't in line with the administration.

11:23 AM  
Blogger Weaseldog said...

That predatory smirk of Bush's is annoying.

He always looks like some sort of schoolmarm, watching over his minions and insuring they aren't speaking out of turn.

It's as if he's thinking, 'Remember, I'll gitcha later if you speak out of turn.'

2:41 PM  
Blogger Alan P. said...

Mike,

I feel that Ron Paul is one of the only good ones. I just think that BB is not the problem and he knows it.

2:43 PM  
Anonymous Mike said...

Mort-

I see. To you Bernanke's just another Manderin.

Hard to argue with that, but at some point someone needs to stop just following orders.

Or maybe he's scared of the Bush smirk and the smack that might follow.

3:38 PM  
Blogger Alan P. said...

Or maybe he's scared of the Bush smirk and the smack that might follow.

Isn't everyone? ;-)

4:49 PM  
Blogger Otto Man said...

Wait, are you suggesting this administration would lie to us? For political gain?

Why do you hate America?

5:52 PM  
Anonymous Mike said...

Why do you hate America?

It's that loyalty oath to Stalin I took back in '48.

Or was it Mao in '54? Shit now you got me all confused: lessee, Mao in '54, Khomeini in '79, Wellstone in '91, Osama in '95 and then again in summer '01, I can't remember if I ever answered Kos last month, I better check up on it . . .

5:57 PM  
Blogger Alan P. said...

Hey, if Ron Paul wants to abolish the Fed, he's got my vote. If I feel the need for someone to blow smoke up my a$$ I can always watch Dr. Phil.

10:10 PM  
Blogger Weaseldog said...

I stopped a place called the West End Pub in Dallas tonight. I worked late and my layover between two trains was 45 mins.

I was being good and some guy started asking me about politics. I'll bet he plays poker, because I could see he was holding back on some of my matter of fact responces.

He asked, in 2004 would you have have rather voted for that mothrfucking liar or the guy that stands for truth and honesty.

I answered, Bush and Kerry were the Motherfucking liars, whos was the independant again?

He went on to ask why I thought his boy Bush was a liar and I started off with a long list. He got pissed and told me the conversation was over.

Now, if you're gonna come off calling someone's candidate a liar, then you should be graceful about hearing people call your candidate a liar.

Bloody Hypocrites annoy me....

I feel better now.

2:00 AM  
Anonymous Mike said...

I feel better now.

And thus the mission of this blog is satisfied.

Ok, we can close shop now. Back up the truck, fellas, we're done here.

Oh, and by the way: the same guy called me last night with the same question. I hung up on him and reported him to the "Do Not Call Registry."

5:52 AM  

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